Pay Less Notice

Received a Pay Less Notice and Don’t Agree with it?

If you have received a Pay Less Notice and do not agree with it, our expert Consultants can check it out for you  and advise you as to how best to deal with it, including acting on your behalf if you need help to resolve the matter. Please give our friendly team a call on our Pay Less Notices Hotline on 01773 712116.

Our expert team can help you to challenge a Pay Less Notice, advise you on the best course of action and if you wish we can take the matter up with the Contractor on your behalf. 

If the Pay Less Notice is valid, and by that we mean legally valid, as opposed to being correct, then in you will need professional help to resolve the matter, and we experts in doing just that for Specialist Contractors.

Although the contract might require a Payment Notice to be issued, many Contractors simply ignore that and issue a Pay Less Notice instead. Either way, when a Pay Less Notice is issued it means your payment is going to be reduced, often without warning.

Our Consultants here at Streetwisesubbie are often asked for help about how Payment and Pay Less Notices work so please don’t hesitate to pick up the phone and call us on 01773 712116. One of our experts will be happy to call you back to provide initial free advice* about how to deal with this aspect of the payment process.

The statutory law on payment in construction contracts has been in place since the last amendment that became law on 1 October 2011, but despite being around for over 10 years, it is still not very well understood and leaves a great many people confused. So, don’t worry if you are confused by it. You are not alone!

Payment Notices and Pay Less Notices

The Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”) sets out certain notice requirements in relation to payments under “construction contracts” as defined in the Act. Payment Notices and Pay Less notices may be given, usually (but not exclusively), by the paying party, which state the sum the party “considers” to be due as well as the basis on which that sum is calculated. Such notices define the “notified sum” which must be paid under section 111 of the Act.

Where a construction contract provides for a payment application to be made by the subcontractor, the failure to serve a payment notice or pay less notice – or the giving of an invalid notice – will usually result in the amount stated in the payment application becoming the “notified sum” which must then be paid under section 111 of the Act. To be valid a Pay Less Notice must comply with the requirements of the contract and if it applies, the Act. Failing to comply, will make the notice void. And our Consultants are quick to spot when a Pay Less Notice is void and payment of your application is therefore due in default.

Often, one of our Consultants pointing that out to the Contractor in a professional and forceful manner will get you paid. But if the Contractor does not pay, then it may be appropriate to resolve the matter by way of adjudication. And adjudications commenced on this basis are often referred to as “smash and grab” adjudications.

The position generally is that in a given payment period the payee has to ask for the money and the payer has to respond, the result being an obligation to make an imminent payment of a defined sum.

Frequently Asked Questions on Pay Less Notices

pay less notices tackled for you by streetwisesubbie, pay less notice advice for contractors, subcontractors and building employers
What is a Pay Less Notice and what does it mean?

The Construction Act requires that prior written notice must be given by any party who intends to withhold money from payments otherwise due. The dreaded Pay Less Notice.

Some of the most common standard forms of subcontract such as JCT SBCSub/C and DBSub/C, require the Contractor to serve any such notice not later than five days before the ‘Final Date’ for payment. The first thing most Contractors do by way of amendment, is to reduce that period to one day. And, whilst that notice requires the Contractor to specify “the basis on which that sum has been calculated” it regrettably does not require much effort to meet that ‘test’.

Can we challenge a Pay Less Notice if we disagree with it?

The simple answer is yes, but just whinging about it to the Contractor is unlikely to get you your money!

The first thing to do is to understand the basis for your objections and whether or not those objections are valid. That is easier said than done and we would recommend that you give us a call and get our advice before you seek to negotiate a different payment.

Most Pay Less Notices contain contra charges, blame for delays or reductions in the value of work carried out. Depending on the extent and nature of the problem, a professional and objective discussion about the facts might resolve some of the accusations, and enable the Contractor’s assessment of the value of your payment to be increased. However, if the Contractor is adamant that their valuation is correct then a dispute has arisen and the Pay Less Notice will need to be challenged formally.

The Pay Less Notice might not be validly served (see below), which will mean the Notice is of no effect as a matter of law. However, unless you are already an expert, this is a matter that requires proper consideration by practitioners, and our advice is to give our Helpline a call on 01773 712116 before you take any action.

Can a Pay Less Notice be negative?

Issuing a Pay less Notice at a negative figure and ostensibly giving you a mountain to climb to overcome their valuation, has long since been a favourite tactic of some Contractors. And previously Pay Less Notices arriving at a negative figure have been considered valid. If it is negative it is saying that you have  been overpaid, which of course means no further sums are due. However, a recent decision (see below) has made it clear that pay less notices served without a genuine belief in the sum stated as due may be invalid and open to challenge. 

Can a Pay Less Notice be served one day before payment legally?

The Act does not prescribe a minimum period of notice. Unfortunately, the parties are free to agree the “prescribed period” for a Pay Less Notice, which is the deadline before payment is actually due to be made. If the contract has been amended to one day before the Final Date for Payment then this is legally valid.

The majority of Contractors state that a Payless Notice can be issued as late as only one day prior to the Final Date for payment. Clearly, this is totally inadequate and could have appalling effects on your cash flow. It means that if you accept say 60 days between the Due Date and the Final Date, the Contractor can tell you in his Payment Notice that he is going to pay you £100,000, and then on day 59 he can issue a Payless Notice stating that he is only going to pay you £20,000!

If you are subject to this kind of abuse then our advice would be to call us as soon as possible because it is highly unlikely that raising a polite objection with the Contractor is going to get you your money!

When is a Pay Less Notice invalid?

The Pay Less Notice must comply primarily with contract,  and if it applies the Act, and where the Act applies but the contract doesn’t comply with the Act it must comply with the Scheme.

There are also a number of other important considerations that have been set out in various decisions of the courts:

Recent case Law on Pay Less Notices

In Jawaby Property Investments Limited v Interiors Group Limited [2016] EWHC 557 (TCC) the Employer relied on a marked-up version of the Contractor’s application as a valid Pay Less Notice. However, the court held that this was not a valid Pay Less Notice. Carr J held that “an essential requirement for the service of a contractual notice [is] that the sender has the requisite intention to serve it. The senders’ intention is a matter to be assessed objectively taking into account the context”. One reason the court gave for doubting the intention was that the Employer had used a completely different form for the alleged Pay Less Notice to that which had been used previously. 

In Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) [2017] 17 EWHC (TCC) the court was asked to consider whether an e-mail and a final certificate constituted a Pay Less Notice. They held that a Pay Less Notice did not have to be titled a “pay less notice” or make specific references to a contractual provision relating to that Pay Less Notice in order for it to be valid. Nissen QC held that the key criteria was whether (i) viewed objectively, the notice had the required intention to be a Pay Less notice; and (ii) that the document, with its supporting material, was capable of substantively fulfilling the requirements of a Pay Less Notice. He stated the adjudicator was wrong to hold that it was not a valid Pay Less Notice because he focussed too much on the formalities of what the certificate was called and language used in the e-mail, and “not on the overall message and purpose which the e-mail and attachments would have conveyed to the reasonable recipient.

Grove Developments Ltd v S&T (UK) Ltd [2018] EWHC 123 (TCC) dealt with a Pay Less notice which did not actually state the sums due were calculated, but instead referred to a previous payment application.  It was clear from that document how certain deductions had been calculated.  Coulson J summarised the authorities as showing that “a pay less notice will be construed by reference to its background, in order to see how a reasonable recipient would have understood it” and that the courts should ignore contrived or artificial arguments that tried to invalidate a Pay Less Notice.

The most recent Technology and Construction Court (“TCC”) decision in Downs Road Development LLP v Laxambhai Construction (U.K.) Limited [2021] EWHC 2441 (TCC) has clarified for the first time that payment or pay less notices served without a genuine belief in the sum stated as due may be invalid and open to challenge. Now, for the first time, the TCC has provided guidance on the requirement in s.110A(2)(a) of the Construction Act that a payment notice must state the sum the payer “considers” to be due. 

A payment notice must specify “the sum that the payer considers to be or have been due at the payment due date”² (emphasis added). However, in this case the Employer’s covering email to the February 2021 valuation stated that a further notice would be issued in due course. This indicated that the Employer’s payment notice did not accurately state the sum which the Employer considered to be due at the payment due date. Indeed, the covering email indicated a further notice would follow which would contain an entirely different figure. As a result, the payment notice did not satisfy the requirements of the Construction Act and was invalid.

Challenging Payment and Pay Less Notices can be difficult, so please don’t hesitate to pick up the phone and call us on 01773 712116 or contact us.

One of our experts will be happy to call you back to provide initial free advice* about how to deal with this aspect of the payment process.

* Subject to our terms and conditions but rest assured you will not be charged unless and until you decide to appoint one of our experts to act on your behalf.

Become a Streetwise Buddy

Construction’s a tough place to do business right now, and Specialist Contractors need all the help you can get. That’s why you will find our resources and expertise are invaluable, whatever the size of your business and whatever your specialisation. We’re here to help you solve all your business problems, including the crucially important contractual ones, such as getting paid.

What Our Buddies Say ...

  • /

streetwisesubbie Ltd
17 Ilkeston Road
DE75 7DR

Helpline: +44 (0)1773 712116