Top Ten Construction Clauses: Pay-if-Paid and Pay-when-Paid Clauses

Donald A. Rea and Nicholas C. Stewart
Published July 9, 2015

Pay-if-paid clauses provide that a general contractor is not required to pay subcontractors unless and until it receives payment from the owner.  The ConsensusDocs Standard Agreement 655 provides the following example:

Receipt of payment by the Contractor from the Owner for the Subcontract Work is a condition precedent to payment by the Contractor to the Subcontractor.  The Subcontractor hereby acknowledges that it relies on the credit of the Owner, not the Contractor, for payment of Subcontract Work.

By contrast, pay-when-paid clauses provide that a general contractor will pay the subcontractor within a certain period of time after receiving payment from the owner but do not shift the entire risk of non-payment.  The ConsensusDocs Standard Agreement 750 provides the following example:

Progress payments to the Subcontractor for satisfactory performance of the Subcontract Work shall be made no later than seven (7) Days after receipt by the Contractor of payment from the Owner for the Subcontract Work.  If payment from the Owner for such Subcontract Work is not received by the Contractor, through no fault of the Subcontractor, the Contractor will make payment to the Subcontractor within a reasonable time for the Subcontract Work satisfactorily performed.

To read the full story, please click here.