What does a pay-when-paid clause mean in a subcontract?

A pay-when-paid clause says, in effect, that the general contractor's obligation to pay a subcontractor is triggered by the owner actually paying the GC, not by the passage of a fixed number of days. If the owner withholds payment due to a dispute or slow processing, the GC may use the clause as a reason to hold subcontractor payments indefinitely, rather than paying the sub out of its own cash and waiting for the owner to catch up.

Enforceability varies significantly by state. Some courts interpret pay-when-paid clauses as a timing mechanism only — the clause affects when payment is due but not whether it is ultimately owed. Other states enforce them more broadly, effectively shifting risk from the GC to the sub if the owner never pays. Several states have statutes that limit or prohibit these clauses in construction subcontracts, particularly below certain dollar thresholds. A subcontractor facing a pay-when-paid delay should know which rule applies in the project's state.

This page is general information, not legal advice. The enforceability of a pay-when-paid clause depends on the specific contract language and the governing state law. Before relying on or challenging such a clause, consult a qualified construction attorney. Mechanic's lien rights often provide subcontractors a parallel remedy while owner-GC payment disputes work themselves out.