Pay-When-Paid and Pay-If-Paid: What Federal Subcontractors Should Review
Review contingent-payment language, payment timing, withholding rights, and federal construction payment provisions before accepting the prime's terms.
Federal subcontract payment terms can combine private contract language with federal payment clauses, bond remedies, and project-specific withholding rules. The label on the clause is less important than the actual wording and the law that governs it.
Before signing, identify whether payment is merely delayed until the prime is paid, whether Government payment is written as a condition precedent, and whether the subcontract contains an outside payment deadline.
What FAR Prompt Payment Language Can Affect
On covered federal construction contracts, FAR 52.232-27 includes subcontract payment and interest provisions that the prime must include in qualifying subcontracts. Those provisions matter, but they do not make the Government a party to a private payment dispute between a prime and subcontractor.
- the stated deadline for paying subcontractors after the prime receives Government payment;
- interest terms for late subcontract payments;
- notice requirements for withholding or retaining amounts;
- how payment terms interact with any separate bond or statutory remedy.
Pay-If-Paid vs. Pay-When-Paid Language
A pay-when-paid provision may address timing, while a pay-if-paid or condition-precedent provision may attempt to shift owner nonpayment risk downstream. The effect of either clause depends on the actual language and governing law.
Review the complete payment section for outside deadlines, conditions precedent, retainage, disputed-invoice procedures, acceptance conditions, setoff, backcharges, and withholding rights.
Construction Payment Has a Separate Bond Track
On covered federal construction projects, the Miller Act payment bond can provide a separate remedy for qualifying claimants, subject to tier, notice, timing, and filing requirements. Bond rights should be evaluated separately from contingent-payment language.
Explore the Federal Payment Cluster
Questions to Resolve Before Signing
- Identify Conditions: Flag condition-precedent language or wording that shifts owner nonpayment risk.
- Ask for a Defined Outside Date: Determine whether payment can remain open-ended.
- Check Withholding and Interest Terms: Confirm notice, retainage, setoff, withholding, and interest provisions.
- Preserve Separate Remedies: Do not assume the subcontract payment clause replaces bond or other rights that may exist.
Review Before You Commit
SubPreCheck can surface payment conditions, withholding language, missing payment context, and related flowdowns before you sign.
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