Lafayette Steel Erectors sued Roy Anderson Corp. for $512,899.48 owed under a subcontract for the Treasure Bay Casino project. The subcontract contained a 'pay-when-paid' clause requiring payment within 10 days of the contractor receiving money from the owner. When the owner filed bankruptcy and never paid, Anderson refused to pay Lafayette. The court ruled that 'pay-when-paid' clauses don't eliminate the contractor's obligation to pay—they only give the contractor a reasonable time to collect from the owner. Once that reasonable time passes, the contractor must pay the subcontractor regardless of whether the owner paid.
A 'pay-when-paid' clause is NOT a 'pay-if-paid' clause. It doesn't shift owner bankruptcy risk to you—it just delays payment for a reasonable period.
Document when the contractor receives payment from the owner. Once a reasonable time passes (typically 10-30 days), you can demand payment even if the owner hasn't paid.