Pay-If-Paid vs. Pay-When-Paid Clauses: Are They Enforceable in Your State?

State-by-State Treatment

States fall into several groups. Some prohibit pay-if-paid clauses on covered contracts. Some restrict them with exceptions. Some leave the contract term enforceable but protect lien or bond remedies. And some enforce clear risk-shifting language.

California: Unenforceable

In Wm. R. Clarke Corp. v. Safeco Insurance Co., 15 Cal. 4th 882 (1997), the California Supreme Court held that pay-if-paid provisions are unenforceable because they operate as an indirect waiver of mechanics lien rights. The clause protected neither the general contractor nor its payment bond surety. Clarke applied a former Civil Code section; the current anti-waiver provision is Cal. Civ. Code § 8122. A reasonable pay-when-paid clause remains enforceable, but not one that postpones payment indefinitely. Crosno Construction, Inc. v. Travelers Casualty & Surety Co. of America, 47 Cal. App. 5th 940 (2020), rejected a bond defense that would have delayed payment until litigation between the contractor and the owner ended.

New York: Unenforceable

West-Fair Electric Contractors v. Aetna Casualty & Surety Co., 87 N.Y.2d 148 (1995), holds that a clause shifting the owner's nonpayment risk to the subcontractor violates the public policy of Lien Law § 34, which prohibits waiver of lien rights in advance. A timing provision is distinguishable. The Appellate Division, First Department, applied West-Fair again in 2026 to invalidate a condition-precedent clause governing retainage. Interbar Fabricators LLC v. C.B. Contracting Corp., 2026 NY Slip Op 02201 (1st Dep't Apr. 14, 2026).

North Carolina and South Carolina: Prohibited on Covered Contracts

For contracts within the applicable statutes, a subcontractor's performance in accordance with its contract entitles it to payment from its contracting party, regardless of upstream payment. Contrary conditions are unenforceable. (N.C. Gen. Stat. § 22C-2; S.C. Code Ann. § 29-6-230.) North Carolina excludes specified residential contractors and improvements, including residential improvements consisting of 12 or fewer units. (N.C. Gen. Stat. § 22C-6.) South Carolina excludes residential homebuilders, residential improvements consisting of 16 or fewer units, and specified privately owned improvements not financed by a nonowner. (S.C. Code Ann. § 29-6-60.) Contracts within these exclusions require separate analysis.

Wisconsin: Pay-If-Paid Void; Pay-When-Paid Permitted

For contracts to improve land in Wisconsin, a provision making the prime contractor's receipt of payment a condition precedent to paying a subcontractor or supplier is void. The statute expressly preserves provisions that only delay payment until the prime contractor is paid. (Wis. Stat. § 779.135(3).)

Nevada: Restricted, Not Automatically Void

Nevada's prompt payment statutes set payment deadlines and withholding procedures, and invalidate contract terms that waive or limit those statutory rights. (NRS 624.624; NRS 624.628(3).) In APCO Construction, Inc. v. Zitting Brothers Construction, Inc., 473 P.3d 1021 (Nev. 2020), the Nevada Supreme Court held that pay-if-paid clauses are not void in every case. A court must decide whether the particular clause conflicts with the statutory payment rights. The clauses in that case did, and were unenforceable.

Illinois: Cannot Defeat Lien Claims

Illinois does not ban pay-if-paid clauses as a matter of contract. It provides that an upstream payment condition is not a defense to specified subcontractor claims under the Mechanics Lien Act. (770 ILCS 60/21(e).) Illinois courts also require clear risk-shifting language before treating a clause as pay-if-paid. Beal Bank Nevada v. Northshore Center THC, LLC, 2016 IL App (1st) 151697, 64 N.E.3d 201, construed the subcontract before it as pay-when-paid. See our Illinois lien law guide.

Texas: Regulated Contingent Payment Clauses

Texas calls these provisions contingent payment clauses and regulates their enforcement in Chapter 56 of the Business and Commerce Code. A contractor or surety generally cannot enforce the clause when the owner's nonpayment results from the contractor's own failure to perform. (Tex. Bus. & Com. Code § 56.051.)

Section 56.052 permits a subcontractor to object in writing to further enforcement, but only after the 45th day following submission of a substantially contract-compliant written payment request. The notice takes effect under the timing rule in subsection (b), not immediately upon receipt, and its protection for later work or deliveries is subject to the exceptions in subsections (c) and (d). Payment of the indebtedness giving rise to the notice reinstates the clause for work performed or materials furnished after payment. (Tex. Bus. & Com. Code § 56.052.)

The clause cannot be enforced in a statutory sham relationship or when enforcement would be unconscionable; the party asserting unconscionability bears the burden of proving it. (§§ 56.053, 56.054.) It cannot be used to defeat the perfection or enforcement of a mechanics lien. (§ 56.055.) Section 56.056 makes assertion of the clause an affirmative defense to a civil action for payment under a contract, which the party relying on it generally must plead and establish. The chapter does not apply to certain design-only contracts, listed civil infrastructure work, and specified one-to-four-unit residential projects. (§ 56.002.)

Delaware: Void, With Exclusions

Delaware voids provisions that shift the owner's nonpayment risk, delay litigation or arbitration until the owner pays, or condition the contractor's and surety's bond obligations on owner payment. (6 Del. C. § 3507(e).) Section 3507 does not apply to public works contracts awarded under Title 29, Chapter 69; contracts for the erection of six or fewer residential units under construction simultaneously; contracts to alter or repair a single residential unit; or contracts to purchase materials by a person performing work on that person's own real property. (6 Del. C. § 3507(f).)

Massachusetts: Void on Covered Projects, With Narrow Exceptions

Section 29E applies to construction contracts for which a lien may be established under Chapter 254, § 2 or § 4, on projects with an original owner-level contract price of at least $3 million. Projects containing or designed to contain one through four dwelling units are excluded. On covered contracts, a provision conditioning payment on payment by a third party is void, except for two statutory exceptions: nonpayment caused by the claimant's own uncured nonperformance, and specified third-party insolvency where detailed lien-preservation conditions are met. The exception must be stated in the contract, and the party relying on it bears the burden of proof. Even an enforceable condition is not a defense to the claimant's Chapter 254 lien. (Mass. Gen. Laws ch. 149, § 29E.)

Maryland: Lien and Bond Rights Preserved

Maryland does not generally prohibit contingent payment clauses between contractor and subcontractor. It provides that an executory subcontract cannot waive the subcontractor's right to claim a mechanics lien or sue on the contractor's payment bond, and that a payment condition cannot be used to defeat those rights. (Md. Code Ann., Real Prop. § 9-113.)

Florida: Enforceable if Clear; Conditional Bonds Authorized

Florida enforces a pay-if-paid clause when its risk-shifting language is unambiguous. OBS Co. v. Pace Construction Corp., 558 So. 2d 404 (Fla. 1990), held that language incorporated from other contract documents can make an otherwise clear clause ambiguous, and allowed recovery on the statutory payment bond. Florida also authorizes a conditional payment bond, under which the surety's liability matches the contractor's conditioned obligation, if strict recording and warning requirements are met. When a conditional bond is used, the owner's property is not exempt from liens, so the claimant must preserve and perfect its lien rights. (Fla. Stat. § 713.245.) See our Florida lien law guide.

Virginia: Prohibited on Covered Contracts, With a Private-Contract Insolvency Exception

Under Va. Code § 11-4.6(B)(2), a general contractor must pay its direct subcontractor for satisfactory performance by the earlier of 60 days after receipt of an invoice following satisfactory completion of the invoiced work or seven days after receipt of the corresponding upstream payment, subject to permitted withholding. The provision does not govern retainage terms. Payment by the party contracting with the contractor generally cannot be a condition precedent to subcontractor payment, unless that upstream party is insolvent or a debtor in bankruptcy. Identical payment, notice and interest requirements must extend to lower-tier subcontracts and supplier agreements on projects other than single-family residential projects when the project value, or the specified aggregate project value, exceeds $500,000.

Covered public contracts are governed separately by Va. Code § 2.2-4354, which prohibits upstream-payment conditions without that insolvency exception. The 2022 payment reforms apply to construction contracts executed on or after January 1, 2023. Earlier contracts require separate review. See our Virginia lien law guide.

Quick Reference

Can a Pay-If-Paid Clause Defeat a Payment Bond Claim?

Sometimes, but not automatically. The answer depends on the bond statute, the bond's own language, the governing law and the subcontract. California rejects the defense entirely. Maryland protects bond remedies by statute. Delaware prohibits owner-payment conditions on a contractor's and surety's bond-payment obligations for contracts covered by § 3507, subject to that section's exclusions. Florida, by contrast, expressly permits a compliant conditional payment bond to limit the surety's liability.

On federal projects, the Miller Act controls. It gives eligible claimants a payment bond remedy, subject to its notice and filing requirements. A waiver of the right to sue on the bond is void unless it is written, signed by the person whose right is waived, and executed after that person has furnished labor or material for the contract. (40 U.S.C. § 3133(b), (c).) A subcontract payment condition ordinarily cannot require a claimant to await government payment before pursuing its Miller Act bond remedy. In United States ex rel. Tusco, Inc. v. Clark Construction Group, LLC, 235 F. Supp. 3d 745 (D. Md. 2016), the court denied a stay of the Miller Act claim pending the contractor's government dispute-resolution process. The court did not finally decide the amount owed or whether federal law independently invalidated the payment condition for the separate contract claim. Courts may still stay a Miller Act case for other enforceable dispute-resolution procedures.

Can It Defeat a Mechanics Lien?

A contract payment right and a statutory lien remedy are different things. Illinois, Maryland, Texas and Massachusetts expressly preserve lien remedies even when a payment condition is otherwise enforceable. California and New York go further and invalidate the clause because it would impair lien rights. The safe working assumption in every state is that a payment clause does not suspend your notice, recording or lawsuit deadlines.

What Subcontractors and Suppliers Should Do

1. Read the payment clause before signing. Look for "condition precedent," "only if," "sole source of payment" and "assumes the risk of owner nonpayment."
2. Negotiate for timing language. Ask to replace a condition with a reasonable time limit, such as payment within a fixed number of days regardless of owner payment. See our guide to drafting a strong subcontractor agreement.
3. Identify the governing law. The clause's effect depends on the project state, the project type and any choice-of-law provision.
4. Get the payment bond. Know whether the job is bonded and whether the bond is conditional.
5. Protect lien and bond deadlines independently. Serve preliminary notices and calendar recording and suit deadlines as though the clause did not exist.
6. Use statutory notice rights. In Texas, a qualifying written notice under § 56.052 can limit enforcement for work performed or materials delivered after the notice becomes effective, subject to the statute's exceptions and reinstatement provisions.

The Bottom Line

A pay-if-paid clause is a risk-allocation term, and many states limit how far it can go. Read it before signing, negotiate it when you can, and never let it delay the notices and filings that protect your lien and bond rights. The National Lien & Bond platform tracks those deadlines automatically for every project in every state. Create an account, or contact us if a contractor is relying on a pay-if-paid clause to withhold payment.

This article provides general information and is not legal advice. The enforceability of a payment clause depends on its exact language, the governing law, the project type and the date of the contract.