Pay-If-Paid vs. Pay-When-Paid

In terms of language, the difference between a pay-if-paid (PIP) clause and the related pay-when-paid (PWP) clause is a subtle one, and the terms are often used interchangeably. While a PIP clause says that the general contractor must pay a subcontractor only if it receives payment from the owner, a PWP clause provides that the general contractor must pay the sub within a specified time (seven days, for example) after receiving payment from the owner.

Arguably, the impact of these two provisions is the same: If the owner never pays, then the general contractor's obligation to pay the subcontractor never arises, whether the contract contains a PIP clause or a PWP clause. But most courts treat PWP provisions as governing only the timing of payment. Even if the owner fails to pay, the general contractor remains obligated to pay the sub within a "reasonable time."