Are pay-when-paid clauses enforceable?

The same words, a different risk

A pay-when-paid clause says the subcontractor is paid when the main contractor is paid. A pay-if-paid clause goes further: the subcontractor is paid only if the main contractor is paid, which transfers the employer’s credit risk down the chain.

In the UK, statute steps in and makes conditional payment ineffective in most circumstances. In the UAE, the commentary is clear that these clauses are generally enforced. So the identical drafting allocates payment risk in opposite directions depending on the governing law — and the party who has not noticed is the one carrying it.

Where this actually bites

The international contractor who has spent a career in one regime and now administers subcontracts in the other. UK instincts say the clause is unenforceable, so nobody prices it. Gulf reality says it will be upheld, and the subcontractor discovers that when the employer stops paying.

Or the reverse: a subcontractor bidding a Gulf project as though the clause were a formality, and finding that a delay in the employer’s certification has become their cash-flow problem for a year.

What to do about it

Price the clause under the law that governs it, not the law you learned. If you are the main contractor and the clause is enforceable, that is a real commercial advantage and you should understand what it is worth. If you are the subcontractor, it is a real risk and you should price it or negotiate it.

And read this as what it is: a description of the risk, drawn from law-firm commentary and jurisdiction-dependent, not legal advice. The point is not to tell you the answer. It is to stop you assuming you already know it.

Terms

• Pay-When-Paid