Pay-When-Paid / Pay-If-Paid Clause
A subcontract clause tying the general contractor's obligation to pay a subcontractor to the GC's own receipt of payment from the owner. "Pay-when-paid" is usually read as only a timing mechanism: the GC still owes payment eventually, just after receiving the owner's funds, while "pay-if-paid" attempts to make owner payment an actual condition precedent, potentially eliminating the GC's obligation to pay at all if the owner never pays.
Why it matters
Whether a pay-if-paid clause is even enforceable varies significantly by state: some states enforce them as written, some refuse to enforce them at all as against public policy, and others enforce them only if the contract's language is unmistakably clear about shifting the owner's non-payment risk onto the subcontractor. A subcontractor needs to know which rule applies in the project's jurisdiction before assuming either version of the clause protects (or exposes) them the way it reads on paper.
On a real project
A subcontract includes a pay-if-paid clause stating the subcontractor will be paid "only if and to the extent" the general contractor receives payment from the owner. When the owner becomes insolvent and stops paying the GC, the subcontractor argues the clause shouldn't be enforced in their state, while the GC argues the subcontractor contractually accepted that exact risk.
Who this matters most to
A Contracts Administrator negotiating a subcontract on behalf of a subcontractor tries hard to strike a pay-if-paid clause entirely or convert it to pay-when-paid, since the difference determines who actually bears the risk of the owner's insolvency. A Construction Accountant has to track receivables differently depending on which version of the clause governs a given subcontract, since it directly affects when revenue can reliably be recognized.
Where this goes wrong
A subcontractor signs a subcontract with a pay-if-paid clause without negotiating it, assuming, incorrectly, that they'll eventually be paid for completed work regardless of what happens between the GC and the owner. When the owner disputes payment with the GC and withholds funds for months, the subcontractor discovers the clause may leave them unpaid indefinitely depending on how their state's courts treat pay-if-paid language.