These clauses are infamous within the construction industry, especially at the subcontracting level. There are a number of jurisdictions (e.g., UK, Singapore, New Zealand and certain states in Australia) where contractual ‘pay-when-paid' types of arrangements are either void or looked at with suspicion by the courts.

These conditional payment mechanisms work to the advantage of the contractors but may put a serious financial obstruction on the subcontractor's cashflow. In the UAE, the law accentuates the impact of these clauses as the Civil Code prohibits subcontractors from claiming directly against the employer unless the main contractor has assigned its rights against the employer to the subcontractor.

Keeping in mind the practical reality of a subcontractor being at the bottom of the payment food chain, what steps can a subcontractor take to minimize the risk created by pay-when-paid clauses?

Some options which a subcontractor can use when faced with a pay when paid scenario are set out below.

Direct Payments by the Employer