Pay-when-paid clauses are ineffective except where the employer is insolvent: the Construction Act strikes them down, a clause binds as a condition precedent only where it says so in clear words rather than merely fixing the time for payment, and a contractor cannot rely on one where its own default caused the non-payment, as Durabella v Jarvis and William Hare v Shepherd show

Pay-when-paid clauses are ineffective except where the employer is insolvent. The Housing Grants, Construction and Regeneration Act 1996 makes a provision conditioning payment on the payer being paid ineffective unless the third person is insolvent, and the standard subcontracts have abandoned pay when paid altogether. Where a clause is relied on, it is read strictly: in Smith and Smith Glass Ltd v Winstone Architectural Cladding Systems Ltd the court distinguished an if clause, a true condition precedent, from a when clause that only fixes the time for payment, holding that clear words are needed and that ambiguity is read against the party relying on the clause. A contractor cannot use such a clause to profit from its own default: in Durabella Ltd v J Jarvis and Sons Ltd the contractor could not rely on it where its own conduct caused the non-payment, and bore the onus of showing that what it received did not relate to the subcontract work. Where the insolvency exception is invoked the wording must be exact, as Hills Electrical and Mechanical plc v Dawn Construction Ltd and William Hare Ltd v Shepherd Construction Ltd show, the latter refusing to rescue a clause that missed the actual route into insolvency.