Pay-when-paid clause
A pay-when-paid clause is a term in a subcontract that ties the timing of the subcontractor's payment to the general contractor's own payment from the owner, for example "within 7 days after the Contractor receives payment for that work."
Updated November 9, 2026 · 1 min read
Why it matters
It's about when, not whether. The sub waits for the owner's money to flow down, but the clause isn't meant to cancel the debt if the owner never pays. A clause that does that is a pay-if-paid clause, and the difference often comes down to a few words.
Where the law sets the timing
- Federal jobs (31 U.S.C. § 3905): each subcontract must promise payment for satisfactory work within 7 days of the prime being paid by the agency, with an interest penalty if it's late.
- California (Bus. & Prof. Code § 7108.5): a contractor pays its subs within 7 days of receiving each progress payment, unless otherwise agreed in writing, with a 2 percent monthly penalty for violations.
An example
An electrician bills the general contractor for April. The owner pays the GC on May 20, so under a 10-day pay-when-paid clause the electrician's money is due by May 30. A good clause also sets an outside date, so a slow owner can't stretch the wait forever.
SignMaster's subcontractor agreement template works this way: each approved pay application is paid within a set number of days after the owner pays, and in any case within a set number of days after approval.
General information, not legal advice
States have their own prompt payment laws, and some limit what a contract can change. Check yours before you sign.
Sources
- 31 U.S.C. § 3905, payment clauses in federal construction subcontracts (govinfo) · govinfo.gov
- California Business and Professions Code § 7108.5, paying subcontractors within seven days · leginfo.legislature.ca.gov