What are a payment notice and a pay less notice?
A payment notice states the sum the payer thinks is due. A pay less notice says the payer will pay less than the sum already notified. Miss the dates and the notified sum has to be paid, even if the payer disputes it.
Where the rules come from
Part II of the Housing Grants, Construction and Regeneration Act 1996 sets out how payment works in most construction contracts. Your contract has to say what falls due and when, and it must set a final date for payment. If it does not, or its notice terms do not meet the Act, the Scheme for Construction Contracts fills the gap.
This guide describes the rules in England. Wales and Scotland have their own versions of the Scheme, so check the position if the job is there.
The payment notice
For every payment under the contract there has to be a payment notice. It states the sum the person giving it considers due and how that sum was worked out. The sum can be zero.
- The contract says who gives it: the payer, a person the contract names, or the payee.
- It must be given within 5 days after the payment due date.
- If the contract has no notice term, the Scheme says the payer gives it, no later than 5 days after the due date.
The pay less notice
A pay less notice is how a payer, or a person named in the contract, says they will pay less than the notified sum. It must state the sum they consider due when they give it, which can be zero, and the basis for it.
It has to be given no later than the agreed period before the final date for payment. If the contract does not set that period, the Scheme sets it at 7 days before the final date for payment.
If the contract sets no final date for payment, the Scheme's default is 17 days from the date the payment becomes due.
How the dates line up
Take a payment due on 1 March where the contract says nothing about notices or the final date, so the Scheme applies. The payment notice is due by 6 March. The final date for payment is 18 March. A pay less notice must be given by 11 March.
Check how your contract counts days, and how a notice has to be sent. Note each date in your job register when the application goes in, so nobody finds out on the final date that a deadline has passed.
If no notice is given
The payer has to pay the notified sum by the final date for payment. The notified sum is the amount in the payment notice, or in the payee's own notice if the payer did not give one.
Where the payer misses the 5 days, the payee can give its own notice at any later time. The final date for payment then moves back by the number of days between the payer's deadline and the day the payee's notice is given.
A payer who gives no valid pay less notice in time cannot simply knock money off. The payee also has a right to suspend work if a notified sum is not paid, after giving at least 7 days' notice of intention to suspend. Take advice before you suspend or withhold anything.
Homeowner jobs
Part II of the Act does not apply to a construction contract with a residential occupier. That means a contract mainly about work on a house or flat that one of the parties lives in, or intends to live in, as their home.
So on a typical job for a homeowner on their own home, none of this timetable applies. The payment terms are whatever the contract says, so write them down: stage payments, when they fall due and when they must be paid.