Section 113 Pay-When-Paid Traps in JCT Subcontracts: How to Spot and Strike Illegal Payment Clauses

If you have ever been told on site, “We can’t pay your monthly application until the client pays us,” you have run directly into a pay-when-paid clause.

Under UK construction law, conditional payment terms like this are strictly illegal. Yet main contractors routinely insert bespoke amendments into standard JCT subcontracts to bypass statutory rules and protect their own cash flow at your expense.

Below, I break down how Section 113 works, the sneaky workarounds commercial teams use to disguise conditional terms, and how you can protect your cash flow before signing.

1. What Is Section 113 of the Construction Act?

Technical Authority: Section 113 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) and JCT Subcontract Clause 4.9.

Plain English Translation: Section 113 outlaws conditional payment provisions in construction contracts. A clause making payment dependent on the main contractor getting paid by the employer has zero legal effect.

The Single Statutory Exception: The only time a pay-when-paid clause is enforceable is upstream insolvency. If the employer higher up the chain enters formal liquidation or administration, the main contractor can rely on the clause to withhold payment. Outside of formal insolvency, tying your money to client funds is completely unlawful.

2. The 3 Sneaky Workarounds Main Contractors Use

Because commercial teams know direct pay-when-paid clauses are illegal, they draft disguised conditional terms in their Schedules of Amendments:

• 1. Pay-When-Certified Clauses: The contractor amends JCT Clause 4.9 so your interim valuation is conditional on the Employer’s Agent or Architect issuing the master Interim Certificate under the main contract.
• 2. Conditional Valuation Sign-Offs: Clauses stating that daywork sheets, variations, or trade milestones will only be valued after the ultimate client inspects and approves them.
• 3. Upstream Fund Drawdown Triggers: Terms stating that final account or retention release dates are tied to the developer securing bank funding drawdowns.

3. Financial Exposure: What It Costs Your Business

Signing up to disguised conditional payment clauses creates severe commercial exposures:

• Cash Flow Paralysis: You are forced to fund weekly wages, plant hire, and supplier invoices without a guaranteed statutory payment date.
• Loss of Suspension Rights: Under Section 112 of the Construction Act, you have the statutory right to suspend work for non-payment after giving 7 days’ written notice. Conditional clauses obscure the Due Date, making suspension legally risky.
• Funding Third-Party Disputes: If the main contractor and client enter a dispute over an unrelated package, your payments remain trapped in the crossfire, triggering severe revenue loss.

How to Protect Your Cash Flow Before Signing

1. Strike Out Conditional Terms: Remove any subcontract clause stating payment is subject to “receipt of funds”, “client certification”, or “upstream approval”.
2. Anchor Strict Timetables: Ensure your subcontract particulars set out fixed Due Dates and Final Dates for Payment that operate completely independently of the main contract.
3. Audit the Schedule of Amendments: Always check whether bespoke amendments have altered the standard JCT Clause 4.9 payment mechanisms.

Frequently Asked Questions About Section 113 & Pay-When-Paid