Category: Contracts & management
Prepared by Eng. Ahmed Fathy, Projects Manager ·
Definition
A pay when paid clause in a subcontract ties when the subcontractor is paid to when the main contractor receives payment from the owner; its strictest form is pay if paid.
Why it matters on a project
It protects the main contractor from pre-financing, but shifts the owner's risk to the subcontractor, and its validity depends on the governing law, so it should be checked with a legal adviser.
Common mistake
A subcontractor signing the clause with no cap on the waiting period, freezing its payments for months.
Frequently asked questions
How can a subcontractor protect itself?
By capping the payment period however late the owner is, and keeping the right to suspend on late payment.
Is the clause valid everywhere?
It depends on the law governing the contract, so check with a legal adviser.
Related terms
- SubcontractorA contractor who carries out part of the works for the main contractor.
- Payment application (IPC)A periodic payment request based on approved progress and executed quantities.
- Cash flowThe timing of money coming in and going out over the project.
- RetentionA percentage withheld from each payment and released after handover or the defects period.
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