Pay-when-paid clause: what it means, a typical example, and what to do about it
A pay-when-paid (or pay-if-paid) clause makes your payment depend on the builder being paid by its client first. In Australia these clauses are void under the Security of Payment legislation in every state and territory: your right to payment stands whether or not money has come down from above.
A typical builder version
The Contractor is not obliged to make any payment to the Subcontractor in respect of the Subcontract Works until the Contractor has received payment from the Principal under the Head Contract for the corresponding work, and the Contractor's obligation to pay is limited to the amount so received.
Illustrative wording of the kind found in builder-authored subcontracts, not taken from any one contract.
What it means for you
You don't get paid until, and unless, the builder does, which hands you the builder's client risk on top of your own.
- Payment linked to "receipt of payment from the Principal" or the head contract.
- Payment due dates that run from the builder's own payment, not your claim.
- Payment limited to what the builder actually received.
What market looks like
Payment within your state's statutory timeframe from the date you serve a payment claim, with no link to the head contract. Because the clause is void, you can serve payment claims under your state's Act regardless of what the contract says.
What to ask for
Ask for the clause to be deleted, and state it as a correction rather than a request: "This clause is void under the Security of Payment Act in this state. Please replace it with payment within [the statutory period] of a payment claim."
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Common questions
Is pay-if-paid legal in Australia?
No. Pay-when-paid and pay-if-paid provisions are void under the Security of Payment Acts in every Australian state and territory.
If the clause is void, why do builders still use it?
Old templates, and the hope that a subcontractor won't know. The practical risk isn't enforcement; it's a subbie who waits for money they are already owed.
One clause rarely tells the whole story
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General information, not legal advice. Example wording is illustrative. Check any clause you rely on against your full contract and your state's Security of Payment Act. Written by Mat Kennedy, The Construction Contracts Co.