Pay-when-paid clause
Pay-when-paid clauses make subbie payment conditional on the head contractor being paid by the principal. Void under NSW SOPA s.12 and equivalent state Acts.
Ask Chalkline about this →A pay-when-paid clause in a construction subcontract makes payment to the subbie conditional on the head contractor receiving payment from the principal. The subbie is told: “we’ll pay you when we get paid.” This effectively pushes the principal’s payment-default risk onto the subbie. Such clauses are void and unenforceable under the NSW Security of Payment Act 1999 (s.12) and equivalent state SOPA legislation in Vic, Qld, SA, ACT, Tas. WA and NT (West Coast model) have softer prohibitions but still discourage them. Despite the prohibition, pay-when-paid clauses still appear in some contracts, sometimes hidden as “back-to-back” or “pay-if-paid” terms, and builders should spot and refuse them. Verified per SOPA NSW 1999 s.12 and equivalent state legislation (2026-05-23).
What the clause typically looks like:
The contract clause might read:
“Notwithstanding any other provision, the contractor will pay the subcontractor within 7 days of receipt of payment from the principal in respect of the same work, and only to the extent of payment so received.”
Or:
“Payment to the subcontractor is conditional on, and will not be made until, the contractor has been paid by the principal for the work claimed.”
Or, more subtly:
“The contractor’s obligation to pay the subcontractor is contingent on receipt of corresponding payment from the principal.”
Any phrasing that conditions the subbie’s payment on the principal’s payment is a pay-when-paid clause, regardless of label.
The legal effect: void:
| Statute | Provision |
|---|---|
| NSW SOPA 1999 | s.12, void; pay-when-paid is unenforceable |
| Vic SOPA 2002 | s.13, similar |
| Qld BIF Act 2017 | s.79, void |
| SA SOPA 2009 | s.13, void |
| ACT SOPA 2009 | s.12, void |
| Tas SOPA 2009 | s.13, void |
| WA Construction Contracts Act 2004 | Different; less aggressive prohibition but court can decline |
| NT Construction Contracts Act 2004 | Similar to WA |
In an East Coast state (NSW, Vic, Qld, SA, ACT, Tas), a pay-when-paid clause in the contract is legally void from the outset. The subbie’s right to payment is determined by the contract minus that clause, plus the statutory protections of SOPA.
Why this matters:
The principal’s payment to the head contractor and the subbie’s payment from the head contractor are legally separate transactions:
| Transaction 1 | Transaction 2 |
|---|---|
| Principal pays head contractor | Head contractor pays subbie |
| Based on the head contractor’s claim and the principal’s response | Based on the subbie’s claim and the head contractor’s response |
A pay-when-paid clause tries to link these two transactions, but SOPA prohibits the link. The subbie’s right to payment for work done is independent of whether the head contractor has been paid.
Practical consequences for subbies:
| Scenario | Without SOPA protection | With SOPA protection |
|---|---|---|
| Subbie does work, claim issued, head contractor delays “until paid” | Subbie waits indefinitely | Subbie can adjudicate via SOPA in 8-12 weeks |
| Principal becomes insolvent and doesn’t pay head contractor | Subbie loses out | Subbie still entitled; head contractor or its liquidator must pay |
| Head contractor argues “pay-when-paid in our contract” | Stalemate | Clause is void; payment is due |
The “back-to-back” trap:
Some head contractors use “back-to-back” payment terms: a phrase that sounds technical but functions as a pay-when-paid:
“Payment terms back-to-back with the principal contract.”
This is the same prohibition; the clause is void. The subbie’s payment is due per the subbie’s contract regardless of what the principal does.
Adjacent prohibited clauses:
Other SOPA-prohibited clauses to watch for:
| Clause | What it tries to do | Status |
|---|---|---|
| Pay-when-paid (this) | Condition payment on principal’s payment | Void |
| Pay-if-paid | More aggressive; subbie loses payment if principal never pays | Void |
| Late fee for payment claim | Penalise subbie for issuing a SOPA claim | Void |
| No-claim during dispute | Prevent subbie from issuing claims during disputes | Void |
| Time-bar on payment claim outside SOPA window | Stricter than SOPA reference dates | Void as inconsistent with SOPA |
What to do if you find a pay-when-paid clause:
| Position | Action |
|---|---|
| You’re the subbie: spot it in a draft subcontract | Refuse to sign; insist on its removal; if forced, sign but understand the clause is void |
| You’re the subbie: contract already signed | The clause is void; your right to payment is unaffected; lodge SOPA claim as needed |
| You’re the head contractor: drafting a subcontract | Don’t include it; it’s void anyway and signals the wrong relationship |
| You’re a builder reviewing your standard subcontract template | Check and remove; even void clauses create disputes and bad faith |
Builder takeaway:
- Don’t include pay-when-paid in your subcontract templates. Even if SOPA voids them, including them invites disputes and signals you’re trying to push payment risk onto subbies.
- If you find one in a contract you’re being asked to sign as a subbie, refuse or note that it’s void. Negotiate it out before signing.
- Pay your subbies on the contract terms, regardless of when the principal pays you. That’s the SOPA framework; flouting it is regulator-prosecutable.
Also known as: PWP clause; pay-if-paid clause (more aggressive); back-to-back payment clause; conditional payment clause.
Category: Contracts & commercial.
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Last updated: 2026-05-23. Verified: 2026-05-23. Quarterly review for currency.