In Plain English
Quick Answer
A clause saying the GC only has to pay a subcontractor if and when the owner pays the GC first.
Definition
Definition
A pay-if-paid clause makes the general contractor's payment to a subcontractor contingent on the general contractor first receiving payment from the owner for that same work. If the owner never pays the GC, the subcontractor may have no contractual right to payment. These clauses are enforceable in many but not all states, and their enforceability is subject to strict interpretation.
Context
Why It Matters in Bidding
Pay-if-paid clauses shift owner-default risk from the GC down to subcontractors, which directly affects how a sub should price contingency and qualify a bid. Estimators reviewing a subcontract with this language should weigh the owner's creditworthiness and project funding, since the clause can leave the sub unpaid for completed work if the owner never funds the GC.
Example
Example
Before signing, a mechanical sub's estimator flags a pay-if-paid clause in the GC's subcontract and adds a written exception making it pay-when-paid, because the project is owner-financed by an unknown developer.
See Also
Related Terms
FAQ
Questions Contractors Ask
Is a pay-if-paid clause enforceable?
Enforceability varies by state. Some states void or heavily restrict pay-if-paid clauses as against public policy, while others enforce them only when the contract language is clear and unambiguous that owner payment is a true condition precedent. Subs should know their state's rule before relying on or accepting the clause.
How should a subcontractor protect against a pay-if-paid clause?
Strategies include negotiating to strike the clause or convert it to pay-when-paid, preserving mechanic's lien and payment-bond rights independent of the contract, vetting the owner's financing, and adding bid exceptions. On bonded or public work, a bond claim often survives regardless of whether the GC was paid.
Does a pay-if-paid clause affect my lien or bond rights?
Generally no. Lien and payment-bond rights are statutory and run against the property or the surety, not the GC's contract obligation. Courts in many states will not let a pay-if-paid clause waive those statutory remedies unless the waiver is explicit and permitted, making liens and bond claims a critical backstop.
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