Back to back payment for the main contractor and its subcontractors?

Arnel,

since the buyer and then main contractor should do some integration and quality assurance work on the subcontractor deliverables, back to back is a bad idea. And the risk of gaps lies fully with the buyer and main contractor.

Privity can be limited by contractual language, e.g. subcontractor selection needs buyer approval, ability to conduct onsite visits and audits, or subcontractor required to report in a standard format. Be aware though, if you limit privity you will probable have to pay a premium. Avoid micromanagement, so select a main contractor you can trust.

Thomas

The main issue with back-to-back payment (paid-when-paid) between prime contractor and subcontractor is that it benefits the prime only The sub may be waiting for payment due to disagreements between the prime and owner that has nothing to do with the sub's performance. The prime could use the clause to "bully" the sub into performing work not specified in the contract or just stretch out payments for financial advantage. "I forgot to include for your work in the billing cycle thus you won't get paid." The sub may have no way of validating the prime's claim of non-payment.
In some jurisdictions is is illegal to have 'paid-when-paid' contract clauses to protect subs from aggressive primes.

As to contract privity, it depends entirely on the contract terms. The contract between the owner and prime may have confidentiality clauses limiting the sub's access. The sub only has access to the terms of the owner-prime contract if it is so stated in the prime-sub contract and allowed under the owner-prime contract.

Bottom line: paid-when-paid contracts are at significantly higher risk of delayed payment for the sub. If you are going to enter into such a contract make sure you consider the risks and apply mitigation measures including how you can finance the delay and/or influence the owner-prime payment process.

we have been in a main contractor and a subcontractor position, and have been on the "giving" end of the "grieve" (where we are main) and the receiving end (where we are sub).
All is dependent on the relationships you have, do you want to work for that main again or not, etc. Typically, as a sub, and we are forced into paid-when-paid contract, we would always add a clause that limits the delay:...."but payment not later than..." we would never enter into an open-ended contract without that clause. The contract language should always be such that (as a sub) the prime would not be able to stop you to put a lien on the deliverable, even if that deliverable is already at the Buyer's. (the fly in the ointment of course is that the Buyer is not party to the Prime / sub contract). All of our business is international, and putting a lien on a deliverable therefore is usually very expensive. So our contracts specifically would have at least one paragraph on transfer of title. If as a sub, we already have a good relationship with the buyer, we would normally try to advise the buyer at the time of Prime / sub contract)

Caro Arnel,
When you work with sub-contractors is essential to understand that your main contract must be a mirror for the sub-contractor. Otherwise, you would take some risk. So you should at least include such potential impact in your contingency.
The only way to assure that your sub-contractor is aligned with your client is by making the sub-contractor complies with the same commercial conditions and clauses.

However, always depending on what was agreed in the contract with your sub-contractor, the relationship between the client and the main contractor is individual, your sub-contractor has not entitled to participate, especially in terms of payment.

Caro Arnel,
When you work with sub-contractors is essential to understand that your main contract must be a mirror for the sub-contractor. Otherwise, you would take some risk. So you should at least include such potential impact in your contingency.
The only way to assure that your sub-contractor is aligned with your client is by making the sub-contractor complies with the same commercial conditions and clauses.

However, always depending on what was agreed in the contract with your sub-contractor, the relationship between the client and the main contractor is individual, your sub-contractor has not entitled to participate, especially in terms of payment.