What a pay when paid clause actually looks like

The plain version is easy to spot. It says something like "the Subcontractor is entitled to payment within 14 days of the Contractor receiving payment from the Principal." Your payment is not tied to your work, your claim, or a fixed date. It is tied to somebody else's money arriving.

The versions that catch people out are quieter:

  • A payment due date defined by the head contract payment cycle rather than by your own claim date.
  • Retention or security released only when something happens under the head contract.
  • Wording making your entitlement "subject to" the principal certifying, approving or accepting the works.
  • Anything that makes your payment conditional on the contractor's own rights or recovery under a contract you are not party to.

What the legislation says

Every Australian state and territory has security of payment legislation containing a provision aimed squarely at these clauses. In New South Wales it is section 12 of the Building and Construction Industry Security of Payment Act 1999, which says a pay when paid provision of a construction contract "has no effect" in relation to any payment for construction work carried out under the contract. Victoria's equivalent is section 13 of its Act, using the same "has no effect" wording.

The NSW definition is deliberately broad. A pay when paid provision is one that:

  1. makes the liability to pay money owing contingent on the payer being paid by someone else;
  2. makes the due date for payment dependent on when the payer is paid by someone else; or
  3. otherwise makes the liability, or the due date, contingent on the operation of another contract.

That third limb is the one worth understanding. It is not limited to clauses that talk about money coming down the chain. It reaches clauses that hang your payment on how a contract you have never seen happens to play out.

The version that hides in the retention clause

In Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, the subcontract released security by reference to practical completion of the whole of the head contract works, not the subcontractor's own scope. The High Court treated that as a pay when paid provision under section 12, because the subcontractor's entitlement depended on completion of the whole project under the head contract, which had nothing to do with whether the subcontractor had performed. The head contractor could not rely on the clause to hold the retention.

So if your release of retention is worded around milestones you do not control, that is worth a proper read rather than a shrug. There is more on what to check in a retention clause before it gets stuck.

Why these clauses still cost subcontractors money

A clause with no legal effect can still be very effective commercially, because most of the time nobody tests it. What happens on site is simpler than a legal argument: the subbie is told the money is not in yet, accepts it, does not put in a payment claim, does not write the date down, and waits. Three months later the record of what was claimed and when is thin, the job has moved on, and the leverage is gone.

The clause does its work through behaviour, not enforceability. Which means the practical answer is rarely to argue about the wording on the phone. It is to keep claiming properly, on time, with records behind you.

What to check before you sign

Ten minutes with a highlighter before signing is worth more than a year of chasing. If you are being handed an amended standard form, read this alongside what to check in an AS 4901 subcontract.

  • Find the payment clause and write down in plain words what actually triggers your payment date. If the trigger is somebody else being paid, flag it.
  • Check the retention and security release wording for milestones tied to the head contract rather than your own scope.
  • Search the document for "subject to" and "conditional upon" and see what sits near your entitlement to payment.
  • Confirm your reference dates for payment claims, and how the contract's payment cycle sits against the statutory regime in your state.
  • Raise anything that ties your money to a contract you cannot see, with the contractor and with your own adviser, before you sign, not after.

If you are already working under one

Keep making payment claims on time rather than waiting to be told the money has landed upstream. Keep the dates, keep the claim, and keep the site record that shows what you did and when. There is a checklist of what to get right on a security of payment claim that covers the mechanics.

If you want a second pair of eyes on the wording, our free tools for subcontractors are a starting point for pulling the payment and notice terms out of a contract into plain English. A clause-analysis tool is on the way.

Pay when paid sits in a small family of subcontract clauses that quietly shift risk and rely on nobody looking too closely. The legislation has already done most of the work here. What it cannot do is make the claim you never submitted.