Payment notices are a crucial component in the construction industry, particularly in the context of the Construction Act 1996. They serve to formalise the payment process and ensure timely compensation for work completed.
Mark Blackmore, Quantum Expert, UK
Payment notices are a crucial component in the construction industry, particularly in the context of the Construction Act 1996. They serve to formalise the payment process and ensure timely compensation for work completed.
The legal context for payment notices stems from the Housing Grants, Construction and Regeneration Act 1996, which was updated in 2009[1], to protect the rights of parties involved in construction projects.
One of the more significant changes relates to the abolition of the requirement that construction contracts need to be in writing. The Act now applies to all construction contracts, whether wholly in writing, partly in writing or completely oral.
Part II of the Construction Act requires that construction contracts must include:
- The right for a party to the contract to refer a dispute to adjudication (sections 108 and 108A).
- A mechanism for payments through the course of the contract (sections 109 to 113).
In the absence of the contract not containing the relevant provisions, ‘the Scheme’ (the Scheme for Construction Contracts (England and Wales) Regulations) provides a fall-back position.
The timetable for payments under the Scheme is demonstrated in the following graphic.
Scheme Timetable
Under an unamended JCT contract, for example a payment notice is required due under the contract and issued not later than five days after the payment due date. This is defined as ‘the date provided for by the contract as the date on which payment is due’.
The payment notice must specify:
- The sum considered due, or to have been due at the payment due date (the notified sum); and
- The basis on which the sum is calculated.
- A payment notice must still be issued if the sum considered due is zero.
If a payment notice is not issued by the payer, the payee can issue a payment notice, known as a ‘payee’s notice in default’. If the contract allows for an application for payment and that application is made, this automatically becomes the payee’s notice in default. However, the paying party still has the opportunity to issue a ‘notice of intention to pay less’, or a ‘pay less notice’ before the final date for payment and must contain:
- The sum that the person giving the notice considers to be due on the date the notice is served; and
- The basis on which the sum is calculated.
The following graphic demonstrates the typical timescales under a standard JCT contract.
JCT Standard Building Contract
Under NEC4, secondary option Y(UK)2 is a payment clause when the Act applies, and includes the following wording ‘The final date for payment is fourteen days after the date on which payment becomes due or a different period for payment if stated in the Contract Data’.
Again, either party must notify the other if it intends to pay less than the notified sum. A party does not withhold payment of an amount due under the contract unless it has notified its intention to pay less than the notified sum as required by the contract.
The payment process under NEC4 is demonstrated within the following graphic.
NEC4 Timescale
Recent cases provide further guidance as to how payment notices are interpreted and enforced in the UK legal system.
Placefirst Construction Ltd v CAR Construction (North East) Ltd (2025)
CAR secured a ‘smash and grab’ adjudication against Placefirst. Placefirst sought to challenge the enforcement of this decision. The key issues related to the payment and pay less notices, which have strict procedures to follow under the Construction Act.
Court Ruling: The court held that Placefirst’s notifications within a single email, titled both as a ‘pay less notice’ and ‘Valuation 30’, contained the requirements for a valid payment notice. The judge emphasised that the interpretation should be objective, considering what a reasonable recipient would understand from the correspondence.
Validity of Notices: The judge noted that the payment notice does not need to explicitly state that the amount is what the issuer considers due at the payment due date, and negative sums are permissible. This ruling provides agents a bit more leeway in their notice designations and interpretations.
This case underscores the need for clear communication in contractual obligations and highlights the risks parties face when procedural guidelines are not diligently followed.
Vision Construction Ltd v Gypcraft Drylining Contractors Ltd (2025)
VCL was the main contractor and Gypcraft was the boarding and drylining subcontractor on a residential development in Battersea.
Gypcraft issued its interim application for payment. VCL responded after the date the payment notice was due via an email entitled ‘Payment Notice’. The email stated a lower value sum was due to Gypcraft. At no point was a pay less notice issued by VCL.
Gypcraft launched a smash and grab adjudication and was found to be entitled to the notified sum plus interest.
Lapp Industries Ltd v 1st Formations Ltd (2025)
Lapp sought summary enforcement of an adjudicator’s decision. Lapp had issued an application for interim payment for which no payment notice or payless notice was served.
1st Formations raised a jurisdictional challenge stating there were numerous contracts between the parties rather than a single contract as alleged.
The judgment ruled that there was one contract and the application for interim payment was valid.
Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd (2017)
Bray and Slaughter issued an interim payment application that was neither paid by the deadline nor was a valid payment or pay less notice issued.
An adjudication was subsequently commenced. Kersfield refused to comply with the adjudicator’s decision and launched Part 8 proceedings seeking a declaration that it was entitled to launch a second adjudication to independently value the works.
The judge confirmed that the interim payment application was valid and complied with the requirements of Clause 4.8 of the contract.
Conclusion
Following the payment provisions set out in the Construction Contract, or in its absence the Scheme, is critical to ensure that you do everything possible to ensure compliance with the Construction Act.
The scheduling of calendar dates for all relevant contracts to ensure notices are issued in time is far easier than trying to defend a smash and grab adjudication for a simple administration error.
This article was originally written for issue 30 of the Diales Digest. You can view the publication here: https://www.diales.com/diales-digest-issue-30
1. The amendments to the Construction Act came into force in respect of construction contracts entered into on or after 1 October 2011 in England and Wales and 1 November 2011 in Scotland.