Is a pay-when-paid clause legal in Australia?
No. A clause that makes the builder's obligation to pay you conditional on the builder being paid by the principal — pay-when-paid or pay-if-paid — is void in every Australian state and territory under Security of Payment legislation. Your right to payment stands regardless of whether money has come down from above.
What the clause looks like
It rarely says "pay when paid" in those words. Look for payment obligations expressed as "subject to receipt of payment from the Principal", due dates defined by reference to when the head contract is paid, or a right to withhold because a claim is unresolved upstream. However it's dressed, if your money is contingent on their money, it's the same clause.
Because the clause is void, the practical risk isn't that it will be enforced — it's that you won't know it's void, and will accept late payment you were never obliged to accept.
What it tells you about the contract
A drafter who includes a clause that has been void nationwide for years is either working from a very old template or hoping you don't know better. Either way, treat it as a signal: contracts that include pay-when-paid clauses tend to carry other aggressive terms — uncapped liquidated damages, absolute time bars, set-off without notice — and are worth reading twice.
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The builder says they can't pay me until the principal pays them. Is that right?
Not legally. A pay-when-paid arrangement is void under Security of Payment law in every Australian jurisdiction. You can serve a payment claim under your state's Act and the builder's obligation to respond and pay runs on the statutory timetable, whatever is happening upstream.
What should I do if my subcontract has a pay-when-paid clause?
You don't need it removed for it to be ineffective — it's void by statute. But asking for its removal is a cheap negotiation win, and its presence is a reason to check the rest of the payment clauses closely.
Keep reading
General information for Australian subcontractors, not legal advice — statutory deadlines and details vary by state and change over time; verify them before relying on them. Written by Mat Kennedy at The Construction Contracts Co.