Payment Notices and Pay Less Notices: The Amended Construction Act

by | Oct 3, 2011 | Contract Administration and Major Works

For building owners employing a contractor, the way they paid changed on 1 October 2011. For construction contracts entered into from that date in England and Wales, the Housing Grants, Construction and Regeneration Act 1996 was amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009. The changes were aimed at fairer cash flow, and they put the burden firmly on the paying party to give the right notices on time.

The main changes

  • Payment notices. For each payment, a notice must state the sum considered due and how it was calculated. Under most contracts the certifier or employer gives it.
  • Default notices. If no payment notice is given, the contractor can issue its own. If the payer then does nothing, the contractor’s figure may become payable.
  • Pay less notices. These replaced withholding notices. If you intend to pay less than the notified sum, you must say so, and why, in time.
  • Contracts need not be in writing. The Act applies to oral and partly written contracts too.
  • Payment linked to other contracts. Making payment depend on a certificate under another contract is no longer effective.
  • Suspension. A contractor who is not paid can suspend part or all of the work and recover reasonable costs.

What this means for clients

The days of simply not paying a disputed valuation are over. Under the new regime, a missed or late notice can oblige you to pay the sum claimed, with the argument over its merits left for later. That is a real risk for an employer with a fixed budget.

Practical steps

  1. Use a current form of contract that reflects the new rules, and check any amendments.
  2. Set out a clear timetable of due dates, notices and final dates for payment at the start.
  3. Make sure someone is responsible for issuing every notice, including during holidays.
  4. Keep valuations and notices in writing, with the basis of calculation shown.

Contracts with a residential occupier for work to their own home are generally outside the Act, but good payment discipline still avoids disputes.

Administering payments correctly is a core part of our Contract Administration service. See how we took an apartment refurbishment from tender to final account.