What is a pay less notice, and what must a construction contract say about it?

How the payment notice system works

• the contract must provide a mechanism for when payments become due and a final date for payment (s.110);
• the payer (or a specified person) gives a payment notice no later than 5 days after the due date, stating the sum considered due and its basis (s.110A);
• if no payment notice is given, the payee may give a default notice, or its application for payment may stand as the notified sum, depending on the contract (s.110B);
• if the payer intends to pay less than the notified sum, it must give a pay less notice (s.111).

What a pay less notice must contain and when

The notice must specify the sum the payer considers to be due on the date the notice is served and the basis on which that sum is calculated. It must be given no later than the prescribed period before the final date for payment, which the contract may set; where it does not, the Scheme for Construction Contracts (England and Wales) sets 7 days. The rules in this form apply to contracts entered into from 1 October 2011 in England and Wales (1 November 2011 in Scotland).

What the contract should say

A compliant construction contract sets out the due date mechanism, the final date for payment, who gives payment notices, the prescribed period for a pay less notice, the right to suspend performance for non-payment (s.112) and adjudication (s.108). It must not make payment conditional on the payer being paid by a third party (pay-when-paid, s.113). Where a required provision is missing, the relevant part of the Scheme applies by law.

Check your contract

KROTKA's Construction Act checklist shows, with verbatim quotes, whether your contract contains the payment notice, pay less notice, final date, suspension and adjudication provisions, and flags pay-when-paid wording.

Frequently asked questions

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