Construction Financial Glossary

Pay-When-Paid Clause Definition

Table of Contents
Impact on Contractors and Subcontractors
Legal Considerations
FAQs

A Pay-When-Paid clause is a contractual provision that delays payment to subcontractors until the general contractor receives payment from the Client. This clause is common in construction contracts to manage cash flow risks.

Impact on Contractors and Subcontractors

For general contractors, Pay-When-Paid clauses reduce financial risk by ensuring they only pay subcontractors when they have received funds. However, for subcontractors, it creates uncertainty and potential cash flow issues.

In many jurisdictions, Pay-When-Paid clauses must be carefully drafted to be enforceable. Some courts may interpret them as “pay-if-paid” clauses, which could shift the risk entirely onto subcontractors.



Related Terms: Pay-If-Paid Clause, Retainage, Progress Payments, Lien Rights

FAQs

How does a Pay-When-Paid clause differ from a Pay-If-Paid clause?

A: Pay-When-Paid means subcontractors will eventually be paid, even if there’s a delay. Pay-If-Paid, however, shifts the risk to subcontractors entirely, meaning they may never be paid if the general contractor does not receive funds.

Are Pay-When-Paid clauses enforceable everywhere?

A: Enforceability varies by jurisdiction, and some states have restrictions to protect subcontractors from excessive delays in payment.

Upload your project budget and follow the financial progress in real-time

No credit card required. No sales or IT support needed.

Start a 14-day trial Request a demo