Applications for Payment, and the Notices That Follow

Nothing came back, and that is the important part

Application nine went out on the last Friday of the month, the way the eight before it did: a PDF to the quantity surveyor's address, a marked-up drawing showing the risers that had been completed since the last one, and a summary sheet with a cumulative figure, the previous cumulative figure, and the difference between them. No acknowledgement. No payment notice. No certificate. No pay less notice. No remittance advice. Then, three weeks later, a phone call in which somebody agreeable explains that they do not agree the valuation, that there is an issue with two of the risers, and that it will all get sorted at the end.

The instinct is to argue about the risers, and it is the wrong instinct, because it accepts the payer's framing of what the disagreement is. Two entirely separate arguments are available in that phone call. One is about what the work was worth: a matter of measurement and opinion, and it will take months. The other is about whether anybody served a document by a date — a matter of fact, usually answerable in an afternoon out of your own sent items, and on a commercial contract in England, Wales or Northern Ireland it decides what has to be paid this month irrespective of how the first argument eventually comes out. So the job in front of you is a reconstruction rather than a valuation: what date did the payment become due, what was the final date for payment, what was served, by whom, to whom, at what time, and did it say the two things the statute requires it to say.

Three dates, and the one you have been watching is the wrong one

The date you sent the application has, on most sub-contracts, no direct statutory significance at all. It matters because the contract almost certainly requires the application to arrive inside a window, and missing that window can cost a month. But it is not the date the notice deadlines are measured from. Those hang off the due date, which the contract fixes independently, and which on a monthly cycle is very often a stated calendar date regardless of when your paperwork arrived. Everything below assumes a commercial contract; on a contract with a residential occupier section 106 lifts the whole machine off, and the stage-payments guide next door covers what has to be written down by hand instead.

Section 110 of the Housing Grants, Construction and Regeneration Act 1996 requires a construction contract to contain an adequate mechanism for determining what payments become due and when, and to provide for a final date for payment in relation to any sum that becomes due. The gap between those two dates is left to the parties; thirty, forty-five and sixty days all exist in the market. What the 2009 amendments added is a limit on how clever the mechanism may be: a due date conditional on obligations under a different contract, or on somebody's decision about one, is not adequate, and neither is one that depends on the payer serving a notice about what is due. In Rochford Construction Ltd v Kilhan Construction Ltd the Technology and Construction Court doubted, in passing, whether a final date can validly be pegged to receipt of a VAT invoice rather than to a period of days after the due date — not the decision in the case, but the reason a finance department asking you to re-issue an invoice does not move the clock.

Two deadlines then attach to those dates, and they run in opposite directions. The payer's payment notice, under section 110A, is due not later than five days after the payment due date. The pay less notice, under section 111, is due not later than a prescribed period before the final date for payment — a period the contract states, and the Scheme supplies where it does not. One is measured forwards from the due date and the other backwards from the final date, so lengthening the payment terms lengthens the payer's opportunity to serve a pay less notice as well: one of the quieter reasons long terms are worth arguing about at tender.

Where the contract supplies none of this, the Scheme for Construction Contracts (England and Wales) Regulations 1998, as amended in 2011, supplies it whether the parties like the result or not: a due date derived from the relevant period and the making of a claim, a final date for payment seventeen days after the due date, and a pay less notice due not later than seven days before that final date. Scotland runs its own Scheme regulations. Work out once whether your contract is operating its own mechanism or has quietly imported the Scheme's, because they produce different dates and only one set counts.

Two notices from the payer, and only one of them lets him pay less

The two notices are constantly confused, including by the people serving them, and the difference decides who owns the number. A payment notice under section 110A is the payer's statement of what he considers due at the due date. Serve one in time and the notified sum is his figure, not yours; your application has done its work and been superseded, and there is no need for him to serve anything else. Serve nothing, and the payee's notice — or, on most forms, the application itself — sets the notified sum at your figure. The pay less notice under section 111 is the separate instrument that lets a payer pay less than whatever the notified sum turned out to be, and it is the only instrument that does.

Both notices have to say the same two things: the sum the server considers due, and the basis on which that sum is calculated. A pay less notice states the sum considered due at the date it is served, which need not be the date the payment notice spoke to — a fortnight of work can have happened in between. Zero is a permissible sum, and a notice saying nothing is due with a stated basis for that defeats the application entirely. What is not a notice is an email disagreeing without a figure, a spreadsheet with a lower total and no explanation of how it was reached, or a certificate issued days late by somebody who thought the deadline was the final date for payment rather than the period before it.

Read the basis requirement strictly on documents you receive. It does not oblige the payer to be right — a notice is not invalid for containing a valuation you think is wrong, which is what the true-value argument is for — but it does oblige him to show his working far enough that you can see what has been deducted and why. A notice reducing a cumulative application by one lump sum described as contra-charges, with no allocation, has arguably stated no basis at all; and even where it survives, it has handed you a written position to answer instead of a phone call to remember.

Where a third party administers the contract the same discipline sits in the form rather than in the statute. AIA Document A201 requires the architect either to certify the amount properly due or to notify the contractor of the reasons for withholding certification, with Section 9.5 listing the grounds. NEC4 puts it in the assessment cycle, and added a provision under which the Contractor's own application stands as the amount due where the Project Manager makes no assessment. FIDIC runs on a Statement under Sub-Clause 14.3 answered by an Interim Payment Certificate under Sub-Clause 14.6. The payee's job is the same on all of them: know which document is due, when, and whether it arrived.

Reconstructing the month from your own sent items

This is the afternoon's work, done from your own records rather than from anything the payer supplies, and worth doing before the phone call is returned, because the answer changes what the call is about.

Service is the part most often got wrong on both sides. Most sub-contracts carry a notices clause specifying permitted methods, addresses and deemed times of receipt, and it usually predates the way the job is actually run — recorded delivery to a registered office, while everything real happens by email to a surveyor. A notice served by a method the contract does not permit may still be effective where that clause is permissive, and may not be where it is exclusive. Deemed receipt cuts both ways: a document emailed at four minutes to midnight on the deadline day is often in time, and one emailed after a deemed cut-off can be a day late even though everybody read it that evening. None of it is arguable from memory, which is the point of writing it down.

Be honest about what you find, including when it goes against you. A pay less notice that is valid, in time and properly served ends this line of enquiry, and what is left is a valuation argument to be had on its merits. Discovering that early is worth as much as discovering the opposite: it stops a firm spending three weeks and a consultant's fee on a point answered in the second column of the sheet.

1. Write down the payment due date for the cycle in question, taken from the contract's mechanism rather than from a remittance advice, and the final date for payment that follows from it.
2. Find the application in your own sent items and record the date, the exact time, the recipient address and whether it stated a sum and a basis; then test it against the contract's window and its named address or portal. If it was late, or went somewhere the contract does not name, read what the contract says happens next before going any further.
3. Add five days to the due date and search the whole of that window — inbox, spam, the portal, and the site manager's phone — for anything from the payer that states a sum and a basis, whatever it calls itself.
4. If nothing is there, confirm whether the contract treats your application as the payee's notice in default, or whether a separate notice was required and never served.
5. Count the prescribed period back from the final date for payment and search that window for a pay less notice, again by content rather than by title.
6. For anything you find, test it against the contract's notices clause: permitted method, correct address, correct sender, and the deemed time of receipt for that method.
7. Write the result as one line — the notified sum for the cycle, the document that set it, and whether it was reduced by a valid pay less notice — and keep that line with the job file.

The notified sum is payable whether or not anybody thinks it is right

This is the provision the whole page exists for. Section 111 requires the payer to pay the notified sum on or before the final date for payment, and the only thing that reduces that obligation is a pay less notice given in time. Not a disagreement, not a meeting in the diary, not an assurance that it will be sorted at the end, and not the fact that the sum is, on any sensible view, too high. If no valid notice was served, the sum your document notified is the sum payable, and it is payable now.

Section 108 lets either party refer a dispute to adjudication at any time, and a referral on this narrow point — a sum was notified, no notice was served, the final date has passed — is the fastest remedy in the industry. The trade calls it a smash-and-grab, a name that flatters the payer's version of events. What it decides is deliberately small: that the machinery produced a sum and that the payer did not operate the machinery which would have reduced it. It decides nothing about what the work was worth.

The sequencing was settled by the Court of Appeal in S&T (UK) Ltd v Grove Developments Ltd. A payer who has missed his notices must first pay the notified sum; having paid it, he may then refer the true value of the same interim payment to a second adjudication and recover any overpayment. So this is a cash-flow instrument rather than a windfall. It moves the money to the party who did the work while the argument about its value happens afterwards, in an order that puts the cost of the delay on whoever missed the deadline — which is what the statute was written to do, and why the right response to a missed notice is to enforce it rather than to feel opportunistic about it. The corollary is that an application inflated in the hope a notice will be missed gets corrected in the true-value adjudication that follows, with costs attached, and corrodes the credibility of every application served after it.

Two statutory limits belong in the same breath. Section 111 lifts the obligation to pay the notified sum where the contract itself says the payer need not pay on the payee's insolvency and the payee becomes insolvent after the pay less period has expired — both limbs, so a contract silent on insolvency does not get the exception. Section 113 makes pay-when-paid ineffective except where a party further up the chain has become insolvent — so a payer explaining that the employer has not paid him is, in almost every case, describing his own problem rather than a defence.

Interest is the part almost nobody claims, usually out of a wish not to sour the relationship, and it is worth knowing what is being given up. Where a construction contract between businesses contains no substantial contractual remedy for late payment, the Late Payment of Commercial Debts (Interest) Act 1998 implies a right to statutory interest at eight per cent above the Bank of England base rate from the day after the debt fell due, together with a fixed sum toward recovery costs in three bands by the size of the debt and reasonable further costs beyond it. A contractual rate displaces the statutory one only if it is itself a substantial remedy, which a token rate written into a sub-contract is not. Put the position in writing on the day the final date passes: a claim raised in month twenty about month nine reads as an afterthought, and a contemporaneous note reads as a record.

The same month under a different statute

The shape of this mechanism — a claim from the payee, a responding document from the payer inside a fixed window, and a default consequence if he says nothing — is now common across the common-law construction world, and the vocabulary changes at every border. The subcontractor most likely to be caught is the one working across jurisdictions, or for a parent company that administers every job the way its head office does, against a deadline with a different name and a different length from the one they know.

Two things carry between them. In almost every one of these regimes the payer's failure to respond has a consequence, which is what makes the payee's document worth getting right. And several of them run separate, earlier and unforgiving clocks for preserving security rather than for getting paid — lien notices in North America in particular, where a preliminary notice served late can extinguish a right that had nothing to do with this month's application. Find out which clocks are running before the first application, not after the ninth.

Application ten goes in on Friday regardless

The commonest way a firm loses this is not by losing an argument but by letting a dispute about month nine interrupt month ten. Each cycle is independent — its own due date, its own notice deadlines, its own default consequence — and a payer distracted by last month's argument is more likely to miss a notice, not less. Serve the next application on the usual day, in the usual form, from the usual address, with the disputed items carried forward at the same figures, and let the machinery run again. What happens to the disputed items when there are no more cycles left to run belongs to the final-account guide, which starts where this one stops.

Keep the record boring and it will do the work. Applications numbered in one sequence and never re-numbered. Cumulative figures that reconcile to the previous month on their face. Variations listed with their instruction references whether or not anybody has agreed them. Materials on site separate. Retention shown as a deduction rather than netted off. Sent the same way, at the same hour, to the same address, every month — which is what makes an assertion that something never arrived answerable in thirty seconds rather than in a witness statement.

Then write the letter, once, in the flattest language available. Name the application, the due date, the final date for payment, the absence of any notice under either provision, and the sum that consequently fell due, and ask when payment will be made. No adjectives, no history of the relationship, and no threat beyond the naming of a right that already exists. Most of these end there, because the person reading it can see that every line is checkable and that the next step is not a negotiation.