If you're a subbie, you've almost certainly heard it before: “We'll pay you as soon as we get paid.” It sounds reasonable on the surface. But this excuse has no legal standing in New Zealand, and it hasn't since 2003. The excuse is long past its use-by date. It's over, gone, ka-put.
At Commercial Collections, we regularly deal with situations where main contractors try to use this tactic to delay or avoid paying their subcontractors.
What Is “Pay When Paid”?
A “pay when paid” clause is a provision in a construction contract that makes one party's obligation to pay another party conditional on receiving payment from a third party — usually the client, but sometimes a funder, or someone else.
There are two common variations:
- Pay when paid: Ties the timing of payment to when the head contractor receives funds from the client.
- Pay if paid: Goes further and makes the subcontractor's entitlement to payment conditional on the head contractor actually receiving payment.
Both versions shift the credit risk from the party who chose the client (the head contractor) to the party who had no say in that choice (the subcontractor). It's fundamentally unfair, and it's exactly why the government stepped in. If someone engages you for work, they're on the hook for paying you, no one else. Whatever they say.
Section 13: The Law That Protects You
Section 13 of the Construction Contracts Act 2002 is unambiguous: any conditional payment provision — including pay-when-paid and pay-if-paid clauses — has no legal effect.
“No legal effect” is the key phrase. It doesn't mean the clause is merely frowned upon, or that it can be challenged if you can afford a lawyer. It means the clause is treated as if it was never there. Whether it's buried in a 60-page subcontract, scrawled on the back of a purchase order, or repeated in every email the head contractor sends you — it doesn't bind you, and it doesn't excuse them.
That applies even if you signed the contract. You cannot contract out of section 13. The government wrote it that way deliberately, because they knew exactly how the construction industry works: the party with the bigger bargaining position writes the contract, and the party that needs the work signs it.
Why This Excuse Still Gets Used (When It Shouldn't)
If the law has been settled since 2003, why are subbies still hearing “we'll pay you when we get paid” two decades on? A few reasons:
It works often enough. Plenty of subbies don't know the law. Plenty more do, but don't want to rock the boat with a contractor who might give them future work. Head contractors know this and lean on it.
It sounds reasonable. “We're not refusing to pay — we just don't have the funds yet” feels like a fair conversation between two businesses doing it tough. It frames the delay as a shared cashflow problem rather than what it actually is: one business pushing its credit risk onto another.
It buys time. Even if the head contractor knows full well the clause is unenforceable, dragging it out for a few weeks (or months) costs them nothing, and might get the subbie to settle for less just to draw a line under it.
The next job is dangling. This is the big one. The implied — or explicit — message is: “kick up a fuss and you won't be on the next project.” That pressure is real, and head contractors use it deliberately. But the law exists precisely because the government accepted that this pressure is built into the industry structure. The whole point is that you shouldn't have to choose between getting paid and getting the next job.
The Cashflow Chain — And Why “Pay When Paid” Breaks It
Construction runs on cashflow. You've already paid for the materials. You've already paid your workers. You've covered your fuel, your gear, your overheads. The work is done. The money you're owed isn't profit sitting in someone else's account waiting to be released — it's working capital you need right now to fund the next job.
When a head contractor delays your payment because their client hasn't paid them yet, they're not sharing the pain of a slow client. They're transferring it. They get to keep operating normally; you're the one who can't make payroll on Friday.
Multiply that across an industry, and you get exactly what New Zealand has experienced repeatedly: a head contractor goes under, and the subbies underneath them collapse like dominoes — not because their own businesses were unhealthy, but because they were carrying somebody else's credit risk without ever agreeing to.
Common Variations of the Same Excuse
“Pay when paid” rarely arrives with that label attached. Watch for these:
- “The QS hasn't certified your claim yet.”
- “We're waiting on a variation to be approved.”
- “Cashflow is tight this month — we'll sort it next month.”
- “The principal is disputing some of the works, so we can't release anything.”
- “Our payment terms are end of month following the month we get paid.”
- “It's tied up in retentions until practical completion.”
Some of these reference legitimate processes. Retentions, for instance, are real — but they're tightly regulated by law and have to be held in a separate trust account. Variations and certification have proper processes too. The problem isn't that these things exist; it's when they get used as a smokescreen to delay or avoid an amount that's already properly due.
If you're unsure whether what you're being told is a legitimate reason or a stalling tactic dressed up as one, that's worth a second opinion.
What “No Legal Effect” Means In Practice
The law being on your side is one thing. Getting the money into your bank account is another. The law gives subcontractors some of the strongest payment recovery tools of any industry in New Zealand — but those tools only work if you actually use them, and use them properly.
That's where we come in. We're not lawyers, and we're not a generic debt collection agency that chases overdue invoices for plumbers, accountants, and gym memberships. We work almost exclusively in construction, and we use the law specifically built for this industry, because for construction debts it's the fastest and most powerful route there is.
When a head contractor tells one of our clients “we'll pay you when we get paid,” our response is straightforward: that clause has no legal effect, the money is due, and we're going to recover it. The recovery options available to the construction industry are designed to move fast — much faster than court proceedings — and they don't care whether the head contractor's client has paid them or not. That's the whole point.
We won't go into the specifics of how we structure recovery here, for obvious reasons. What matters for you is this: if you're being told you'll be paid when someone else gets paid, you don't have to accept it.
What To Do If You're Hearing It Right Now
If you're currently sitting on an overdue amount and the head contractor is using “pay when paid” or any of its cousins:
- Don't sign anything new that purports to vary the payment terms or settle for less than you're owed.
- Keep your records tidy — the contract, your invoices or claims, emails, texts, site diaries, anything that establishes the work was done and the amount owed.
- Don't let it drag. While we can recover debts up to 6 years after the event, often the longer an unpaid debt sits, the harder recovery becomes — and not because of anything you've done. Head contractors who are stalling are sometimes already in trouble, and once they go under, your position gets a lot harder.
- Get advice early. A free conversation with us at the start costs you nothing and often makes the difference between recovering in full and recovering pennies on the dollar — or nothing at all.
We operate on a “no recovery, no fee” basis. If we don't get your money back, you don't pay us. That's how confident we are in the recovery tools the law gives us.
The Bottom Line
“We'll pay you when we get paid” isn't a payment plan. It's not a reasonable request. It's not an industry norm you have to live with. It's a clause the government struck out of every construction contract in New Zealand more than two decades ago — and it stays struck out no matter how many times you hear it.
If a head contractor is telling you otherwise, give us a call. Getting subbies paid is what we do.