Do you have to pay a subcontractor before the client pays you?

The rule is section 113 of the Construction Act: a provision making payment conditional on the payer receiving payment from a third person is ineffective. Written into a subcontract, a pay-when-paid clause simply does not operate: the subcontractor’s money is due on the subcontract’s own timetable, and where a struck-out clause leaves no valid dates, the Scheme’s timetable steps in. Your client paying late is your cash flow problem, not your subcontractor’s legal problem.

The one exception, and the clauses that pretend

The exception is insolvency: section 113 allows the condition where the third party up the chain is formally insolvent. It is precisely because of this carve-out that a dead pay-when-paid clause can matter again on the worst day of a project, that day has its own page, written from the subcontractor’s chair.

Meanwhile the industry has spent decades testing substitutes: pay-when-certified clauses, timetables stretched so far the effect is the same, conditions dressed as process. The Act’s later amendments and the courts have closed most of these in turn, adequate payment mechanisms are required (section 110), and a mechanism that secretly recreates pay-when-paid is vulnerable. If your subcontract leans on one, you are building on ground that tends to lose when tested.

What this means for how you actually run subcontractors

• The subcontract gets its own real dates, chosen by you, and yes, you may set them a sensible distance after your own expected receipts, that is legitimate timetabling, as long as the dates are dates and not conditions.
• The notice machinery runs downwards too. Your subcontractor’s application becomes a notified sum against you; reducing it needs your pay less notice, in time (section 111), the deduction mechanics are here. Main contractors lose adjudications monthly by treating the rules they invoke upwards as optional downwards.
• An unpaid sub has your own weapons: interest, suspension on seven days notice (section 112), adjudication, and a suspended package plus a remobilisation claim costs more than the financing you saved. The walked-off page shows how that spiral reads from your chair.
• Manage the gap with money, not with breach: the honest tools are the deposit conversation upwards, tight collection from your client, and subcontract timetables set realistically at signing, not stretched after the invoice arrives.

The domestic-job twist most builders get wrong

You are building an extension for a homeowner, so the Act is off, right? For your contract with them, yes (section 106). But your subcontract is between two businesses, you and the sub, and neither of you occupies the house, so the residential occupier exclusion does not reach it: the subcontract is an ordinary Act contract. Which produces the standard small-job asymmetry: no statutory machinery upwards against the homeowner, full statutory machinery downwards against you. Budget for it, because your sub’s final date does not wait for the homeowner’s stage payment.

What to do this week

1. Read your standard subcontract terms for conditional payment: anything paying “when” or “subject to” receipt from above is a clause that will not save you and may cost credibility.

2. Set the downstream dates deliberately against your realistic upstream receipts, and diary them with the same seriousness as your own.

3. If a squeeze is coming, talk early rather than paying late: a sub told the truth a fortnight ahead usually flexes; one discovering silence after the final date starts reading about section 112.

Where the information stops

Whether a particular clause crosses from lawful timetabling into an ineffective condition is exactly the kind of wording question these disputes turn on, and if your standard subcontract has not been read by a professional since 2011’s amendments, that review is overdue and cheap relative to one lost adjudication.