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TL;DR: Construction subcontract payment terms are negotiable on most commercial projects. Key terms to negotiate: pay-when-paid versus pay-if-paid language (pay-when-paid is better for the subcontractor), retainage capped at 5% or reduced at substantial completion, payment due within 30 days of GC receipt of owner payment, interest on late payments, and a dispute resolution process that does not require stopping work. SPM reviews every subcontract payment structure before signing.
Contract Strategy
Negotiating Better Payment Terms
In Construction Subcontracts.
The payment terms in your subcontract determine your cash flow for the entire project. Most subs sign GC paper without negotiating. Here is what to push for on every contract.
Published: May 2026 · Updated: May 2026
Pay-When-Paid vs Pay-If-Paid
The Most Important Payment Term
Pay-when-paid means the GC must pay the subcontractor within a specified number of days after the GC receives payment from the owner - regardless of whether the GC has been paid in full. Pay-if-paid means the GC does not have to pay the subcontractor until the GC is paid by the owner - which can extend indefinitely if there is an owner dispute. Most states have laws limiting or prohibiting pay-if-paid clauses. SPM identifies pay-if-paid language in every subcontract and recommends negotiating it to pay-when-paid with a maximum payment period of 7 days after GC receipt.
What to look for. Pay-if-paid language often reads: "payment to subcontractor is expressly conditioned upon GC's receipt of payment from owner" or "subcontractor's receipt of payment is contingent upon owner's payment to GC." This language shifts the credit risk of owner non-payment entirely to the subcontractor.
What to negotiate. Replace pay-if-paid with pay-when-paid: "GC shall pay subcontractor within 7 days of GC's receipt of payment from owner for subcontractor's work, but in no event later than 45 days after subcontractor's invoice." This gives the GC flexibility while capping the payment delay.
FAQ
Frequently Asked Questions
What is the difference between pay-when-paid and pay-if-paid?
Pay-when-paid requires the GC to pay the subcontractor within a specified period after the GC receives payment from the owner. Pay-if-paid conditions the subcontractor's payment entirely on the GC receiving payment - meaning if the owner does not pay the GC the subcontractor may not be paid at all. Most states limit or prohibit pay-if-paid clauses. SPM identifies this language and recommends negotiating it on every subcontract.
What retainage percentage should I accept on a commercial subcontract?
Negotiate for 5% or less. Standard GC paper specifies 10%. On a $400,000 subcontract that is a $40,000 difference in cash flow - money earned that is locked until final acceptance rather than available for operations. Most GCs will negotiate retainage to 5% for financially qualified subcontractors with good track records on prior projects.
Can I charge interest on late payments from a GC?
Yes, in most states - if your subcontract includes an interest provision. Standard GC paper typically does not include interest on late payments. Negotiate an interest provision: payments not made within the specified period accrue interest at the state statutory rate or at 1.5% per month. Even if the interest is rarely paid the provision creates pressure for timely payment.
Should I negotiate payment terms on every subcontract?
Yes. Payment terms are negotiable on most commercial subcontracts. The GC presents standard paper. Most subcontractors sign without pushing back. The ones who negotiate consistently get better terms because GCs prefer financially organized subcontractors who understand contract language. SPM reviews payment terms on every subcontract at engagement start.
