Payment On Payment Clauses: Do You Know Your Rights?

Payment on payment clauses are standard practice in construction contracts. They are often found in subcontracts and consist of conditioning payment for the subcontractor's services on payment by a third party for services rendered by the general contractor, usually the owner or the client.

All construction contractors should pay close attention to the extent of their rights and obligations under such clauses. Whether it is a term or conditional obligation, this clause will not grant the same rights to the general contractor who benefits from it. The general contractor will also have to behave in good faith, otherwise the application of the payment on payment clauses may be completely negated.