Pay when paid.

Pay when paid is a term that prime contractors may try to include in their subcontracts. Instead of having a firm payment period, what pay when paid terms do is make the prime contractor’s responsibility to make payment to a subcontractor contingent upon receiving their payment from the customer. The advantage it provides to the prime customer is cash flow.Instead of having to make payments to their subcontractors and wait until they get paid by the customer, the subcontractors have to wait until the prime gets paid, The prime has no outlay of their own cash or doesn't need to borrow money to pay subcontractors during the project. This reduces the prime contractor's cost. Whether it’s good for the subcontractor will depend upon the circumstances. If the subcontractor was the only subcontractor on the project and they had high confidence that the prime would complete their work in a timely manner without and problems it might be ok as long as prompt payment from the customer could be expected

My of contract terms is you should only take risks that you can control. The greater the number of other subcontractors involved and more work the prime does, the more potential situations where problems caused by someone else would be used to delay or withhold payment, Do you really want to depend upon all the other parties to determine when you will get paid? If you were certain you would get paid in a reasonable period and wanted to take the risk, Further you might be able to include a carrying cost in your price that takes into account the period you are effectively financing the work.

If I had to accept a pay when paid term I would include what I call a safety net.In this the safety net would be the maximum period allowed before you must be paid as long as you met your performance. To me that’s a reasonable request since you have no control over the prime contractors performance or the other subcontractor’s performance. That’s the Prime contractor’s responsibility.

For example:
"Prime Contractors shall pay Subcontractor ten (10) Day after receipt of payment from Customer or net X Days, whichever occurs sooner.

Further to protect against the Prime withholding significant payments for a dispute you might also
want to protect yourself by a term about withholding payment in the event of a dispute which was the topic of a separate post.

Whether a pay when paid clause may be legally enforceable will always depend upon local law. In recent years a number of jurisdictions have enacted laws that are designed to protect smaller contractors against abuses by large contractors.