Pay-when-paid, and what the Act strikes out
A subcontract can say payment depends on the main contractor being paid. It will not usually mean it. Knowing which clauses fail, and what replaces them, changes what a subcontractor is entitled to expect.
QScope Team · 27 May 2026 · 6 min read
Section 113 of the Construction Act deals with conditional payment. Its effect is short: a provision making payment conditional on the payer receiving payment from a third party is ineffective, unless that third party is insolvent.
That is the pay-when-paid rule, and it is one of the better known parts of the Act. What is less well known is what happens next, and how many clauses attempt the same thing without using the same words.
The narrow exception
The exception is insolvency, and it is narrower than it sounds. It applies where the third party, typically the employer above the main contractor, is insolvent within the meaning the Act sets out. Slow payment is not insolvency. A disputed account is not insolvency. A client that has gone quiet is not insolvency.
In practice the exception is rarely the reason a subcontractor is unpaid, and it is often cited where it does not apply.
Clauses that try the same thing differently
Drafting has adapted. Watch for provisions that achieve conditionality without stating it:
- Pay-when-certified. Making the subcontract due date depend on certification under the main contract. Widely regarded as caught by the same principle, and expressly addressed in the 2011 amendments.
- Due dates tied to receipt of funds. "Payment shall become due seven days after receipt of the corresponding payment from the Employer" is a conditional payment clause wearing a timetable's clothes.
- Application windows that cannot be met. A subcontract requiring application before the main contract valuation date, with no mechanism if that date moves.
- Notice periods with no fixed anchor. If the due date cannot be worked out from the contract alone, the mechanism may be inadequate.
What fills the gap
This is the part that gets skipped. Striking out a clause does not leave the subcontract without a payment mechanism. Where the contract fails to comply with the Act, the relevant provisions of the Scheme for Construction Contracts are implied instead.
The Scheme supplies its own timetable, and it is not the same as JCT's:
| Step | Scheme position |
|---|---|
| Payment notice | Not later than 5 days after the due date |
| Final date for payment | 17 days after the due date |
| Pay less notice | Not later than 7 days before the final date for payment |
So a subcontractor arguing that a conditional clause is ineffective is not arguing into a vacuum. It is arguing for a different, defined set of dates. Both sides should know which set applies before the argument starts, because the answer changes what a late payment actually is.
Where main contractors get caught
A main contractor operating on the assumption that subcontract payments follow main contract receipts will, on a job where the employer pays late, be late to every subcontractor simultaneously. That exposure is not theoretical. It is the mechanism behind a great many of the payment disputes that reach adjudication.
The commercial answer is not to draft harder. It is to know the two timetables separately, to see the gap between money in and money out, and to fund the gap deliberately rather than discover it.
Practical checks on any subcontract
- Can you state the due date for each cycle using only the subcontract? If not, the mechanism may be defective
- Does any term make payment depend on a payment or certificate upstream?
- Do the notice periods comply, and if not, do you know what the Scheme would substitute?
- Does the subcontract retention differ from the main contract retention, and is that difference funded?
- Is the application window achievable given the main contract valuation date?
None of these questions is difficult. They are simply asked at the wrong moment, usually months after the answer would have been useful.
This is a general summary and not legal advice. Whether a specific clause is caught by section 113 turns on its wording.
QScope keeps each subcontract package on its own payment cycle with its own dates, so a subcontract timetable that differs from the main contract is visible rather than assumed.