Pay less notices,
and the timetable behind them.

A pay less notice is the paying party's written notice that it intends to pay less than the sum already notified as due. Under the Scheme it has to be served no later than seven days before the final date for payment. Served late, or not served at all, the notified sum falls due in full on that date, whatever the payer believes the work was actually worth.

Why the dates decide more than the valuation does

Most payment arguments in UK construction are conducted as though the question were what the work was worth. Under the statutory payment regime the question is usually narrower, and duller: what sum was notified, and did anybody serve the right notice in time to change it. The valuation matters. It just matters second.

That is deliberate. The Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009, exists to keep money moving down a supply chain that was, and still is, slow. It does that by converting payment into a timetable. Miss a date on that timetable and the Act settles the amount for you, in the other party's favour, without anybody looking at the work.

Which is why this is worth an hour. Firms lose real money on these dates every month, in both directions: main contractors who pay sums they had a perfectly good answer to, and subcontractors who never realised the answer arrived too late to count.

The four dates

Every interim payment runs through the same four points, in the same order.

1. The due date. The date the payment becomes due. Your contract has to provide an adequate mechanism for working it out, and most do it by reference to a monthly valuation cycle.
2. The payment notice. Under section 110A the payer, or a person specified in the contract, gives notice not later than five days after the due date, stating the sum considered due and the basis on which it is calculated. This is what fixes the notified sum.
3. The pay less notice. If the payer intends to pay less than the notified sum, section 111 requires notice before the final date for payment, by whatever period the contract prescribes.
4. The final date for payment. The date the money has to be with you. Section 111 requires the payer to pay the notified sum, so far as it is unpaid, on or before this date.

Where a contract fails to provide compliant terms, the Scheme for Construction Contracts supplies them. Its default periods are the ones worth memorising, because they are the fallback the whole industry is measured against: the due date is seven days after the end of the relevant period or the date you make your claim, whichever is later; the final date for payment is seventeen days after the due date; and a pay less notice must be given not later than seven days before that final date.

Put real dates on it. Take a valuation period ending on 31 March, with the application made the same day. The due date is 7 April. The payer's payment notice is due by 12 April. Any pay less notice has to be served by 17 April. The money has to be paid by 24 April. A pay less notice that turns up on 18 April is a fortnight early in ordinary commercial terms and one day late in statutory ones, and the difference between those two readings is the whole of the sum in dispute.

A pay less notice served one day late is not a weak notice. It is not a notice at all.

If you would rather not count days by hand, the payment timetable calculator takes a valuation date and returns all four, on the Scheme's periods or on your own contract's. It runs in your browser and nothing is sent anywhere.

Read your own contract before you rely on any of that

The Scheme fills gaps. It does not override a contract that already complies, and the standard forms almost all set their own periods. A JCT subcontract and an NEC subcontract each run a different timetable from the Scheme and from one another, and a bespoke amendment can move the dates again.

So the four dates above are the architecture, not the answer. The answer is in your contract, usually in a payment schedule two pages long that nobody has opened since it was signed. The useful exercise is to work the dates out once, for one live job, and write them where the commercial team will see them each month. Most firms discover in the process that they have been treating the application date as the thing that matters, when the date that actually governs is the one seventeen or twenty-eight days after it.

What a pay less notice has to say

Section 111 sets two requirements, and both have to be met. The notice must specify the sum that the payer considers to be due at the date the notice is served, and it must specify the basis on which that sum is calculated.

A figure on its own does not do it. Neither does a general complaint about progress, or an email saying the valuation is under review, or a phone call. The point of the second requirement is that the receiving party has to be able to see how the payer got there, well enough to respond or to refer it. Notices that fail tend to fail on that half rather than the first.

Beyond that, the form is a matter for the contract. An email can be a good notice where the contract permits notices by email and the content is right. A document titled Pay Less Notice can be a bad one where it names a sum and nothing else.

What happens when it is late, or never comes

Section 111 is blunt about it. The payer must pay the notified sum on or before the final date for payment, and the only thing that reduces that obligation is a pay less notice given in time. No valid notice means the notified sum is payable in full, whether or not the work was worth it.

This is the mechanism behind what the industry calls a smash and grab: an adjudication that asks nothing about value and only whether the notices were served. They are short, they are hard to defend, and the sums can be uncomfortable.

It is worth being honest about the limits of that, because plenty of writing on this subject is not. Winning on notices is usually a cash flow and timing advantage rather than a permanent windfall. A payer who has paid a notified sum it disputes can generally start its own adjudication on the true value of the work and recover an overpayment. What the notice regime gives you is the money now and the burden of the second fight on them, which in an industry where insolvency runs down the chain is worth a great deal on its own. It is not the same as being right about the valuation.

When the payer serves nothing at all

If the payer misses its own payment notice, you are not stuck. Section 110B lets the payee give a default payment notice, and where it does, the final date for payment is postponed by the same number of days as the delay. The sum you state then becomes the notified sum, and the payer is back to needing a pay less notice to reduce it.

There is a further point here that is worth more than the rest of this article to a firm that applies monthly. Where the contract provides for the payee to make an application for payment, that application can stand as the notice, so a properly made application is not merely a request. It is the document that sets the sum the other side has to actively displace. Whether yours qualifies depends on the contract and on how the application is put together, which is precisely why the format of the thing is not administrative housekeeping.

Where the Act does not reach

Three limits, stated plainly, because assuming the Act applies when it does not is an expensive way to find out.

• Residential occupiers are excluded. Section 106 takes out construction contracts with a residential occupier, meaning a contract relating principally to operations on a dwelling that one of the parties occupies or intends to occupy as a residence. Work on somebody's own home, contracted directly with them, sits outside this regime entirely, and the contract terms govern instead.
• A contract does not have to be in writing. Section 107, which restricted the Act to written agreements, was repealed with effect from 1 October 2011 in England and Wales. Oral and partly oral construction contracts carry these rights. Having nothing signed is a serious evidential problem, but it is not a jurisdictional one.
• Scotland and Northern Ireland run their own versions. The architecture is the same and the statutory instruments are not, so do not lift an English default period onto a Scottish job.

Where to start, on Monday

Take one live job and one page. Write down the due date mechanism from the contract, the payment notice period, the pay less period and the final date for payment. Then apply them to the valuation you are about to submit and write the four real dates in the diary of whoever runs the job.

Then do the same for the last three applications you were paid short on. In a good number of cases the reduction arrived without a compliant notice, and nobody checked, because checking requires knowing the dates and having the correspondence to hand. That is the exercise. It costs an afternoon and it tends to pay for itself on the first job you run it against.