Payment notice for construction contracts

In general terms, 'payment' is the transfer between parties of some form of value (such as funds, services, assets) in an agreed exchange.

In the construction industry, payment can be the source of a great deal of controversy. Not only are the sums involved very large, and the duration of projects very long, but the total amount payable tends to change over time. In addition, contractors, subcontractors and suppliers face considerable risk when pricing construction projects, and optimistic pricing or late payments can quickly cause cash flow problems. Payments are often late, or the source of disputes which can ultimately lead to a breakdown in relationships and even project or business failure.

As a result, The Housing Grants, Construction and Regeneration Act 1996 (also known as the Construction Act) include provisions to ensure that payments are made promptly throughout the supply chain.

These provisions include:

• The right to be paid in interim, periodic or stage payments.
• The right to suspend (or part suspend) performance for non-payment and to claim costs and expenses incurred and extension of time resulting from the suspension.
• Pay when certified clauses are not allowed, and the release of retention cannot be prevented by conditions within another contract.

In addition, there are specific provisions in relation to the procedures for making payments.

• The client must issue a payment notice within five days of the due date for payment, even if no amount is due. Alternatively, if the contract allows, the contractor may make an application for payment, which is treated as if it is the payment notice.
• The client must issue a pay less notice if they intend to pay less than the amount set out in the payment notice, setting out the basis for its calculation.
• The notified sum is payable by the final date for payment.
• If the client (or specified person) fails to issue a payment notice, the contractor may issue a default payment notice. The final date for payment is extended by the period between when the client should have issued a payment notice and when the contractor issued the default payment notice. If the client does not issue a pay less notice, they must pay the amount in the default payment notice.

[edit] Related articles on Designing Buildings

• Advance payment.
• Contract sum.
• Default payment notice.
• Due date.
• Extension of time.
• Fair payment practices.
• Final certificate.
• Housing Grants Construction and Regeneration Act.
• Interim certificate.
• Interim valuation.
• Milestone payment.
• Off site materials.
• Pay less notice.
• Payment.
• Payment period.
• Payment schedule.
• Retention.
• Scheme for construction contracts.
• Small Business, Enterprise and Employment Bill.

[edit] External references

• ISG Construction Ltd v Seevic College (2014).

Comments

I have a question:

Say a contractor has issued their valuation, the employer has issued their assessment on the valuation and passed it back to the contractor who has ignored the assessment and not passed comment or acceptance despite chasing from the employer. The five days passes on this day and the following day, the payment notice is issued based on the Employer's Assessment.

Is this acceptable under JCT D&B 2016 contract?

Thanks,

QS

Good information and helpful.

Quick question I have relating to a subcontractor's payment application received. I made an assessment and issued to the subcontractor in error. This was then later revised and payment was made on the revised assessment. How does this stand in terms of final account?

Thanks,

Michael

My gut feeling is that you are entitled to revise an assessment up or down at any time prior to agreeing a final account providing you can support the revision with tangible evidence such as a mathematical or quantification error. Any element of subjective judgment however is more tricky, as a downward adjustment might be interpreted as a negotiating tactic or client pressure.

Clearly the precise answer will depend on the terms of the relevant sub-contract and any terms attached to the valuation...written or oral. But as a general rule interim valuations are just that and can be revised up or down before the final certificate or any binding agreement on any final account. Also it is a general principle of law that mistakes of fact can be amended or may not even be binding as the law recognizes a defence of mistake of fact though not mistake of law and provided no estoppel has arisen.

Hi i am a quantity surveying uni student and i need to write a paper on payments in the construction industry. Is the interim valuation submitted by the contractor and then is valued and certified by the officers in charged OR do the officers in charged just make an interim valuation every month when the time comes??

Thanks.

So, if you owe a company and plan to pay them on 15th of the month and issue a payless on 13th of that same month, is this in order and correct or has it to be no less than 5 days beforehand?

Hi, I have a situation where a payment has been missed. The Contractor has not issued a default payment notice. If her has not issued a formal notice does the Client still have to pay the contractor his stated amount due in his original valuation submission?

In calculating his payment due in his valuation submission he has made an arithmetic error by deducting too much retention. Is his amount due the net amount at the end of the calculation or the gross valuation amount?

I have a question

If I issue an application and the contractor issues a payment notice that is less than the sum applied for does the contractor have to issue a payless notice?

Thanks