Qatari court weighs in on common clauses in construction contracts

The Qatari Court of Cassation ruled on the distinction between three clauses: pay-if-paid, back-to-back and pay-when-paid. A ‘pay-if-paid’ clause makes the general contractor’s duty to pay a subcontractor condition on the owner paying the contractor. A ‘back-to-back’ clause links the obligations and payment terms of a subcontractor to the main contractor, while a ‘pay-when-paid’ clause delays a subcontractor’s payment until the general contractor has received payment from the project owner.

The ruling confirmed that a pay-if-paid clause is invalid if its intention or effect is to make the subcontractor's entitlement to payment entirely conditional upon the main contractor first receiving payment from the employer. The same principle applies to a back-to-back clause where it is intended to produce the same effect as a pay-if-paid clause.

The court said that if a subcontractor is entitled to extra time and compensation because of a delay they did not cause, the main contractor cannot reject that claim simply because it has not yet been paid by the client for the same delay. The pay-when-paid clause does not cover these types of claims.

Pamela McDonald, an expert in construction disputes at Pinsent Masons, said: “This judgment has considerable significance for construction disputes and contracts in Qatar.”

“It provides important guidance on the distinctions between back-to-back, pay-when-paid, and pay-if-paid clauses and, importantly, on the limits to their enforceability,” she said.

“The judgment should therefore be taken into consideration not only in existing construction disputes involving such clauses, but also when drafting and negotiating new construction contracts and subcontracts.”

The court ruled that once a contractor hands over the works in accordance with the required specifications and the employer accepts those works, the contractor's entitlement to payment becomes due.

Mohamed Adam, an expert in construction disputes at Pinsent Masons, said: “The employer must therefore pay the full amount due unless the parties have agreed otherwise, for example, by agreeing to advance payments, payment by instalments, or another method of payment.”

“The court emphasised that contractors and subcontractors are entitled to payment upon handing over the works to the employer, unless the agreement between the parties or applicable custom provides otherwise,” he said.