Pyramid Constructors withheld retainage payments owed to subcontractor Sunbelt Controls, claiming it couldn't pay because the school district hadn't released funds to Pyramid. The Texas Court of Appeals ruled that a 'pay when paid' clause doesn't let a contractor off the hook when the owner's nonpayment isn't the contractor's fault. Pyramid had to pay Sunbelt the full retainage amount plus interest and attorney's fees. This protects subcontractors from being caught in payment disputes between the contractor and owner.
A 'pay when paid' clause in your subcontract won't protect the contractor from paying you if the owner's nonpayment stems from a dispute between the contractor and owner, not the contractor's default.
Get clear language in your subcontract about when retainage is due and under what circumstances it can be withheld—vague terms will be interpreted against the contractor.