Pay When Paid Clauses In Construction Contracts


Blackstone Solicitors recognises that navigating the financial aspects of construction projects is crucial. One contentious issue concerns “pay when paid” clauses found within construction contracts. In this article, Pay When Paid Clauses In Construction Contracts, we will delve deeper into the subject.

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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of pay when paid clauses in construction contracts and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.

What are Pay When Paid Clauses?

A “pay when paid” clause stipulates that a contractor will only pay a subcontractor for completed work after the contractor itself has received payment from the employer (client). On the surface, it might seem reasonable – the contractor can’t pay out if they haven’t been paid themselves. However, these clauses can have significant drawbacks for subcontractors, placing a substantial financial burden on them.

Risks Associated with Pay When Paid Clauses

For subcontractors, pay when paid clauses can pose a significant risk to their cash flow and even threaten their business viability. Here’s why:

  • Delayed Payments: If the main contractor experiences delays in payment from the client, the subcontractor can be left waiting for their own payment, impacting their ability to meet their own financial obligations.
  • Domino Effect: Pay when paid clauses can create a domino effect throughout the construction supply chain. Delayed payments at one level can lead to delayed payments throughout, hindering subcontractors’ ability to pay their suppliers and workers.
  • Limited Bargaining Power: Subcontractors, particularly smaller firms, may have limited bargaining power compared to the main contractor. They may feel pressured to accept a pay when paid clause simply to secure the contract.

Legal Status of Pay When Paid Clauses in England and Wales

The good news for subcontractors is that the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) largely prohibits the use of pay when paid clauses in construction contracts in England and Wales. The Act promotes a fairer system for payment within the construction industry, ensuring a timely flow of funds throughout the supply chain.

Alternatives to Pay When Paid Clauses

Several alternative approaches to payment terms offer greater financial security for subcontractors:

  • Stage Payments: This is a common approach where the contractor makes progress payments to the subcontractor upon completion of specific milestones outlined in the contract. This ensures a more predictable cash flow for the subcontractor.
  • Retention: The client may withhold a portion of each stage payment to the contractor, known as retention. A portion of this retention can be released directly to subcontractors upon completion of their work, providing them with some financial security.
  • Advance Payments: In some cases, the contractor may agree to pay the subcontractor an upfront sum to cover initial costs. However, this should be clearly documented in the contract and not become a substitute for timely stage payments.
  • Security of Payment Provisions: The Construction Act 1996 promotes a “cascade” system for security of payment. This means that a subcontractor who is not paid by the contractor can serve a notice on the employer, potentially leading to the employer withholding payment from the contractor and using those funds to pay the subcontractor directly.

Blackstone Solicitors: Protecting Your Interests in Construction Contracts

Blackstone Solicitors, a law firm serving clients across England and Wales, strongly advises against accepting pay when paid clauses in construction contracts. We can assist you in securing fair and transparent payment terms by:

  • Reviewing and Negotiating Contracts: Our team of experienced construction law solicitors can review your construction contract and help you negotiate fair payment terms that comply with the HGCRA.
  • Understanding Security of Payment Provisions: We can explain the security of payment framework established by the Construction Act 1996 and how it can protect your financial interests as a subcontractor.
  • Dispute Resolution: In the event of a dispute regarding payment terms, our solicitors can represent your interests and help you achieve a favourable outcome.

By understanding the risks associated with pay when paid clauses and seeking legal advice, subcontractors can ensure they are protected financially throughout the construction project. Blackstone Solicitors is committed to helping you navigate the complexities of construction contracts and secure fair payment terms.

How we can help

We have a proven track-record of helping clients deal with pay when paid clauses in construction contracts. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner and support and advise you with all the negotiations. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

Please click here to find out more about our construction legal services.

Deciding when (or whether) to incorporate, what kind of ownership How to Contact our Construction Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.

To speak to our Construction solicitors today, simply call us on 0345 901 0445 , or allow a member of the team to get back to you by filling in our online contact form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.

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