'Pay when paid' and 'paid when certified' clauses

Produced in partnership with Womble Bond Dickinson

Practice notes

'Pay when paid' and 'paid when certified' clauses

Produced in partnership with Womble Bond Dickinson

Practice notes

This Practice Note considers ‘Pay when paid’ clauses and ‘Pay when certified’ clauses in construction contracts, and the relevant provisions of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996). Specifically, it looks at:

•
HGCRA 1996, s 113—which prohibits pay when paid clauses except in the case of Insolvency of a third party
•
HGCRA 1996, ss 110(1A)–(1D)—which prohibit ‘pay when certified’ clauses and were introduced by the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA 2009)

Pay when paid clauses

‘Pay when paid’ clauses are clauses which make a payment under a construction contract contingent upon a payment being made by a third party under a separate contract.

An example of a pay when paid clause is:

Notwithstanding anything to the contrary elsewhere in this Sub-Contract if the Employer or any such person as is responsible for discharging payment to the Contractor under the Main Contract, as the case may be, is insolvent as defined in Clauses 32.2, 32.3 and 32.4, the Contractor shall not be obliged to make any further

Jurisdiction(s):

United Kingdom

Key definition:

Pay when paid definition

What does Pay when paid mean?

A clause, usually in a sub-contract, whereby one party is only obliged to pay the other if payment has been received from a third party. Ineffective under HGCRA 1996, s 113 except where the reason for non-payment is the insolvency of the third party.

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