Pay-If-Paid vs. Pay-When-Paid: The Clause That Decides Who Carries the Risk

By Eugene Bondar, Esq. · Updated September 10, 2026

Buried in most subcontracts is a payment clause that sounds harmless and decides everything: when the general contractor must pay you if the owner doesn’t pay them.

Two phrases, opposite outcomes

A pay-when-paid clause is a timing provision: the GC can wait for owner payment, but ultimately owes you regardless. As the Court of Appeals put it, “[a] contract provision stating that payment will occur upon a stipulated event will be construed as a time for payment provision unless there is express language to the contrary in the contract” (West-Fair Elec. Contrs. v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148, 155 (1995)). A pay-if-paid clause attempts something far more aggressive: making owner payment a condition precedent, so if the owner never pays, the GC argues it never owes you at all. The owner’s insolvency becomes your problem, on a project where you had no relationship with the owner and no ability to vet their finances.

Enforceability is a state-by-state question

New York treats true pay-if-paid clauses as unenforceable because they operate as a waiver of lien rights. Lien Law § 34 provides that “any contract, agreement or understanding whereby the right to file or enforce any lien created under article two is waived, shall be void as against public policy and wholly unenforceable.” Answering a question certified by the Second Circuit, the Court of Appeals held in West-Fair Electric Contractors v. Aetna Casualty & Surety Co., 87 N.Y.2d 148, 158 (1995): “We hold 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. By contrast, a pay-when-paid provision which merely fixes a time for payment does not indefinitely suspend a subcontractor’s right to payment upon the failure of an owner to pay the general contractor, and does not violate public policy as stated in the Lien Law.” The clause in that case made payment from the owner a “condition precedent” to payment of the subcontractor. This is exactly the kind of clause where a one-word difference (“if” versus “when,” “condition precedent” versus “reasonable time”) moves real money. On private New York construction contracts where the aggregate project cost “equals or exceeds one hundred fifty thousand dollars” (General Business Law § 756(1)), the NY Prompt Payment Act adds another layer: once a subcontractor has performed, “the contractor shall pay to the subcontractor … the full or proportionate amount of funds received from the owner for each subcontractor’s work and materials … seven days after receipt of good funds for each interim or final payment, provided all contractually required documentation and waivers are received” (§ 756-a(3)(b)(ii)), and § 757(4) voids any contract clause “establishing payment provisions which differ from those established in subdivision three of section seven hundred fifty-six-a and section seven hundred fifty-six-b as applicable.”

What subcontractors should do

Read the payment article before pricing the job, not after the dispute. Negotiate condition- precedent language out where you can; where you can’t, price the risk and protect your lien and bond rights from day one. And when payment stalls, don’t accept “we haven’t been paid either” as a legal conclusion; it often isn’t.

This firm reviews subcontracts on flat fees and represents subcontractors in payment disputes across New York and Northern New Jersey. The first conversation is free.

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