Pay-when-paid clauses: void, unenforceable, and still in your contract
What is a pay-when-paid clause?
A pay-when-paid clause makes the builder's obligation to pay you conditional on the builder first being paid by someone above them. It comes in a few flavours:
- Pay-when-paid — you get paid when the builder gets paid.
- Pay-if-paid — you get paid only if the builder gets paid, which pushes the risk of the principal's insolvency onto you.
- Disguised versions — clauses that don't use the words but achieve the effect: a payment date defined by reference to when the principal pays, or a precondition that the builder has received the corresponding amount upstream.
The commercial effect of all three is the same. You carry the credit risk of a party you have no contract with, no relationship with, and no ability to chase.
Are they legal in Australia?
No. Every Australian Security of Payment Act renders pay-when-paid provisions void and of no effect. Not merely unfair or open to challenge — void. The prohibition covers the disguised versions too: the legislation targets the effect of making payment contingent on payment from a third party, not the particular words used.
That is one of the central protections the legislation was written to deliver. Before it existed, the standard industry practice was to push payment risk all the way down the chain to the businesses least able to absorb it.
So if a pay-when-paid clause sits in your subcontract and the builder points to it to withhold payment, the clause doesn't do the work they want it to. Your entitlement is assessed under the contract's other terms and the Act, and the usual payment claim and adjudication process is open to you.
Then why is it still in my contract?
Three reasons, and none of them are good news:
- Copy-paste drafting. The subcontract was built from an old template nobody has reviewed against current legislation.
- It still works on people who don't know. A void clause is only irrelevant if you know it's void. Plenty of subcontractors read it, believe it, and simply wait — which is exactly what it's there to achieve.
- It tells you what the contract is like. This is the important one. A pay-when-paid clause is a signal about the drafting philosophy of the whole document. Where you find one, you very often find the rest of the family: uncapped liquidated damages, short notice time bars, broad set-off rights, hostile retention terms. The clause is less a problem in itself than a marker of the contract you're being asked to sign.
What to do about it
Before signing: flag it and ask for it to come out. Not because you fear it — because a builder who won't remove a clause they know is legally void tells you something about how the rest of the negotiation will go. Put it in your departure schedule with a plain note that the clause is void under the applicable Security of Payment Act, and work through the rest of the contract against our subcontract review checklist while you're there.
If you've already signed: don't let it change your behaviour. Serve payment claims on the contract's dates, in the form the Act requires. If a payment schedule comes back short and cites the builder not having been paid upstream, that is not a valid reason under the legislation, and adjudication exists for precisely this argument — just watch your state's application window, because it starts running when the schedule lands.
Either way: know the difference between a void clause and a legitimate payment term. A pay-when-paid trigger is void; a payment term of, say, 30 days is not — long payment terms are their own commercial issue, but they're generally enforceable. Victoria is now the exception: since 15 April 2026 a term pushing payment beyond 20 business days reverts to 10 business days from the date of the claim. Being confident about which is which is the difference between chasing your money and waiting for it.
Victorian payment terms are a live question in their own right: see what the Victorian reform means for the next subcontract on your desk.
SubSync's AI Commercial Reviewer flags pay-when-paid drafting against the void provisions of the Act for your project's state, so you see it before you sign rather than the first time you're not paid. Upload a subcontract and check yours, free.