Pay-If-Paid vs. Pay-When-Paid: Can a GC Hold Your Money Until the Owner Pays?

Which states refuse to enforce pay-if-paid clauses, and which only limit them

There is no single national rule. These are the cases and statutes this guide read, as they stood on October 22, 2026; other states have their own.

• New York. West-Fair held “that a pay-when-paid-provision which forces the subcontractor to assume the risk that the owner will fail to pay the general contractor is void and unenforceable as contrary to public policy set forth in the Lien Law § 34.” A provision “which merely fixes a time for payment” does not violate that policy.
• California. Clarke held pay if paid provisions unenforceable “because they effect an impermissible indirect waiver or forfeiture of the subcontractors’ constitutionally protected mechanic’s lien rights in the event of nonpayment by the owner,” and said they do not shield the GC or its payment bond surety.
• North Carolina. G.S. 22C-2: “Payment by the owner to a contractor is not a condition precedent for payment to a subcontractor,” and “an agreement to the contrary is unenforceable.” Chapter 22C does not apply to some residential work (G.S. 22C-6).
• Wisconsin. Section 779.135(3) voids provisions making payment from anyone with no contract with the sub, such as the owner, “a condition precedent to a prime contractor’s payment” to the sub, but “does not prohibit contract provisions that may delay a payment” until the prime is paid.
• Illinois. 770 ILCS 60/21(e): a clause conditioning a sub’s payment on the owner’s “shall not be a defense” to a claim under the Mechanics Lien Act sections it lists.
• Texas. Chapter 56 of the Business and Commerce Code allows a “contingent payment clause” but bars enforcing it where the owner’s nonpayment results from the GC’s own unmet obligations (§56.051), for work done after the sub’s written objection takes effect (§56.052), where enforcement would be unconscionable (§56.054), or against a mechanic’s lien (§56.055). It does not cover design-only contracts, civil works such as roads, or single-family homes through quadruplexes (§56.002).
• Florida. None of the three Florida statutes this guide read voids the clause, and Section 713.245 assumes one can exist. It lets a “conditional payment bond” limit the surety’s duty where the contractor’s written obligation to pay is “expressly conditioned upon and limited to the payments made by the owner,” but only if the bond is listed in the notice of commencement, recorded with it before the project starts, and warns on its front page that it “DOES NOT PRECLUDE YOU FROM SERVING A NOTICE TO OWNER OR FILING A CLAIM OF LIEN ON THIS PROJECT.” How Florida courts read a given clause is a question for a Florida construction attorney.

Which state’s law governs can be its own question: Wisconsin’s §779.135(2) voids provisions making a contract for improving Wisconsin land subject to another state’s laws, and other states differ. For a specific subcontract, a construction attorney in that state gives the answer; this section explains rules and is not legal advice.

How long can a GC wait under a pay-when-paid clause?

Under a clause read as timing, the cases give a standard rather than a number: a reasonable time. Dyer read its clause as giving the GC “the opportunity of procuring from the owner the funds necessary to pay the subcontractor.” Clarke described the view in other jurisdictions the same way: the sub “in any event has an unconditional right to payment within a reasonable time.” Texas §56.003 leaves a timing provision alone “if the payment is to be made within a reasonable period.” What is reasonable on a given job is for a court, which is why the dates matter.

Once the GC has been paid, prompt-payment laws put a number of days on passing the money through. Examples for orientation; each has its own scope and withholding rules:

• Federal construction: FAR 52.232-27 requires a subcontract clause obligating the GC to pay for satisfactory performance “not later than 7 days from receipt of payment,” with an interest penalty, while allowing retainage and withholding under the subcontract.
• Texas private work: the owner pays by the 35th day after a written payment request, and the contractor pays each sub its share by the 7th day after receiving the owner’s payment (Property Code §28.002).
• North Carolina: within seven days of receipt of each periodic or final payment (G.S. 22C-3), with interest from the eighth day at 1 percent per month (G.S. 22C-5).
• New York private projects of $150,000 or more, with public works and some residential work excluded: seven days after receipt of good funds, “provided all contractually required documentation and waivers are received” (General Business Law §756-a). The same section lets the contract’s own terms govern except where the statute provides otherwise.
• California: “not later than seven days after receipt of each progress payment, unless otherwise agreed to in writing,” with a penalty of 2 percent of the amount due per month (Business and Professions Code §7108.5).
• Florida public work: 10 days after the contractor receives payment, and 2 percent per month interest on late payments (§255.073). On private work, §713.346 opens court remedies when undisputed amounts go unpaid 30 days after the later of the due date or receipt of payment.

Each clock starts when the GC receives payment, a date the sub does not see unless someone tells it. New York’s §756-a requires the GC to disclose, at signing, when its own payments from the owner fall due, and lets a sub ask the owner in writing for notice within five days of each payment to the GC. Elsewhere, ask the GC in writing when the owner paid each pay app. Every day past the deadline is a day the sub carries payroll on its own cash for work the owner has already paid for.

How lien and bond rights interact with a pay-if-paid clause

Lien rights decided both leading cases. In West-Fair the waiver happened “by operation of the pay-when-paid provision because mechanics’ liens may not be enforced until a debt becomes due and payable.” A clause that keeps the debt from ever coming due empties the lien, and New York’s Lien Law §34, as the court quoted it, voids any agreement “whereby the right to file or enforce any lien” is waived. California reached the same result from the lien its constitution gives to those who furnish labor and materials.

Where statutes address it, they keep the lien apart from the clause. Texas §56.055: a contingent payment clause “may not be used as a basis for invalidation of the enforceability or perfection of a mechanic’s lien.” Illinois makes the clause no defense to the lien claims it lists. Florida’s §713.245 adds: “The owner’s property is not exempt from liens filed under this part.”

On federal construction with a payment bond, the Miller Act, 40 U.S.C. §3133, lets a sub not paid in full within 90 days after its last labor or material sue on the bond, no later than one year after that last day; a sub of a sub must also give the GC written notice within those 90 days. A waiver of that right is void unless it is in writing, signed, and executed after the labor or material was furnished.

The practical point: a pay-if-paid clause, enforceable or not, does not stop lien and bond deadlines from running. Put each job’s dates on the record the day the subcontract is signed, and ask a construction attorney which apply before the first one passes.

What a sub should check in the subcontract before signing

Read the payment article before the scope of work, and take any unclear term to the company’s construction attorney:

• The clause: does the owner’s payment set the time, or is it a “condition precedent”? Look for “regardless of the reason” wording, risk of the owner’s insolvency on the sub, and promises never to claim the money.
• What it reaches: progress payments only, or retainage and change orders too.
• An outside date: whether payment falls due a fixed number of days after the pay application even if the owner is late. Whether the GC accepts one is a negotiation; the wording is the attorney’s.
• The owner’s payment schedule to the GC, and the money facts behind the job: the owner’s name, address and business phone, a legal description of the property, the payment bond’s surety, and the construction loan or other funds that will pay for the job. On Texas private work, §56.054 treats a GC that gives the sub those facts in writing as diligent; they are a fair list to ask for anywhere.
• Lien waivers: whether the subcontract demands them before payment. Wisconsin’s §779.135(1) voids provisions requiring a lien or bond waiver before the sub has been paid.
• Governing law, venue and the notice address, since the Texas objection and the New York owner-notice request must both be in writing.
• The pay-app cutoff and the documents each application needs, because every clock above runs only from billed work.

None of these terms is fixed until signature. Read after an owner misses a payment, the clause can only be interpreted, not changed.

A pay-when-paid log by GC and job, checked weekly

The clause matters in a dispute; the log matters every week. One row per pay application, kept by whoever sends the pay apps and read each Monday by whoever answers for cash:

• Job, GC, state, and whether the work is private, public or federal.
• Clause type as read at signing: timing, condition, or unclear (unclear goes to the attorney once).
• Pay app number, amount, date submitted, and the owner’s payment due date where the GC disclosed it.
• Date the owner paid the GC, and how the sub learned it, in writing.
• The deadline that follows, such as 7 days after receipt; date paid to the sub; days past the deadline; any written reason for withholding.
• The job’s lien or bond deadline, as a date.

Each week, an application the owner has paid but the GC has not passed through on time gets a written request that day, quoting the clause and the date; one with no word on the owner’s payment gets a written question and a look at the lien deadline. Illustrative example: a hypothetical electrical subcontractor has 14 open pay apps across 5 GCs. The log shows 3 where the owner paid more than 20 days ago and the sub is still waiting, and 2 where nobody has said whether the owner paid and the lien deadline is 40 days away. Those 5 rows are this week’s calls, and the 2 are the attorney’s. Over a few months it also shows which GCs pay through on time, which belongs in the next bid’s price.

When it is the attorney’s call, and where the Review fits

Call a construction attorney before signing a subcontract with condition-precedent language, when a GC refuses to pay because the owner has not, when a lien or bond deadline is close, and before sending any statutory notice. This guide quotes cases and statutes as read on October 22, 2026, and it is not legal advice. A sub working for a handful of GCs that pay through within days needs nothing more than the log.

For a sub working for several GCs, with money spread across pay apps and retainage, the Revenue Review counts this under the Invoice → Payment hand-off. From read-only exports of pay applications, subcontract payment terms, the books and bank deposits, it rebuilds the days from each pay app to cash by GC, lists what is still waiting, and puts a monthly dollar figure on each delay the records support, in a written report the company keeps. It does not read contracts for enforceability, give legal advice or contact a GC. It takes two weeks. If slow pass-through is the gap, the next step is a free 20-minute call, where we say whether the log above covers it, which may well be the honest answer.