Pay-If-Paid Clauses in Construction Contracts
What Is a Pay-If-Paid Clause?
A pay-if-paid clause makes the general contractor's obligation to pay a subcontractor conditional on the general contractor first receiving payment from the property owner. If the owner does not pay the general contractor, the subcontractor does not get paid — regardless of whether the subcontractor performed the work satisfactorily.
This clause transfers the risk of owner non-payment entirely to the subcontractor.
Pay-If-Paid vs. Pay-When-Paid
These two phrases look similar but have very different legal effects:
- Pay-if-paid — Payment to the subcontractor is a condition precedent. No owner payment means no obligation to pay the subcontractor at all.
- Pay-when-paid — Payment from the owner establishes timing only. The general contractor must pay within a reasonable time even if the owner has not paid.
Courts often require very clear, explicit language to enforce a pay-if-paid interpretation rather than a pay-when-paid interpretation.
State-by-State Enforceability
Enforceability varies significantly by state:
- States that enforce pay-if-paid clauses: Georgia, Florida (with clear language), Pennsylvania, Texas, and others
- States that prohibit or limit them: New York, California, and several others have statutes voiding pay-if-paid provisions in construction contracts
- States requiring explicit language: Many jurisdictions will only enforce pay-if-paid if the clause unmistakably creates a condition precedent
What Subcontractors Should Watch For
- Ambiguous language that could be interpreted as pay-if-paid even if labeled as pay-when-paid
- No timeline for payment if the owner does eventually pay
- Absence of mechanic's lien preservation rights
- No notice requirements when the owner fails to pay
When to Consult a Lawyer
If you are a subcontractor reviewing a contract with payment contingency language, consider having a construction attorney evaluate whether the clause is a true pay-if-paid condition and whether it is enforceable in your state.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.