Pay-if-paid clause
A pay-if-paid clause is a subcontract term that makes the general contractor's receipt of payment from the owner a condition precedent to paying the subcontractor. If the owner never pays, the general contractor may owe the sub nothing.
Updated November 9, 2026 · 1 min read
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Why it matters
It moves the risk of an owner who can't or won't pay from the general contractor to the subs. A pay-when-paid clause only delays the money; a pay-if-paid clause, where a court enforces it, can wipe it out, leaving a mechanics lien or a payment bond claim as the main remedies.
It depends on the state
- North Carolina (G.S. § 22C-2) bans it: payment by the owner "is not a condition precedent for payment to a subcontractor," and "an agreement to the contrary is unenforceable."
- Texas (Bus. & Com. Code ch. 56) allows it with limits. It can't be enforced where the general contractor's own failures caused the nonpayment, or where enforcing it would be unconscionable, and a sub unpaid 45 days after a proper pay request can send written notice that stops it applying to later work. The chapter doesn't cover homes of one to four units.
Other states land elsewhere, and courts often read the exact wording closely. Phrases like "condition precedent" and "only if" are what usually mark the clause.
An example
A developer goes broke owing the GC for the framer's last two pay applications. With pay-if-paid in a state that enforces it, the GC can refuse to pay; in North Carolina it can't.
SignMaster's subcontractor agreement template doesn't use pay-if-paid. It ties payment to the owner's payment with an outside deadline.
General information, not legal advice
Enforceability turns on state law and the clause's exact words. Have a construction attorney read it.
Sources
- North Carolina General Statutes § 22C-2, performance by subcontractor · ncleg.gov
- Texas Business and Commerce Code chapter 56, contingent payment clauses · statutes.capitol.texas.gov