Are pay when paid clauses enforceable?
Usually not: the Construction Act makes pay-when-paid clauses ineffective, but there is an exception for insolvency further up the chain.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
Section 113 of the Housing Grants, Construction and Regeneration Act 1996 deals with clauses that make your payment depend on your main contractor being paid. It prohibits them, except in the insolvency circumstances it allows. Where a clause fails, a fallback payment rule may be needed to fill the gap. Whether your clause is caught depends on what it actually makes payment depend on, which contracts and parties are involved, and whether the Act covers your subcontract. A delayed certificate or an unpaid upstream invoice is not enough on its own to decide it. So read the clause, set out the dates and the payment record, and note any evidence of insolvency. Then send the question of the clause's legal effect to your solicitor. A commercial review can set out the dates and evidence in the meantime.
Example
Illustrative example. The scenario and figures are invented.
The facts
A subcontract says payment follows an employer's certificate, and separately mentions insolvency further up the chain. £30,000 is outstanding, and the upstream position is not yet clear.
What happens
- The clause, the parties, the dates, the notices and any evidence of insolvency are recorded.
- The solicitor is asked whether the Act covers the subcontract and what the clause does.
- Nobody treats the £30,000 as automatically payable, or automatically held back, from the clause alone.
The outcome
Whether the £30,000 is payable now turns on the solicitor's view of the recorded clause, dates, notices and insolvency evidence, not on the clause alone.
Late Payment Prevention finds the conditional payment clauses in your subcontracts and sets out what to do about each.