What is a pay-if-paid clause in construction contracts?

A pay-if-paid clause makes the general contractor's obligation to pay the subcontractor conditional on receiving payment from the owner. If the owner doesn't pay, the subcontractor may have no legal right to collect. Pay-if-paid is void in California, New York, North Carolina, and several other states. SubShield automatically detects these clauses and tells you if they're enforceable in your state.

What is broad indemnification in construction contracts?

Broad form (Type I) indemnification requires the subcontractor to indemnify the general contractor even for the GC's own negligence. This creates unlimited liability exposure. Over 40 states have anti-indemnity statutes that void these clauses. SubShield identifies them and cites the specific statute that voids them in your state.

How does SubShield analyze construction contracts?

Upload your subcontract (PDF, Word, or paste text) and SubShield's AI analyzes it in about 60 seconds. You get a risk score (1-10), identification of 50+ risky clause types, negotiation language to propose to your GC, and state-specific legal information.

Is SubShield a substitute for a construction attorney?

No. SubShield is an AI-powered educational tool that helps subcontractors understand their contracts better. For high-value contracts ($500K+) or complex disputes, consult a licensed construction attorney. SubShield costs $47 per analysis; attorney review costs $300-500+. Use SubShield for initial screening, attorney for final review.

What states does SubShield cover?

SubShield provides analysis for all 50 US states with specific knowledge of state lien laws, anti-indemnity statutes, prompt payment act requirements, retainage caps, and pay-if-paid enforceability which varies significantly by state.

How much does SubShield cost?

SubShield offers a free trial with one full analysis per month. Single reports cost $47. Pro Monthly is $97/month for unlimited analyses. Pro Annual is $797/year for unlimited analyses. All paid plans include a 60-day money-back guarantee.

What is a no-damage-for-delay clause?

A no-damage-for-delay clause prevents the subcontractor from recovering monetary damages when the project is delayed, even if the delay was caused by the GC. The only remedy is a time extension, not compensation for increased costs. These clauses can cost subcontractors $23,000+ on average. SubShield detects these clauses automatically.

How is SubShield different from using ChatGPT to review contracts?

SubShield is purpose-built for construction subcontracts with 50+ clause type detection specific to construction, state-specific legal information for all 50 states, industry benchmarks (AIA, ConsensusDocs standards), negotiation language templates, and a GC reputation database. General AI tools lack this specialized construction knowledge.

Pay-If-Paid vs Pay-When-Paid: What Every Subcontractor Must Know

If you're a subcontractor, the payment terms in your contract can mean the difference between getting paid and getting stiffed. Two clauses that cause endless confusion—and billions in unpaid invoices—are pay-if-paid and pay-when-paid.

Let's break down exactly what each means, which states ban them, and how to protect yourself.

What is a Pay-If-Paid Clause?

A pay-if-paid clause makes the general contractor's obligation to pay you conditional on them receiving payment from the owner.

In plain English: If the owner doesn't pay the GC, the GC doesn't have to pay you.

Here's what it typically looks like in a contract:

"Subcontractor acknowledges that Contractor's receipt of payment from Owner for Subcontractor's work is a condition precedent to Contractor's obligation to pay Subcontractor."

The key words are "condition precedent." This creates a true condition—not just a timing mechanism.

The Real-World Impact

Imagine you complete $200,000 of electrical work. The owner goes bankrupt or disputes the GC's work. Under a pay-if-paid clause, you may never see a dime—even though you did everything right.

What is a Pay-When-Paid Clause?

A pay-when-paid clause sets a timing expectation but doesn't eliminate the GC's obligation to pay you.

Typical language:

"Subcontractor shall be paid within 10 days of Contractor's receipt of payment from Owner."

Under this clause, the GC must still pay you eventually, even if the owner is slow or doesn't pay. The clause just gives the GC some time cushion.

Key Differences

Aspect

Pay-If-Paid

Pay-When-Paid

GC's obligation

Conditional on owner payment

Unconditional (timing only)

If owner doesn't pay

You may get nothing

GC still owes you

Risk transfer

All risk on sub

Risk stays with GC

Enforceability

Banned in many states

Generally enforceable

States That Ban Pay-If-Paid

These states have either banned pay-if-paid clauses outright or severely limited their enforceability:

California - Completely void and unenforceable

New York - Void on private projects

North Carolina - Void as against public policy

South Carolina - Unenforceable

Wisconsin - Void

Nevada - Unenforceable

Several other states have limited enforceability or require specific language.

How to Protect Yourself

1. Know Your State's Law

Before signing any contract, understand your state's position on pay-if-paid clauses. If you're in California, that clause is void anyway.

2. Negotiate the Language

Push back on pay-if-paid language. Suggest replacing with:

"Payment shall be made within 30 days of invoice approval, regardless of Contractor's receipt of payment from Owner."

3. Check for Hybrid Language

Some contracts try to sneak in pay-if-paid concepts using different words. Watch for:

"Condition precedent"

"Contingent upon"

"Subject to receipt"

4. Preserve Your Lien Rights

Even with bad payment terms, you may have mechanics lien rights. Never waive these without payment.

What SubShield Does

Our AI specifically flags:

Pay-if-paid clauses (even when disguised)

Pay-when-paid with unreasonable timeframes

Missing payment terms

Conflicts with state law

We also provide state-specific context so you know exactly where you stand.

Bottom Line

Don't sign a contract with pay-if-paid language unless you're in a state where it's unenforceable, or you've negotiated it out. The few minutes spent reviewing this clause could save you hundreds of thousands.

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*Need help reviewing your contract? Try SubShield free to catch pay-if-paid and 50+ other risky clauses.*

Pay-If-Paid vs Pay-When-Paid: What Every Subcontractor Must Know

Pay-If-Paid vs Pay-When-Paid: What Every Subcontractor Must Know

What is a Pay-If-Paid Clause?

The Real-World Impact

What is a Pay-When-Paid Clause?

Key Differences

States That Ban Pay-If-Paid

How to Protect Yourself

1. Know Your State's Law

2. Negotiate the Language

3. Check for Hybrid Language

4. Preserve Your Lien Rights

What SubShield Does

Bottom Line

Ready to Protect Your Next Contract?

More Resources

Turner Construction Subcontract Analysis: What to Watch For

Lien Waivers in Construction: The Complete Guide for Subcontractors

Retainage in Construction: What Subcontractors Need to Know