It has been over 25 years since the Construction Act came into force, yet invalid payment notices continue to cause major issues across the industry.
When a payment notice does not comply with the legal requirements, the consequences can be severe. You could be ordered to pay the full amount claimed by a contractor or subcontractor, even if that amount is incorrect.
This is the basis of what’s often referred to as a “smash and grab” adjudication. Fortunately, these outcomes are entirely preventable if you follow the key rules.
The Legal Basis: Section 110A of the Construction Act
The law is clear. Under Section 110A of the Housing Grants, Construction and Regeneration Act 1996, as amended1:
A payment notice must be given no later than five days after the payment due date, and it must:
- State the sum the payer considers due at the due date;
- Set out the basis on which that sum has been calculated.
This requirement applies to all construction contracts that fall under the Act, and if your notice does not meet these conditions, it is likely to be deemed invalid.
A Practical Example: JCT Design and Build Contracts
To illustrate how this works in practice, let’s take a typical JCT Design and Build contract, which usually involves a 21-day payment cycle.
- Determine and State the Correct Due Date
Under JCT, the due date is typically 7 days after the interim valuation date.
E.g., if the valuation date is the 1st of the month, the due date will be the 8th.
Your payment notice must be issued within 5 days of the due date — in this example, by the 13th.
The due date must also be clearly stated in the payment notice.
If you miss this deadline, the notice is automatically invalid — no matter how accurate the figures might be.
- State the Correct Amount Due
Many payment notices incorrectly state the overall value of works, rather than the specific amount due at the due date.
To avoid this mistake, calculate the amount as follows:
- Total value of works completed
- Minus retention
- Minus previous payments made
The result is the amount due on that payment cycle only.
- Show the Basis of Calculation
A common pitfall is failing to show how the figure has been calculated. A notice that simply states a number, without supporting details or references, does not meet the requirements of the Construction Act.
You need to include:
- A breakdown of the calculation
- Supporting figures or references to interim valuations
- An explanation of any adjustments or deduction
The Three Essential Rules
To make sure your payment notices are compliant and enforceable, always:
- Calculate and state the correct payment due date, and issue your notice within the required timeframe.
- State the amount due on that due date — not the total contract value or works to date.
- Provide the calculation basis clearly, with evidence or a breakdown of how the sum was arrived at.
Why It Matters
If a notice is invalid, you may lose your right to deduct money or dispute a claim — even if the contractor’s valuation is overstated. The law does not allow for flexibility once the deadlines have passed or if the content of the notice is non-compliant.
Following these steps is not just about good practice — it’s about protecting your position in the event of a dispute.
Need Advice?
Whether you are an employer, employer’s agent, contract administrator, contractor or subcontractor, getting payment notices right is essential.
If you would like advice on issuing compliant notices or responding to a payment dispute, we are here to help.
1Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009.