By: Rilee White, UGA Law Class of 2026 and William Underwood, Partner, Jones Walker
June 7, 2024

Many states have laws (both in the form of statutes and court case decisions) governing the form and timing of payments to contractors and subcontractors. However, many states also have laws governing the right to withhold or otherwise delay payments to contractors and subcontractors. It is important to not only recognize the existence of laws governing these competing ideas (payment v. non-payment), but to also recognize how these laws might intersect with one another to influence payment issues on projects.

This article will briefly examine the potential intersection of prompt payment acts, pay-when-paid/pay-if-paid contract provisions, and contractual clauses regarding the right to withhold payment. This article is not a deep dive into any of these areas, as each could support its own thesis. But it does serve to highlight certain issues regarding payment and non-payment on projects so that it is easier to spot them in real life. And, as always, it remains important to understand the applicable law governing the project and whatever payment issues may arise on it.

Prompt Pay Acts and Defenses

In many states, prompt payment laws require that contractors pay their subcontractors in accordance with deadlines set by statute. These statutes are known as “Prompt Payment Acts,” and they vary widely from state to state in their timing requirements, conditions, and penalties. Understanding the basic principles of these prompt payment acts is important for analyzing potential rights to withhold or otherwise delay payments.

For example, in Georgia, the Prompt Pay Act (established under O.C.G.A. § 13-11-1 et seq.) requires a prime contractor to pay its subcontractor or material supplier within ten days of receipt of payment, assuming other contractual conditions precedent are met. O.C.G.A. § 13-11-4. However, under the Georgia Prompt Pay Act the contractor does have the right to withhold payment for various reasons, such as retainage or defective work. O.C.G.A. § 13-11-5.

To that end, various state prompt payment laws have different conditions for payment. Thus, a subcontractor seeking to recover on a prompt payment claim might need to show a different set of elements, such as lack of payment by the contractor, payment by the owner to the general contractor for the subcontractor’s work, that the work was ‘undisputed,’ that the subcontractor properly requested payment pursuant to the terms of the subcontract, and more.

A contractor has several approaches to defend itself against a Prompt Payment Act claim by a subcontractor. First, the contractor could argue that the subcontractor never requested payment. Second, the contractor might also prevail if the subcontractor’s work was ‘disputed.’ Although the meaning of ‘disputed’ work is often not clearly defined in statutory language, courts have held that general contractors must raise the dispute before the prompt payment period has expired, and that the contractor does not have unlimited discretion to define ‘disputed’ when withholding pay.[1] Similarly, a contractor might argue that the work was never fully completed.

The exact defenses will vary depending on the language of the state’s statute and the specific circumstances of the case, but generally, the contractor will have an avenue to delay payment despite a Prompt Payment Act if the subcontractor’s job was not completed in accordance with the contract.

Pay-When-Paid/Pay-if-Paid Contract Provisions

Pay-when-paid and pay-if-pay contract provisions impact the timing and nature of project payments, even in the face of otherwise applicable prompt payment statutes. Generally, a pay-when-paid clause gives the contractor the right to delay payment of the subcontractor for a reasonable amount of time until the owner pays the contractor (note, most state courts place some outer limitation on this length of time). However, a pay-if-paid provision only obligates the contractor to pay the subcontractor if the project owner pays the contractor—thus, the risk of the owner’s nonpayment shifts to the subcontractor.

The law varies state by state when pay-when-paid and pay-if-paid provisions are enforceable. Generally, for pay-if-paid provisions, the contract provision must show that payment by the owner is a condition precedent to payment clearly expressed by the contract and intended by both parties. Additionally, if the risk of the owner’s nonpayment is shifted from the contractor to the subcontractor, this shift must be clearly articulated in the agreement. If there is any wiggle room, courts will often find it. For example, in Minnesota, if the contract language can be construed to avoid the pay-if-paid condition, the court will do so.[2] However, certain states, like North Carolina, have enacted legislation making pay-if-paid clauses completely unenforceable, even if they are written as an unambiguous condition precedent to the subcontractor’s payment.[3]

Pay-when-paid clauses are more commonly enforceable than pay-if-paid clauses. Although the standard for enforcing a pay-when-paid clause is slightly more lenient than pay-if-paid, the contract must still clearly express the requirement. An enforceable pay-when-paid clause, however, will generally not provide an excuse for nonpayment under all circumstances.

Pay-when-paid provisions are generally supported by Prompt Payment Acts. For example, in Minnesota, Minn. Stat. § 337.10 subd. 3 requires prompt payment “within ten days of receipt by the party responsible for payment of payment for undisputed services provided by the party requesting payment.” Because this law is conditioned on the general contractor’s receipt of payment, pay-when-paid is written into the Minnesota statute.

However, Prompt Payment Acts can just as easily invalidate pay-if-paid provisions in their entirety, such as Delaware’s Del. C. tit. 6, § 3507, as well as alter the timing requirements for a contractual pay-when-paid provision. As a result, although a contract may contain a pay-if-paid or pay-when-paid clause, that clause might not be enforceable under the terms of a potentially applicable Prompt Payment Act. Thus, it is important to know the applicable law and the impact it may have on payment rights, including those outlined in the contract.

Contractual Right to Withhold Payment

When disputes over work arise between the contractor and the subcontractor, the contractor may want to withhold payment until the issue is rectified. In anticipation of this need, contractors often include language in their contracts giving them the right to withhold payment under certain conditions.

This contractual right is most often treated under the state’s general body of contract case law, and these clauses are generally enforceable. Thus, contractors must be aware of the applicable laws when drafting withholding provisions. In the absence of statutory language, general contract interpretation dictates how these contract provisions are implemented. Again, this can differ state by state.

Sometimes a contractual right to withhold payment can come into conflict with state Prompt Payment Acts. Although these acts differ by state, many of them contain language requiring the contractor or subcontractor to conform with the requirements of the contract before it is entitled to payment. For example, the Georgia Prompt Pay Act states, “When a subcontractor has performed in accordance with the provisions of its subcontract and the subcontract conditions precedent to payment have been satisfied…” then payment must be made (assuming other conditions have been met). O.C.G.A. § 13-11-4. The Georgia Prompt Pay Act also provides a list of grounds for withholding payment that are typically found in construction contracts: unsatisfactory job progress, defective construction, disputed work, etc. O.C.G.A. § 13-11-5. In other words, the act requires the subcontractor to have properly performed its work.

Thus, Prompt Payment Acts can, and often do, account for an otherwise existing contractual right to withhold payment for failure to properly perform the work. Nonetheless, it is important to understand the applicable laws before exercising this right, as the potential for conflict between existing laws can exist.


Overall, it is important to recognize and understand applicable laws governing payment and non-payment on project. Sometimes these laws come into conflict with one another in ways that directly impact these rights. Recognizing these conflicts is important to properly exercising payment rights on projects.

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The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.

[1] See, e.g., Doran Constr. Co. v. Mehrwerth Concrete & Masonry, 2020 Minn. Dist. LEXIS 8863 at 11*, 12* (“[T]he statute would be completely gutted if ‘undisputed’ could be interpreted as either allowing a general contractor to dispute the work long after the ten-day prompt payment window or as allowing a contractor to define ‘undisputed’ however it chooses to, including to require conditions that are not related to the quality of the subcontractor’s services. In short, the Court disagrees with Doran’s position that it can define ‘undisputed’ by contract in a manner that largely nullifies the protections of the prompt payment statute.”).

[2] See Mrozik Constr., Inc. v. Lovering Assocs., Inc., 461 N.W.2d 49 (Minn. Ct. App. 1990).

[3] N.C. Gen. Stat. § 22C-2 (“Payment by the owner to a contractor is not a condition precedent for payment to a subcontractor and payment by a contractor to a subcontractor is not a condition precedent for payment to any other subcontractor, and an agreement to the contrary is unenforceable.”).