If a customer disagrees with the cost of the work you have completed, they may issue a pay less notice.
This notice formally states that they intend to pay less than the amount claimed in your payment application or payment notice.
Receiving a pay less notice can be frustrating as a contractor or subcontractor, especially if you believe the full amount is due.
However, there are options for you to dispute this notice and you must understand your rights to ensure you are paid fairly.
When is a pay less notice valid?
The rules governing pay less notices come from the Housing Grants, Construction and Regeneration Act 1996, often referred to as the Construction Act.
These provisions were later strengthened by the Local Democracy, Economic Development and Construction Act 2009, which introduced stricter payment procedures and clarified the requirements for payment notices and deductions.
To be legally valid, a pay less notice must:
- State the amount the payer considers to be due
- Provide a clear breakdown showing how the amount was calculated
- Be served in writing within the contractual timeframe or if the contract does not provide a timeframe in accordance with the Construction Act.
When can a pay less notice be issued?
Timing is one of the most important aspects of a pay less notice.
Under the Construction Act, the notice must be served a specific number of days before the final date for payment.
Many construction contracts specify a period of 1-5days before the final payment date, although this can vary.
If a contract does not specify a timeframe, the default provisions under the Scheme for Construction Contracts may apply. The default provision is that a pay less notice must be served no later than 7 days before the final date for payment.
Pay less notices are often issued for reasons such as:
- Defective or incomplete work
- Delays or disruptions to the project timeline
- Overstated payment applications
- Unapproved variations or additional works
- Damages or contractual deductions
Can you dispute a pay less notice?
Contractors or subcontractors can dispute a pay less notice if they believe it is invalid or unfair.
The first step is to review whether the notice complies with the legal and contractual requirements.
A pay less notice can be challenged if:
- It was served too late
- It does not clearly explain the calculation of the reduced amount
- It lacks sufficient detail about the reasons for the deduction
- It was not issued in accordance with the contract’s notice procedure
Even when the notice is technically valid, you can still challenge the substance of the deductions if you believe the valuation of the work is incorrect.
How can you resolve a pay less notice dispute?
Open discussion and negotiation with the paying party is always the first step.
If this is unsuccessful, you may look to mediation, where a neutral third party facilitates discussions to help you reach a mutually acceptable solution.
This option is quicker and more cost-effective than court proceedings and can also help maintain relationships.
Adjudication is also a common dispute resolution process for construction projects. This would involve asking the adjudicator to determine the true value of the application.
An independent adjudicator will review the evidence and reach a binding decision, often within 28 days.
Contractors may also have the right to suspend work for non-payment, provided they follow the statutory requirements and only where the pay less notice is not valid such as being served too late.
How can we support your pay less notice dispute?
Even small procedural errors can determine whether a notice is valid or not.
Our Construction Law team can review pay less notices, advise whether the notice can be challenged and assist with negotiations to resolve the dispute.
We will also review your construction contract to ensure the notice is compliant and legally valid.
Getting early legal advice can help improve your position and prevent disputes from escalating.
If you want further advice or support on pay less notices, get in touch today.