What does a 'pay when paid' clause specify?

A 'pay when paid' clause specifies that payment to subcontractors is contingent on the main contractor receiving payment from the client. This means that subcontractors will only be paid after the main contractor has been paid for their own work. This type of clause is often included in construction contracts to manage cash flow and reduce risk for the main contractor. It establishes a clear link between the contractor's payment and the project's financing, ensuring that subcontractors are not left waiting for payment if the client delays or defaults on their payment to the main contractor.

This approach also reflects the hierarchical nature of the contractual relationships in construction projects, where the main contractor is typically responsible for managing the financial aspects and payment flows from the client down to subcontractors.