Definition
Pay-when-paid means the general contractor must pay the sub within a reasonable time after the GC is paid by the owner; payment is delayed but not conditioned on the owner paying. Pay-if-paid means the GC’s obligation to pay the sub is conditional—if the owner never pays the GC, the GC may not have to pay the sub (depending on jurisdiction and contract language).
Why It Matters
These clauses allocate risk of owner nonpayment. Pay-if-paid shifts more risk to the sub and is restricted or unenforceable in some states. Subs must understand which clause is in their contract and the legal exposure. GCs must comply with applicable law and contract language to avoid disputes and lien exposure.
Field Example
Subcontract says “pay-if-paid.” Owner goes bankrupt and never pays the GC for the sub’s work. In a state that enforces pay-if-paid, the sub may not be able to recover from the GC. In a state that limits or voids pay-if-paid, the sub may still be entitled to payment from the GC. Contract and state law govern.
Calculation / Formula (if applicable)
Not applicable. This is contract and legal risk allocation.
Software Application
Flag contracts or subs with pay-if-paid or pay-when-paid terms for visibility. Track payment timing (when GC was paid by owner vs. when sub was paid) to support compliance and dispute resolution. Software does not interpret enforceability—that is legal; it can surface the terms and payment dates.
Tooltip Version
Pay-when-paid delays sub payment until the GC is paid; pay-if-paid can excuse the GC from paying the sub if the owner never pays. State law and contract language determine enforceability.
Related Objects
Related: