Pay When Paid in Construction: What Contractors and Suppliers Need to Know

"Pay when paid" is a contract clause stating that a contractor or supplier doesn't receive payment until the project owner pays their customer. Unlike "pay if paid," PWP means you're owed the money—the owner's payment delays become your payment delays. This clause shifts cash-flow risk to you and can delay your access to mechanics lien and bond claim remedies in some states.

What "Pay When Paid" Means

In standard construction, you invoice your customer and expect payment in 30 days. With a PWP clause, your payment clock starts not when you invoice, but when your customer gets paid by the project owner.

Example: You supply materials to a subcontractor on Jan. 10. Normally, you'd expect payment by Feb. 10. The contract has a PWP clause. The general contractor doesn't pay the sub until March 15. You don't see payment until after that.

This matters because:

• It extends your cash conversion cycle. You're financing your customer's operations, and the entire project's payment delays.
• It can reduce your legal remedies. Some state courts have limited mechanics lien or bond claim rights when PWP is in the contract.
• It puts you at risk. If the owner stops paying or goes bankrupt, you're often last in line.

How "Pay When Paid" Works

PWP clauses appear in a few contexts:

1. In your contract with your customer (the subcontractor or GC who hired you). Look for language like: "Payment is due within 10 days of receipt of payment from the Owner" or "Contractor shall not be required to pay Supplier until Owner pays Contractor."
2. In a payment chain. The prime GC has PWP from the owner. It flows down to subs. Subs pass it to suppliers. Each tier waits for the tier above.
3. In bond agreements. Some projects include PWP language tied to retainage release or surety claims.

The language varies ("pay when paid," "payment upon receipt from owner," "conditioned on higher-tier payment"), but the effect is the same: you're not paid until your customer is paid.

Some PWP clauses include a backstop date—"but in no event later than 60 days after invoice." Others don't, which is riskier.

State Rules and Your Rights

State law differs sharply on whether PWP is enforceable and whether it limits mechanics lien or bond claim rights.

Broad enforcement: Many states allow PWP between commercial parties. If you signed it, courts will enforce it—you wait for your customer to be paid. The theory: adults can negotiate their own terms.

Lien restrictions: Some states allow PWP to delay payment, but not to suspend your right to file a mechanics lien or bond claim. You might be delayed, but you can still file before your state's deadline.

Stricter limits: A smaller set of states don't enforce PWP at all, especially between GCs and subs. These states treat it as contrary to public policy.

Conditional enforcement: Some states allow PWP if it includes a backstop date—you're guaranteed payment within 30–60 days of invoice, regardless of owner payment.

What to do: Check your state's rules before signing. Your state contractor association, bar association, or a construction attorney can tell you where you stand. Each state is different, and the enforceability of a PWP clause depends on your jurisdiction.

Protecting Yourself Under PWP

If you're signing or already working under a PWP contract:

1. Negotiate a backstop date. Push for payment within 30–60 days of invoice, regardless of owner payment. This shifts risk back to your customer.
2. Clarify the trigger. Does "paid" mean the check is cut, cleared, or received? Get it in writing.
3. Confirm your lien rights. Ask in writing: "Can I file a mechanics lien if payment is delayed beyond [backstop date]?" Don't assume. Consult an attorney if the answer is unclear.
4. Document everything. Invoice promptly with project details. Keep proof of delivery and payment records. This matters if you need to file a claim.
5. Track project payment status. If the owner stops paying or disputes the work, file a preliminary notice (if required in your state) and watch your deadlines. You may have only 30–90 days to file a lien or bond claim, depending on your state, and that clock runs from your last work or supply—not from when you finally get paid.

Deadlines and Documentation

Here's the catch: Most states require mechanics liens to be filed within 30–120 days of your last work or supply (the exact window varies by state). The deadline doesn't pause while you wait for a PWP payment.

Example: You delivered materials on Day 1. Your lien deadline might be Day 90. Your customer doesn't get paid until Day 80, so you don't receive payment until Day 85. You have only 5 days left to file a lien if needed.

This means:

• Don't count on the PWP payment timeline to buy you time. Your state's filing deadline starts when you last worked or supplied—not when you're paid.
• File a preliminary notice early (if required in your state). This formal notice to the owner protects you in states that extend lien deadlines for preliminary notice filers.
• Track your invoice and project dates carefully. Knowing your state's deadline rule and your job end-date is essential.

If you manage projects across multiple states with different deadline rules, tracking becomes complex. LienWarden and similar tools track mechanics lien and bond claim deadlines across all 50 states, helping you stay on top of filing windows before they close.

FAQ

Can I refuse to sign a "pay when paid" contract?

Yes. You can negotiate or decline. Leverage depends on your position. A large material supplier might negotiate a backstop date or remove the clause entirely. A smaller sub bidding for work might find PWP non-negotiable. The choice is yours—it's a trade-off between winning the job and the cash-flow risk you're willing to take.

Can I file a lien if my contract has "pay when paid"?

It depends on your state. Many states allow you to file a mechanics lien even if you agreed to PWP, but your filing deadline still runs from your last work or supply—not from when you're paid. A few states have broader PWP enforcement that can limit lien rights. Check your state's rules before assuming. A preliminary notice, if required in your state, can extend your filing deadline and protect you.

What's the difference between "pay when paid" and "pay if paid"?

"Pay when paid" delays payment until your customer is paid; you're still owed the money. "Pay if paid" is harsher: if the owner never pays, you may not get paid either. PWP is a timing clause; "pay if paid" is a condition that can wipe out your claim. Most states enforce "pay if paid" more narrowly or not at all, especially in sub-to-contractor relationships.

What do I do if I'm not paid after 60 days?

Check your contract. If it includes a 60-day backstop and the deadline has passed, demand payment. If there's no backstop and your customer hasn't been paid by the owner, ask why. Sometimes there's a legitimate delay; sometimes it's a warning sign. If your customer is unresponsive and the amount is significant, consult an attorney and review your state's mechanics lien or bond claim deadline. You may need to file before it expires.