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Contracts & Legal

Pay-When-Paid

In Plain English

A clause saying the GC will pay a subcontractor within a reasonable time after receiving payment from the owner.

Definition

A pay-when-paid clause makes payment to a subcontractor due within a reasonable time after the general contractor receives payment from the owner, creating a timing condition rather than a condition precedent. Unlike pay-if-paid, pay-when-paid does not eliminate the GC's payment obligation — it only defers it temporarily. Courts generally treat pay-when-paid as a timing provision rather than a risk transfer.

Why It Matters in Bidding

Pay-when-paid is far less dangerous to subs than pay-if-paid because it only delays payment rather than eliminating it, but it still affects cash-flow planning and how subs forecast receivables on a job. Estimators and PMs should recognize the distinction when reviewing subcontracts, since misreading a timing clause as a risk-transfer clause leads to mispriced contingency.

Example

A GC's accounting team tells an electrical sub that payment will follow within a reasonable time after the owner funds the current draw, invoking the pay-when-paid clause to defer, but not cancel, the obligation.

Related Terms

Pay-If-PaidSubcontractRetainage

Frequently Asked Questions

Pay-when-paid only delays payment to a reasonable time after the GC is paid; the GC must still pay even if the owner never does. Pay-if-paid makes owner payment a condition precedent, potentially eliminating the obligation entirely. Courts treat the two very differently, so the exact wording matters enormously.
There is no fixed number; courts assess what is reasonable given the project, payment cycle, and industry norms. If the owner's nonpayment becomes prolonged, many courts hold the GC must pay the sub anyway because the clause only defers timing, it does not excuse the underlying obligation.
No. Because it is a timing provision, the delay must stay reasonable. If the owner defaults or the wait stretches unreasonably, the GC generally remains liable, and the sub can still pursue lien or bond remedies. Document completion dates and demand payment once a reasonable period passes.

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