Pay-When-Paid And Pay-If-Paid Clauses In Subcontracting Construction Contracts

Introduction

This article briefly describes the practical operation of pay-when-paid and pay-if-paid type payment clauses, which are frequently encountered in construction projects and, accordingly, in construction contracts. In this piece, I will not go into the details of the doctrinal debates and will rather adopt a practical perspective.

Such clauses provide that payment to the subcontractor is contingent on the main contractor having received payment from the employer, and they often arise when there is a back-to-back contractual structure. The article will first examine how these arrangements arise in contractual practice and explain the distinction between pay-when-paid and pay-if-paid clauses. It will then address, in light of the principle of freedom of contract under Turkish law, the validity of such clauses and the limited circumstances in which their application may be limited. Finally, it will discuss, through two hypothetical scenarios, how these clauses may come into