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Payment notices under the Construction Act: the deadline that decides who keeps the money
A payer who does not serve a pay less notice in time owes the notified sum — not the true value of the work, the notified sum — and owes it on the final date for payment. The amount can be argued about afterwards. The payment cannot be delayed while it is.
Part II of the 1996 Act — everyone calls it the Construction Act — puts a payment regime into every construction contract whether the contract wanted one or not. Where a contract is silent or non-compliant, the Scheme for Construction Contracts supplies the missing terms. The regime is built out of two dates and two notices, and almost every dispute in this area is about one of the four.
The two dates
| Date | What it is |
|---|---|
| Due date | When the payment becomes due. The contract sets it — usually a fixed day each month, or a period after an application. |
| Final date for payment | When the money must actually be there. The contract sets the period between the two; the Act does not cap it for most contracts, but it does require that the period be fixed rather than dependent on somebody else paying first. |
They are not interchangeable and the notice deadlines hang off different ones. A programme that tracks only "the payment date" is tracking neither.
The two notices
The payment notice
The payer (or a specified person, such as a contract administrator) must give a payment notice not later than five days after the due date, saying the sum they consider due and the basis of the calculation. This is owed even when the answer is zero — a notice saying "nil, because…" is a notice; no notice at all is not.
If the payer does not serve one, and the payee has made an application for payment, that application can become the default payment notice. The sum in it then becomes the notified sum.
The pay less notice
To pay less than the notified sum, the payer must give a pay less notice before the end of the prescribed period — which the contract sets, and which ends before the final date for payment. It must state the sum the payer considers due on the date the notice is served and the basis of that calculation.
No valid payment notice and no valid pay less notice means the notified sum is payable in full at the final date for payment. Whether the work was worth it is, for that cycle, not the question.
“Smash and grab”, and what the payer can do about it
An adjudication brought on the basis that no notice was served — the so-called smash-and-grab — asks one question: was the sum notified, and was it displaced in time? If the answer is no, the adjudicator orders payment of the notified sum without valuing the work.
The Court of Appeal in S&T (UK) Ltd v Grove Developments Ltd [2018] settled what happens next: the payer may then start a second adjudication to determine the true value of the same application — but must discharge the first decision before doing so. Pay first, argue second. The notice failure costs cash flow rather than the whole sum, which is exactly what the regime was designed to do.
Retention
Retention is not a statutory scheme. What may be held, when half is released at practical completion and when the balance falls due at the end of the defects liability period are contract terms, and they vary. What the Act does is make the release itself a payment like any other: it has a due date, a final date, and the same notice requirements. A release nobody applied for and nobody notified is a release that quietly does not happen.
Where this actually goes wrong
- Counting from the wrong date. The payment notice runs from the due date; the pay less notice runs backwards from the final date for payment. Getting the anchor wrong moves both deadlines.
- A notice that does not state a basis. A figure with no calculation behind it has been found not to be a valid notice.
- Nobody noticing the window is open. The commonest failure is not a legal misjudgement. It is a cycle where a valuation went in on the 28th, the due date passed, and nobody was told that five days had started running.
How Veystrum handles it
Veystrum records an application against the date it was made, works the due date and the final date for payment out of the contract terms held for that subcontract, and counts both notice windows from the right anchors. A window that is open and unserved appears on the exception report with the days left on it, and a window that has closed unserved stays on the report and says so — because a missed notice is not less true for being in the past, and the sum it made payable is still payable.
Where the terms recorded are not enough to work a date out, it says that rather than guessing. “Not assessable” and “nothing due” are different answers, and a payment regime that shows the second when it means the first is telling somebody they are safe.