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Insight · Getting paid

What the Construction Act
actually gives you.

Six rights that apply whether or not your contract mentions them, and whether or not anything was ever signed. What each one is, and where it stops.

Published ·6 min read·Written by Unibuild

The Housing Grants, Construction and Regeneration Act 1996, as amended in 2009, gives every party to a construction contract six rights: stage payments, an adequate payment mechanism, payment notices, payment of the notified sum, suspension for non-payment, and adjudication at any time. It also makes pay when paid clauses ineffective. None of them can be contracted out of.

Why a statute exists for this at all

Construction is the only industry in the country with its own payment law. That is not an accident of drafting. It is there because the industry pays down a chain, each link holds the money a little longer than the one above it, and by the time it reaches the firm that did the work there may be nothing left. The Latham review said so in 1994, the Act followed in 1996, and the 2009 amendments tightened it because the first version was being drafted around.

What the Act does is impose a timetable and a set of defaults on contracts that would otherwise be free to say anything. It does not tell anybody what work is worth. It decides when money becomes due, what has to be said to reduce it, and what you can do when it does not arrive.

The practical consequence is that a good deal of what you are told about your own contract is wrong. Terms that are in the document are not necessarily terms that work.

The six rights

  1. Stage payments. Section 109 entitles you to payment by instalments or stage payments for work done, unless the contract specifies, or the parties agree, that the work will take less than 45 days. Where the parties have not agreed the amounts and intervals, the Scheme for Construction Contracts supplies them. A contract that says you get paid once at the end of a six month job does not work.
  2. An adequate payment mechanism. Section 110 requires the contract to provide an adequate mechanism for determining what payments become due and when, and a final date for payment. It also stops that mechanism being made conditional on the performance of obligations under another contract, or on somebody's decision about whether those obligations were performed.
  3. Payment notices. Section 110A requires notice within five days of the due date, stating the sum considered due and the basis of calculation. If the payer does not give one, section 110B lets you give a default notice instead, and the final date for payment is pushed back by the length of the delay.
  4. Payment of the notified sum. Section 111 requires the payer to pay the notified sum in full by the final date for payment, unless it has served a valid pay less notice in time. This is the engine of the whole regime and the one most worth understanding properly. It is covered in pay less notices, and the timetable behind them.
  5. Suspension for non-payment. Section 112 lets you suspend performance of any or all of your obligations where the notified sum has not been paid by the final date, after at least seven days' written notice, and recover your reasonable costs and time for the delay.
  6. Adjudication at any time. Section 108 gives a right to refer a dispute to an adjudicator who must decide within 28 days of referral. The decision binds until the dispute is finally determined by court, arbitration or agreement, which usually means it binds for good. What it costs, and when it is worth starting, is in when the contractor above you will not pay.

And the prohibition that goes with them: section 113 makes any term conditioning your payment on the payer being paid by somebody else ineffective, unless that third party is insolvent. See pay when paid, and why it does not bind you.

Most of the industry uses two of these six. The other four are free, already yours, and generally more effective than another email.

You do not need a signed contract

Section 107 restricted the Act to agreements in writing, and it was repealed with effect from 1 October 2011 in England and Wales. Oral and partly oral construction contracts now carry the same payment and adjudication rights as a fully executed subcontract.

This matters more than it sounds, because a large share of UK subcontracting runs on an order confirmed by phone and a rate agreed in a car park. Having nothing signed is a serious evidential problem: you will have to prove what was agreed. It is not a jurisdictional one, and being told you have no rights because you never signed anything is simply wrong.

Who the Act does not cover

Two exclusions, and the second one surprises people.

Residential occupiers. Section 106 excludes a construction contract with a residential occupier, meaning one relating principally to operations on a dwelling that one of the parties occupies, or intends to occupy, as a residence. If your customer is the homeowner, none of Part II applies and your contract governs instead. Contracting with a developer or a landlord does not fall within the exclusion, so the test is who you contracted with rather than the type of building.

Process plant. Section 105(2) takes certain operations outside the definition of construction operations altogether. Alongside drilling for oil and gas and the extraction of minerals, it excludes the assembly, installation or demolition of plant or machinery on a site where the primary activity is nuclear processing, power generation, water or effluent treatment, or the production, transmission, processing or storage of chemicals, pharmaceuticals, oil, gas, steel, or food and drink.

Read that list again if you do mechanical and electrical work. A firm installing plant at a power station, a water treatment works, a dairy or a food production facility can find its work falls outside the statutory payment regime and outside the right to adjudicate, on exactly the kind of contract where it most wants both. The exclusion is drawn around the plant work rather than the site, and the boundaries have been litigated repeatedly, so a job of that kind is worth checking before you price it rather than after you are unpaid.

Two further points. The Act applies to construction operations carried out in England, Wales and Scotland, so it does not reach work done abroad even for a UK client. And Scotland and Northern Ireland run their own versions of the Scheme, on the same architecture but with their own statutory instruments, so an English default period cannot be lifted onto a Scottish job.

Where this touches the platform

None of the above is a software question and Unibuild does not decide any of it. What every one of these rights has in common is that using it requires you to say, quickly and with evidence, what was applied for, on what date, what came back and what was said in between. Applications sit against the project with their dates and receipts, retention withheld is captured against the receipt it came off, gross applied and gross balance are calculated as at each row's own date rather than only as at today, and outstanding value is aged into current, thirty, sixty, ninety and one hundred and twenty plus days by the manager responsible. The rights are statutory. The two days of digging that normally sits between deciding to use one and being able to is not, and that is the part this removes.

Applications for payment Subcontractor management Cost control The construction glossary

Where to start, on Monday

Answer two questions about the contract you are currently applying under. Does the Act apply to it, meaning is your customer not a residential occupier and is the work not caught by the process plant exclusion. And what are your four dates: due date, payment notice, pay less deadline, final date for payment.

If the answer to the first is yes and you cannot answer the second in under a minute, that is the gap. It takes one reading of the payment schedule to close, and it is the difference between having six rights and having two.

Asked most often

The follow-up questions.

Every term used here is defined in the construction glossary.

What is the Construction Act?+
The Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009. It gives every party to a construction contract a statutory payment timetable, payment and pay less notices, a right to suspend for non-payment, and a right to refer a dispute to adjudication at any time. Its terms cannot be contracted out of.
Does the Construction Act apply without a written contract?+
Yes. Section 107, which limited the Act to agreements in writing, was repealed with effect from 1 October 2011 in England and Wales. Oral and partly oral construction contracts carry the same payment and adjudication rights. Proving what was agreed is harder without a document, but the rights themselves are not in question.
Am I entitled to interim payments?+
Yes, under section 109, unless the contract specifies or the parties agree that the work will take less than 45 days. Where the parties have not agreed the amounts and intervals, the Scheme for Construction Contracts supplies them. A contract on a long job that provides for one payment at the end does not comply.
Does the Construction Act apply to work on someone's home?+
No, where the contract is with a residential occupier. Section 106 excludes contracts relating principally to operations on a dwelling that one of the parties occupies, or intends to occupy, as a residence. Work for a developer or a landlord is not caught by that exclusion, so the test is who the contract is with rather than the type of property.
Does the Act cover M&E work on a power station or food factory?+
Often not. Section 105(2) excludes the assembly, installation or demolition of plant or machinery on sites whose primary activity is nuclear processing, power generation, water or effluent treatment, or the production, transmission, processing or storage of chemicals, pharmaceuticals, oil, gas, steel or food and drink. Work of that kind can fall outside the statutory payment regime and outside the right to adjudicate, so it is worth establishing before pricing.
Can a contract exclude the Construction Act?+
No. Where a construction contract fails to comply with the Act's requirements, the relevant provisions of the Scheme for Construction Contracts are implied into it instead. A non-compliant clause does not leave you without a payment mechanism; it leaves you with the statutory one. Terms conditioning payment on a third party paying are made ineffective outright by section 113.
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