Employers and Contractors are able to draw up comprehensive payment regimes, which envisage the exact dates for payment and thus for Payment and Pay Less Notices.  However, these are often not being followed.

Therefore, are you going the extra mile, and making sure you are putting the entirety of the payment procedure into action? 

Many parties to construction contracts still do not understand their obligations re Payment and Pay Less Notices.  Equally, that such obligations extend to all construction contracts, which include consultant's appointments.  Ignorance of the law, of contract terms and of your specific obligation, is likely to result in costly adjudications being brought against you. 

This position is exacerbated by the fact that the law, in contrast to the payment regime you may have created, is notoriously ambiguous.  For example, under Part 8 of the Local Democracy, Economic Development and Construction Act 2009, which amended the Housing Grants, Construction and Regeneration Act 1996, (as from 1 October 2011), Section 111(4)(b) a Pay Less Notice ‘only' needs to give the ‘basis' on which the sum the Employer or Contractor is paying less is calculated.  Note that the sum said to be payable may be “zero”.

This contrasts with the old Withholding Notice, where under the original s.111(2)(b) you had to give the amount proposed to be withheld and the ‘ground' or ‘grounds' for paying less.

You may be forgiven if you are slightly unsure about exactly what to include in a Pay Less Notice, but not for failing to serve one. Whilst there is no definitive industry standard, and every contract and project have different facts and issues, meaning that the appearance and content of the notices can vary widely, it is imperative to know when to serve them.

The main point here is that it is better to be safe than sorry.  If you believe your Contractor or Sub-Contractor should not be paid the amount they are claiming, whether that's because the quality of work they have done is poor or they are overclaiming/over measuring the work they have carried out, then you must follow the correct procedures.  Ensure you have issued a Payment Notice within the stipulated time period with accompanying calculations and reasons why you believe the amount your Contractor or Sub-Contractor is claiming is incorrect.  Make sure that you also issue a Pay Less Notice on time and make explicit reference to your Payment Notice as to why you are paying less.  Rather than saying as little as possible, provide a detailed explanation and supporting documentation to provide clear evidence in support of the Pay Less Notice. 

The date for serving a Pay Less Notice should be set out clearly in your contract. If not, then the Scheme for Construction Contracts (England and Wales) Regulations 1998 will apply. That states that the notice must be given not later than seven days before the final date for payment, determined either by the Contract or as per the Scheme. Bear in mind, the final date for payment under the Scheme is 17 days from the date the payment became due.

Some parties may think such advice will cause them to incur unnecessary expense.  We are not unsympathetic to this view and understand these concerns.  What we must stress, however, is that by incurring this extra time and cost at the outset of the Contract and properly understanding your obligations and how to discharge them, before a dispute has arisen, can save you thousands of pounds later, when you find yourself in receipt of an adjudication notice, and the crucial element of the dispute is whether or not you issued a notice in the correct form and in the correct time period.

Barton Legal have the expertise to advise on how you can avoid these costly disputes, review your contract documents, and provide clarity on how to administer and enforce your payment regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.