By Christian Fernandez, Snell & Wilmer L.L.P.

Every subcontractor knows this truth: getting paid on time can make or break a business. Cash flow is the lifeblood of any construction company, and delayed payments can quickly ripple through operations — slowing payroll, straining relationships with suppliers, and putting future projects at risk. In an industry where payment delays are all too common, protecting your right to fair and timely payment isn’t just smart — it’s essential for survival.

And here’s the thing: the groundwork for getting paid on time is usually laid long before you send your first invoice. It starts with your subcontract — the document that defines when, how, and under what conditions you’ll be paid. Add to that a solid understanding of your state’s prompt payment laws and lien rights, and you’ve got the tools to keep your business on steady financial footing.

1. It All Starts with the Subcontract (and Sometimes the Prime Contract)

Before you sign a subcontract, take a close look at the payment terms. Too often, payment clauses get skimmed over because everyone’s focused on scope, schedule, or price. But those few paragraphs about payment can have a bigger impact on your business than almost anything else in the agreement.

A few things to look for and negotiate:

• Timing of Payment: Does the subcontract set a clear timeline for payment after you submit an invoice or pay application? Or does it tie payment to when the general contractor gets paid by the owner?
• Conditions to Payment: Are there specific steps or paperwork you need to complete before payment is processed — like certified payroll reports, lien waivers, or insurance certificates? Missing one of these can cause unnecessary delays.
• Withholding Rights: Many subcontracts let general contractors withhold payment for a range of reasons — alleged defective work, backcharges, or even unrelated disputes. Know exactly when and why payment can be held back and try to narrow those rights when contracting where possible.

Also, don’t forget about the prime contract. Most subcontracts “flow down” certain provisions from the prime contract, meaning they can affect your payment even if you never sign that document yourself. Ask for a copy of the prime contract and review the payment-related sections, among others that may flow down to you as the subcontractor. It’s a small step that can prevent big surprises later.

2. Pay-When-Paid vs. Paid-If-Paid: Similar Words, Very Different Consequences

You’ve probably seen these phrases in subcontracts before: “pay-when-paid” and “paid-if-paid.” They might look interchangeable, but legally, they’re very different — and that difference can determine whether you get paid at all if the owner doesn’t.

• A Pay-When-Paid clause generally means the general contractor can delay payment to you until they get paid by the owner. Courts in most states interpret this as a timing mechanism — the general contractor can wait a “reasonable time” for payment from the owner, but ultimately must pay you even if the owner never does. What constitutes a “reasonable time” for payment often depends on a variety of factors and can be a heavily contested issue in litigation.
• A Paid-If-Paid clause is a much bigger deal. It may make your right to payment contingent on the owner’s payment to the general contractor. If the owner never pays, the general contractor might never owe you. When enforceable, a paid-if-paid clause may shift the risk of owner nonpayment to the subcontractor.

Whether these clauses are enforceable typically depends on the state you’re working in and the subcontract language. Some states say paid-if-paid clauses are against public policy and unenforceable. Other states allow them if they’re clearly written.

Because subcontract language can be the difference between getting paid or not, it’s worth having an attorney review any subcontract that includes one of these provisions. Knowing how your state treats these clauses helps you understand your risk — and, if necessary, negotiate different terms before signing.

3. Prompt Payment Laws: Statutory Help for Subcontractors

Many states have recognized that payment delays are a chronic problem in construction and have enacted prompt payment laws to help keep the money flowing. These laws typically set a timeframe by which a subcontract is to be paid, and they often add interest or penalties if those deadlines are not met.

While every state’s version is different, the general idea is the same:

• The owner has to pay the general contractor within a set number of days after approving an invoice or object to the invoice in writing, lest the invoice be deemed approved.
• The general contractor then has to pay its subcontractors within a certain number of days after receiving payment.

Some states’ prompt payment laws go further — they require payment within a set timeframe regardless of whether the owner has paid. Others allow payment to be delayed if there’s a legitimate dispute over the subcontractor’s work. The key for subcontractors is to know what triggers those protections. In many states, you must submit a “proper” or “undisputed” invoice, comply with notice requirements, or provide certain certifications to qualify for prompt payment.

Prompt payment laws aren’t automatic magic, but they’re a strong backstop. They set expectations, create accountability, and can even give you leverage if you’re facing long payment delays.

4. Mechanic’s Liens: The Subcontractor’s Most Powerful Tool

When payments stall despite your best efforts, few remedies are as effective as a mechanic’s lien. A lien typically gives you a legal claim against the property you worked on, thereby putting pressure on the owner or lender to resolve the issue. In simple terms, a properly recorded lien can cloud the property’s title, making it difficult to sell or refinance until the claim is resolved — which often motivates payment quickly.

But lien laws are technical and unforgiving. Each state has its own deadlines and notice requirements. A few examples:

• You may need to send a preliminary notice or notice to owner shortly after starting work or delivering materials.
• You’ll have a limited window to record your lien.
• The lien itself typically must include specific information, like the owner’s name, a legal description of the property, and the amount claimed.

Miss a deadline or make a mistake, and your lien rights could be in jeopardy. That’s why it pays to know your state’s lien rules (or partner with someone who does) before a payment problem arises. When properly preserved, lien rights are one of the most powerful tools in your toolbox for enforcing payment.

Bringing It All Together

At the end of the day, ensuring fair and timely payment isn’t about luck — it’s about preparation and awareness. It starts with reading your subcontract closely, understanding the terms that control when and how you’ll be paid, and being proactive about protecting your rights under applicable law.

Here are a few takeaways to keep in mind:

1. Never sign blind. Review and negotiate payment terms before you sign a subcontract.
2. Know your state laws. Prompt payment and lien laws vary widely, and so do the rules around pay-if-paid clauses.
3. Stay organized. Keep records, submit complete and timely pay applications, and document your compliance with contractual and statutory requirements.
4. Act quickly if problems arise. Deadlines for asserting prompt payment or lien rights come up fast. Do not delay in asserting your rights to payment.

Construction is a tough business, and managing cash flow is one of its toughest challenges. But subcontractors who understand their contracts, their rights, and their remedies put themselves in the best position to keep projects — and payments — on track.

About the author: 

Christian Fernandez is a member of the firm’s commercial litigation practice group. In addition to handling general commercial disputes, Christian’s practice focuses on construction, real estate, and investigations, government enforcement and white collar protection. Christian has experience representing clients throughout the litigation process, including trial. In his construction practice, Christian regularly represents owners, developers, contractors, subcontractors, and suppliers in all aspects of construction disputes, including delay, defect, wrongful termination, change order, mechanic’s liens, and breach of contract disputes. More information on Snell & Wilmer can be found at https://www.swlaw.com/people/christian_fernandez/.