Pay When Paid Clauses: Be Sure You Get What You Bargained For


“Pay When Paid” contract clauses have become a fairly common tool used by general contractors to limit financial liability to subcontractors in the event of an owner’s insolvency. In a nutshell, they provide that a GC’s obligation to pay the downstream party is contingent on the GC being paid by the owner. These clauses tend to be heavy handed, so the question is this: Are Pay When Paid clauses actually enforceable?

As a general rule, Pay When Paid clauses are typically enforceable IF they create a condition precedent and not simply a covenant to pay.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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