Pay less notices: what homeowners and small contractors need to know

Why notices matter

Most construction contracts in England and Wales provide for stage or interim payments. Part II of the Housing Grants, Construction and Regeneration Act 1996, as amended in 2011, sets out a mandatory framework for how those payments are notified and, if the paying party disagrees, how it says so. Where a contract does not comply, the Scheme for Construction Contracts fills the gap.

The practical effect is simple. The contractor applies for a sum. The payer either accepts it, or serves a notice saying what it intends to pay and why. If the payer serves nothing, or serves it late, the sum applied for becomes the "notified sum" and must be paid by the final date for payment, whatever the works were actually worth at the time.

The three documents

The application or payee notice

The contractor's application for payment, where the contract makes it the default payment notice, or a separate payee notice served after the due date where the payer has failed to serve its own notice (section 110B). To count, it must state the sum the contractor considers due and the basis on which it is calculated. A bare invoice with a total and no build-up is often attacked on exactly that ground.

The payment notice

Served by the payer or its contract administrator within five days of the due date (section 110A), stating the sum it considers due and the basis of calculation. Under the Scheme the due date is seven days after the end of the relevant period or the making of the claim, whichever is later.

The pay less notice: what it must contain

If the payer intends to pay less than the notified sum, it must serve a pay less notice no later than the prescribed period before the final date for payment (section 111). Under the Scheme that period is seven days, and the final date is seventeen days after the due date. The notice must state the sum the payer considers due at the date of the notice and the basis on which that sum is calculated. "We dispute your account" is not a pay less notice.

Where residential projects stand

Section 106 excludes contracts with a residential occupier, that is, a person who occupies or intends to occupy the dwelling as their residence, from the statutory scheme. That exclusion does not help as much as homeowners expect. Many standard forms used on domestic work, including JCT contracts, write equivalent notice provisions into the contract itself, and where they do, the contract terms govern. Even where there is no written contract, the parties' payment history often shows an agreed pattern of applications and payments that a tribunal will give weight to.

For small contractors working for homeowners, the lesson is to use a written contract with clear payment terms and to apply in a form that states the sum and the basis every time. For homeowners, the lesson is to read the contract's payment clause before the first application arrives, and to diarise the notice dates.

What goes wrong

• Late notices. The most common failure. A pay less notice served the day before the final date for payment under a contract that requires seven days is a nullity.
• Notices in the wrong form. An email saying "we are not paying this, there are too many defects" without a sum and a basis.
• Notices from the wrong person. Some contracts require the contract administrator, not the employer, to serve the payment notice. Others allow either. Check.
• Applications that do not say when they were made. If the contract ties the due date to the application, an undated or misdirected application creates an argument about when, or whether, the clock started.
• Confusing the valuation with the notice. The payer may be entirely right that the works are worth less than applied for. If the notice was late, that argument is for a later true-value process, not a reason to withhold the notified sum.

What a quantity surveyor looks for

When a notice dispute arrives, the first job is a timeline. Every application, notice, certificate and payment is set out against the contract's due dates and final dates, so that the parties and their advisers can see immediately which sums became notified sums and which were validly reduced. That exercise is factual and usually settles half of the argument.

The second job is value. Even where the payer has lost the notice point, the works still have a true value, and that value will matter in the next application, in a true-value adjudication, or in the final account. A properly built valuation, tied to the contract's pricing documents and the record of work done, is what allows the overpayment to be recovered or the underpayment to be made good.

Practical steps

• Put the payment terms, including the number of days for each notice, on one sheet and keep it with the contract.
• Apply, and respond, in writing, with a sum and a basis, every time.
• Serve notices by the method the contract specifies, and keep proof of service.
• If a notice has been missed, take advice quickly. The remedy is usually to pay the notified sum and then establish the true value, not to withhold and wait.
• Keep the valuation evidence current: measured quantities, photographs, delivery records and timesheets are what a true-value assessment is built from.

This article is general information for professionals and the public, not legal or professional advice, and does not create a client relationship. The law and procedure described are those of England and Wales as understood at the date of publication. Take advice on your own facts before acting.