Payment Notices and Pay Less Notices: What the Construction Act Requires

Payment is the most litigated part of UK construction contracting, and most disputes turn on notices rather than on whether the work was any good. The Housing Grants, Construction and Regeneration Act 1996, amended by the Local Democracy, Economic Development and Construction Act 2009 and usually called the Construction Act, sets out a notice regime that applies to most construction contracts in the UK whether or not the contract mentions it.

If your contract does not comply, the relevant parts of the Scheme for Construction Contracts are implied in instead. You do not get to opt out. Here is what the regime actually requires and what to check in a contract before you sign it.

The two notices that matter

Once a payment becomes due, the Act contemplates two notices:

• A payment notice, specifying the sum the payer considers due and the basis on which it is calculated. This is typically served by the payer shortly after the due date. Where the payer fails to serve one, the payee's own application can take its place.
• A pay less notice, served before the final date for payment, if the payer intends to pay less than the notified sum. It must state the sum considered due and the basis of calculation.

The consequence is blunt. If neither notice is served properly and on time, the notified sum becomes payable in full, whatever the payer thinks the work was worth. Adjudications brought on that basis are common enough to have their own nickname in the industry.

What to check in the contract

The due date and the final date for payment

These are two different dates and contracts frequently blur them. The due date starts the notice clock; the final date for payment is when the money must arrive. The Act requires an adequate mechanism for determining what is due and when, and a final date for payment, but it does not fix the length of the gap between them. That gap is negotiable, and it is where amendments quietly extend payment terms.

Who serves what, and by when

Check the number of days for each notice, what triggers the count, and the permitted method of service. A pay less notice served correctly but by email where the contract requires post is a notice that may not count. Where the contract is silent or non-compliant, the Scheme's timescales apply.

Conditions precedent

Watch for language making payment conditional on something else happening first, such as the payer receiving payment up the chain. Pay-when-paid clauses are prohibited by the Act other than in narrow insolvency circumstances, but conditions precedent framed differently can have a similar practical effect on cashflow.

The right to suspend

The Act gives a payee the right to suspend performance for non-payment of a notified sum, on notice, together with an entitlement to reasonable costs and time consequences. Check that the contract has not tried to restrict it.

Adjudication

A party to a construction contract has the right to refer a dispute to adjudication at any time. Amendments attempting to restrict, delay or condition that right are worth flagging immediately, because the right is the main practical enforcement mechanism behind everything above.

Where the risk actually enters

Standard forms such as JCT and NEC are drafted to comply with the Act. The risk almost always arrives through the schedule of amendments, where payment periods get extended, notice windows shortened, or additional conditions attached. Reviewing the payment provisions therefore means reviewing them as amended, not as published.

That is a comparison exercise before it is a judgement one. AI contract review tools such as GenieAI read the amended document against the standard form and surface each departure, including changes to dates and notice mechanics that are easy to miss because they are numerical rather than obviously substantive. Once the departures are visible, GenieAI can rate them red, amber or green against the payment terms your business has already agreed it will accept, so a commercial manager sees which changes need a decision rather than re-reading the whole schedule.

A short pre-signature checklist

• Due date and final date for payment both clearly defined, and the gap acceptable
• Payment notice and pay less notice periods stated, with the trigger for each
• Permitted method of service stated, and workable for your team
• No pay-when-paid wording, and no condition precedent with the same practical effect
• Right to suspend intact
• Right to adjudicate at any time intact
• Retention terms and release dates stated

Applies to construction contracts in the UK. Scotland and Northern Ireland have their own implementing provisions, and certain operations and residential occupier arrangements sit outside the regime, so check whether the Act applies to your contract before relying on it.