There's a pay-when-paid clause in the subcontract I've been sent

The subcontract says we get paid when the main contractor gets paid, and we are being asked to sign it this week.

Updated: 25 September 2026. By Jack Butler-Kettle, Construction Claims Consultant.

What's happening?

A pay-when-paid clause makes your payment wait until your main contractor is paid. That moves its client's cash-flow risk onto you. The clause is not always labelled pay-when-paid. It may pay you a set number of days after your main contractor receives payment. Or it may wait until your work is certified under the main contract, or until the client pays for your package.

Where the Housing Grants, Construction and Regeneration Act 1996 applies, the law steps in. Section 113 makes a clause ineffective if it ties your payment to your main contractor being paid by someone else. The exception is where that someone, or a party further up the chain, is insolvent. The Act was amended in 2011. Since then, section 110 also treats a payment term as inadequate if it depends on obligations under another contract being met. The same applies if it waits on someone deciding they have been met. There are limited exceptions.

Whether the Act covers your subcontract, and what a particular clause does, depends on the wording and on the work. That is a question for your solicitor. What is certain is that even a clause the Act strikes out still has to be argued when the money is late. Before you sign, asking for it to go costs nothing.

The solution

Find every clause that ties your payment to something upstream, whatever it is called. Look for payment on receipt, on certification under the main contract, or on the client approving your package. Ask for each one to be replaced with fixed dates. You want a due date set from your application, and a final date for payment a set number of days after that. The payment notices then run from those dates.

Pre-Signing Contract Review finds these clauses along with every other clause that moves money or risk onto you. We rate each one, write the replacement wording to ask for, and set out what to price in if your main contractor refuses. Whether a clause that stays would be effective in law is a question for your solicitor.

Example

Illustrative example. The scenario and figures are invented.

The facts

A cladding subcontractor is sent a £920,000 subcontract. Each payment falls due 7 days after the main contractor is paid for the cladding by its client. It is then payable 30 days later. The client pays the main contractor on 35 day terms.

What happens

The subcontractor finds the clause under the heading Payment Terms, not pay-when-paid. A second one, in the retention clause, ties the release of its retention to the client releasing the main contractor's.
It works out the effect on cash. Payment would arrive about 72 days after each application, against the 35 days its quote assumed.
It writes replacement wording for both. This proposes a due date 7 days after each application and a final date for payment 28 days after that. Retention comes back at set dates after the subcontractor's own completion.
It asks its solicitor about both clauses before the reply goes.
The main contractor accepts fixed dates for the interim payments and keeps retention tied to the main contract.

The cash cost of the clause

Item	Amount
Subcontract sum	£920,000
Average monthly application	£92,000
Days to payment under the clause	72
Days to payment in the quote	35
Cash held back at any one time	About £113,000

The outcome

The subcontractor signs with fixed dates for the interim payments. About £113,000 of its working capital is no longer waiting on the client. It accepts the retention clause knowingly, with the cost of the later release in its price.