When the contractor above you
will not pay.

There are five moves, and they run in order: establish what sum was actually notified, serve a default payment notice if the payer served none, suspend performance on seven days' notice, refer the dispute to adjudication for a decision in twenty-eight days, or issue a claim in court. Adjudication is the one the legislation was written for, and it is where most construction payment disputes end.

Before anything else, work out what is due

The instinct when a payment does not arrive is to start chasing harder. The more useful first hour is spent establishing what sum is legally due, because that determines which of the moves below is available and how strong it is.

Three questions answer it. Did the payer give a payment notice within five days of the due date, and what sum did it state. Did the payer give a pay less notice before the deadline your contract sets. And has the final date for payment passed. If the payer served no notices and the final date has gone, you are in a very different position from the one you are in if it served a properly calculated pay less notice on time, and the tone of your next email should reflect which of those it is. The timetable behind those notices is worth reading first if you are not certain how it runs on your contract.

Chasing harder is not a remedy. It is what firms do instead of using the ones they have.

The five rungs, in order

Each step costs more than the one before it, in money and in the relationship. That is the reason to take them in order rather than reaching for the biggest one available.

1. The default payment notice. Where the payer failed to give its own notice, section 110B lets you give one. The sum you state becomes the notified sum, and the final date for payment is postponed by the length of the delay. Cost: nothing. This is the most under-used right in the whole regime.
2. A written demand with a deadline. Not a chase. A dated letter stating the sum, the contractual basis, the absence of a valid pay less notice, and what you will do on a named date if it is not paid. A meaningful proportion of disputes settle here, because it is the first communication that reads as though somebody has looked at the contract.
3. Suspension. Section 112 gives a statutory right to suspend performance for non-payment of the notified sum, on not less than seven days' written notice. Cost: your own exposure if you get it wrong. Leverage: considerable, because your labour leaving the site is the one consequence a contracts manager cannot absorb quietly.
4. Adjudication. A decision in twenty-eight days from referral, binding until finally determined. This is the mechanism the Act created precisely for this situation, and it is available at any time.
5. Court. Slower and more expensive, but the right route for some debts, particularly where there is genuinely no dispute at all.

Suspension, and doing it properly

Section 112 is a real right and it is frequently misused. The conditions are narrow: the notified sum has not been paid in full by the final date for payment, and you have given at least seven days' notice in writing stating your intention to suspend and the ground for it. You may suspend performance of any or all of your obligations.

Two things make it worth the paperwork. You are entitled to a reasonable amount for costs and expenses reasonably incurred as a result of exercising the right, and the time lost is not held against you on programme. Walking off site without the notice gets you neither, and hands the other side a repudiation argument that will cost more than the debt.

The practical point: draft the notice, date it, send it by a method the contract recognises, and diarise the seventh day. Firms that get paid at this rung are almost always the ones whose notice was obviously correct, because the other side's solicitor read it and told them so.

Adjudication, and what it actually costs

Section 108 gives a party the right to refer a dispute to adjudication at any time. The adjudicator must reach a decision within twenty-eight days of referral, extendable by fourteen days with the consent of the referring party, or by a longer period if both sides agree after the dispute has been referred. The decision binds the parties until the dispute is finally determined by litigation, arbitration or agreement, which in practice means it usually ends there.

The cost is the part most firms get wrong, in both directions. Three components, and one trap.

• The nominating body's appointment fee, payable when you ask a body to appoint an adjudicator.
• The adjudicator's own fees, normally charged at an hourly rate against the time the reference takes.
• Your own costs of preparing the referral, whether that is your commercial team's time or a consultant's.

The trap is section 108A. An agreement about who bears the costs of adjudication is ineffective unless it is in the contract and confers power on the adjudicator to allocate his own fees and expenses between the parties, or it is made in writing after the notice of intention to refer. The practical consequence is that you generally cannot recover your own legal or consultancy costs from the losing side. Adjudication is not a route to being made whole on costs, and any calculation that assumes otherwise will be wrong.

That used to make adjudication uneconomic for smaller debts, which is the gap the Construction Industry Council's Low Value Disputes Model Adjudication Procedure was written to close. It links the adjudicator's fee to the amount claimed. On the CIC's published figures the procedure covers disputes up to £100,000, with the adjudicator's fee capped in bands from £2,000 for disputes up to £10,000 to £5,000 for those between £75,001 and £100,000, and the hourly rate capped at £250. Appointment fees are set by each nominating body, with the CIC listing £300 and the RICS £425, both including VAT. Check the current rates before you rely on them, but the shape of it is the point: a capped few thousand pounds against a debt of twenty or thirty thousand changes the arithmetic entirely.

Adjudication suits payment disputes better than almost anything else in construction, because the questions tend to be documentary. What was applied for, what was notified, what was served and when. Those are answered from records rather than from argument, and the side that can produce a clean sequence of dates usually wins without it ever getting interesting.

When court is the better route

Where the debt is genuinely undisputed and simply unpaid, a claim in court can be cheaper and just as quick, and Money Claim Online handles straightforward money claims without a solicitor. Issue fees are charged on a sliding scale by the value of the claim, so look up the current band rather than budgeting from something you read a year ago.

The reason it is not the default for construction is that a defendant who wants to slow things down can usually manufacture enough of a dispute to push a claim into a defended track, and then you are measuring the wait in months. Adjudication was created because that was happening to firms who could not survive the wait.

The statutory demand trap

Every so often somebody suggests a statutory demand, on the basis that the threat of a winding-up petition concentrates the mind. It does. That is also why it is dangerous.

A statutory demand is an insolvency process, not a debt collection tool, and it is only appropriate where the debt is genuinely undisputed. Where the other side disputes it on substantial grounds, the court can restrain the petition and order costs against you, and those costs will be a multiple of what you were chasing. In an industry where the response to any demand is a list of alleged defects assembled overnight, that is a live risk on most jobs. Use it where a debt has been admitted in writing and ignored. Do not use it as leverage in a valuation argument.

Where the Act does not reach

The payment and adjudication rights above come from Part II of the Housing Grants, Construction and Regeneration Act 1996, and section 106 excludes construction contracts with a residential occupier, meaning a contract relating principally to work on a dwelling that one of the parties occupies or intends to occupy as a residence. If your customer is the homeowner, you have your contract and the ordinary law of debt, and none of the statutory machinery above.

Two things that do not take you outside it, contrary to what you may be told. A contract does not have to be in writing: section 107 was repealed with effect from 1 October 2011 in England and Wales. And the fact that the party above you has not been paid by its own client is not a defence, because pay when paid clauses are ineffective under section 113 except where that third party is insolvent.

Where to start, on Monday

Take the oldest unpaid application on your ledger and answer the three questions from the top of this article: what was notified, what notice was served, and has the final date passed. That tells you which rung you are standing on, and most firms find they are further up the ladder than they assumed, because a notice they were entitled to serve was never served.

Then look at the aged debt list as a whole and pick the point at which you will act, in days, and write it down. The reason unpaid applications drift is almost never that somebody decided to tolerate them. It is that no date was ever attached to acting, so acting stayed optional, and a job that finished eight months ago competes badly with the one on site today.