Process
Pay-when-paid clause
Also called: Contingent payment clause
Definition
A pay-when-paid clause is a subcontract provision that ties the general contractor's obligation to pay a subcontractor to the GC's own receipt of payment from the project owner.
The clause means money flows down the chain only after it flows in at the top. Whether it merely sets timing — payment due within a stated period of the GC being paid — or shifts the entire risk of owner nonpayment onto the subcontractor, as the harsher pay-if-paid variant does, depends on the exact wording and on state law, which varies widely. Read the payment article of every subcontract before you sign it.
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