What is a pay-when-paid clause?

What is a pay-when-paid clause?

• A. A contract provision stating when payment will be made after the payer has been paid by the owner (if included).
• B. A requirement that payment is due upon signing the contract.
• C. A clause that guarantees all subcontractors are paid first.
• D. A warranty requiring no payment until project completion.

Answer: (A)

Pay-when-paid clauses control when payment to subcontractors occurs by tying it to the contractor receiving funds from the owner. In this setup, the contractor’s obligation to pass payment along to a subcontractor is activated only after the contractor itself has been paid by the owner. This helps the payer manage cash flow risk and ensures funds are available before passing them downstream. It does not require payment upon signing, guarantee that subcontractors are paid first, or impose no payment until project completion. Subcontractors should understand that this clause can delay their pay and depends on the owner’s timely payment to the contractor.

Pay-when-paid clauses control when payment to subcontractors occurs by tying it to the contractor receiving funds from the owner. In this setup, the contractor’s obligation to pass payment along to a subcontractor is activated only after the contractor itself has been paid by the owner. This helps the payer manage cash flow risk and ensures funds are available before passing them downstream. It does not require payment upon signing, guarantee that subcontractors are paid first, or impose no payment until project completion. Subcontractors should understand that this clause can delay their pay and depends on the owner’s timely payment to the contractor.