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Last edited 22 Oct 2020
Payment notice for construction contracts
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.
 Related articles on Designing Buildings Wiki
- 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 period.
- Payment schedule.
- Scheme for construction contracts.
- Small Business, Enterprise and Employment Bill.
 External references
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