Most construction payment disputes are won or lost on paperwork and dates, not on the quality of the work. Under the Housing Grants, Construction and Regeneration Act 1996, if the paying party fails to serve a valid payment notice or pay-less notice in time, the full amount the contractor applied for — the “notified sum” — becomes payable in full by the final date for payment, regardless of its true value.
That single rule drives almost every interim-payment fight in the UK construction industry, from the “smash and grab” adjudication to the “true value” counter-strike. This guide explains the statutory payment regime as it stands in 2026, the exact notice deadlines, the case law that governs them, and a fully worked £250,000 example — so you know precisely where you stand before you escalate.
- The Construction Act 1996 (amended in 2011) gives every qualifying contract a compulsory payment timetable, payment notices and pay-less notices — read our overview of the Construction Act 1996.
- Miss the pay-less notice deadline and the “notified sum” becomes payable in full, even if you genuinely overpaid — the basis of the “smash and grab” adjudication.
- A payer can recover an over-payment through a “true value” adjudication, but only after it has first paid the notified sum (S&T v Grove; Bexheat v ESG).
- Where a contract’s payment terms fail to comply, the Scheme for Construction Contracts imports default deadlines automatically.
- “Pay-when-paid” clauses are largely unenforceable, and an unpaid party has a statutory right to suspend works on seven days’ notice.
- What we see in practice
- Late payment carries statutory interest of 11.75% plus fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998 — see how this interacts with retention disputes and construction adjudication.
The statutory payment regime: what the Construction Act 1996 requires
Payment in construction is governed by Part II of the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”), as amended in 2009. It gives every party to a qualifying construction contract a statutory right to interim payments, a defined payment timetable, and the right to refer any dispute to adjudication at any time.
The cornerstone of every UK construction payment dispute is Part II of the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”), as substantially amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009. The amendments took effect on 1 October 2011 in England and Wales and 1 November 2011 in Scotland, and they remain the governing regime in 2026.
The Act applies to most “construction contracts” for “construction operations” carried out in the UK — building, civil engineering, repair, demolition and related professional services — whether the contract is written or oral. There are carve-outs: contracts with residential occupiers, certain process-plant and drilling work, and supply-only contracts fall outside it. But for the vast majority of main-contract, sub-contract and consultant appointments, the Act’s payment rules are mandatory and cannot be contracted out of.
The regime does three things. First, it guarantees a right to periodic (interim) payment for any contract lasting 45 days or more, so contractors are not forced to wait until practical completion to be paid. Second, it imposes a rigid notice-and-timing system so that, at every payment cycle, both parties know exactly what sum is due and by when. Third, it gives the unpaid party two powerful enforcement tools: the right to suspend performance and the right to refer any dispute to adjudication at any time.
Crucially, the Act is procedural. It does not decide who is “right” about the value of the works — it decides who must pay what, and when, based on whether the correct notices were served on time. That is why so many disputes turn on dates rather than on engineering.
Payment notices, default payment notices and pay-less notices
The system turns on notices. The payer (or its agent) should issue a payment notice stating the sum due; if it does not, the payee’s application can become the default payment notice. To pay less than the notified sum, the payer must serve a valid pay-less notice before the final date for payment under section 111 of the Construction Act 1996. Miss that deadline and the full notified sum falls due, regardless of the true value of the work.
The notice architecture is the heart of the regime, and getting the terminology right is essential. Three notices matter, and each is defined by reference to two fixed contractual dates: the payment due date and the final date for payment.
1. The payment notice (s.110A)
Within five days of each payment due date, a payment notice must be served specifying the sum considered due and the basis of calculation. Under section 110A of the Act, the contract can require this notice to be given either by the payer (the employer or main contractor) or by the payee (the contractor or sub-contractor). The notice is valid even if the sum stated is zero. This is the notice that sets the “notified sum”.
2. The default payment notice
If the payer was supposed to serve the payment notice but fails to, the payee can serve its own default payment notice stating the sum it considers due. The final date for payment is then pushed back by the number of days late the default notice was. In practice, a contractor’s interim application for payment is often drafted so that it doubles as a default notice — meaning the application figure becomes the notified sum by default.
3. The pay-less notice (s.111)
If the payer wants to pay less than the notified sum — for defects, set-off, liquidated damages or over-valuation — it must serve a pay-less notice before the final date for payment, specifying the reduced sum and the basis of calculation. The deadline is set by the contract; if the contract is silent, the Scheme default applies (see below). Miss it, and the right to pay less is lost for that cycle.
| Notice | Who serves it | Deadline (statutory default) | Effect if not served |
|---|---|---|---|
| Payment notice (s.110A) | Payer or payee (per contract) | Within 5 days of payment due date | Payee may serve a default payment notice |
| Default payment notice | Payee | After payer’s deadline lapses | Payee’s figure becomes the notified sum |
| Pay-less notice (s.111) | Payer | Per contract; Scheme default 7 days before final date | Full notified sum becomes payable |
The “notified sum” and the “smash and grab” adjudication
Section 111 of the Construction Act contains the rule that makes notices so important. It provides that, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment. The only way to reduce that obligation is to serve a valid pay-less notice in time.
The “notified sum” is whatever figure was fixed by the relevant notice: the payer’s payment notice, or — if the payer failed to serve one — the payee’s default notice or application. If no valid pay-less notice is served, that figure becomes a debt due in full, irrespective of whether the works are actually worth that much.
This is the engine of the “smash and grab” adjudication. A contractor who has applied for, say, £250,000, and who receives no valid payment notice and no valid pay-less notice, can refer the matter to adjudication and obtain an award for the full £250,000 as a simple debt. The adjudicator does not value the works at all — the only question is whether the notices were served on time. Because adjudication produces a decision in around 28 days that is enforceable by the courts, a smash and grab can be a devastatingly effective cash-flow weapon.
The lesson for paying parties is stark: a missed deadline of even one day can convert a disputed valuation into an immediate, enforceable liability for the full applied-for sum. For payees, the discipline of drafting applications that double as compliant default notices is what makes the tactic available.
The Scheme for Construction Contracts: the statutory fallback
What happens if a contract does not contain compliant payment terms — or contains none at all? The Act does not strike the contract down. Instead, it imports the relevant provisions of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (with separate Schemes for Scotland and Northern Ireland). The Scheme operates as a statutory safety net, filling whatever gaps the contract leaves.
The Scheme supplies default dates that frequently appear in disputes where the parties were working under a loose contract, a letter of intent, or an oral agreement:
| Scheme default | Timing |
|---|---|
| Payment due date | The later of the relevant period (a 28-day cycle) or the payee’s claim |
| Payment notice | Within 5 days of the payment due date |
| Final date for payment | 17 days after the payment due date |
| Pay-less notice | Not later than 7 days before the final date for payment |
The practical effect is that even a one-line agreement scribbled on a letter of intent carries the full statutory payment machinery. Many contractors do not realise that the Scheme’s default deadlines are working in their favour, and many employers do not realise the Scheme has quietly replaced their inadequate contractual terms — only discovering it when a smash and grab adjudication lands.
True value vs smash and grab: the line drawn by the courts
For several years there was real doubt about whether a payer who had lost a smash and grab could fight back by adjudicating the true value of the works. The Court of Appeal settled the principle, and the TCC has since policed its limits.
S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448
Grove engaged S&T to design and build a Premier Inn at Heathrow under a JCT Design and Build 2011 contract. After a payment-notice dispute, the Court of Appeal (Sir Rupert Jackson) confirmed two things. First, an employer who has failed to serve a valid payment or pay-less notice is entitled to refer the true value of the interim application to a second adjudication. Second — and decisively — that right can only be exercised after the employer has actually paid the notified sum awarded in the smash and grab. In short: pay first, argue value second.
Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC)
The TCC reinforced the rule. Mrs Justice O’Farrell held that the immediate payment obligation under section 111 trumps any entitlement to a true-value adjudication. A paying party will not usually be permitted even to commence a true-value adjudication until it has complied with its immediate obligation to pay the notified sum. The “notified sum” obligation is, in effect, a temporary trump card that must be honoured before the underlying valuation can be revisited.
| Feature | Smash and grab adjudication | True value adjudication |
|---|---|---|
| Question decided | Were valid notices served? What is the notified sum? | What are the works actually worth? |
| Typically brought by | The payee (contractor) | The payer (employer) |
| Valuation considered? | No — purely a notices/timing question | Yes — full open-book valuation |
| Precondition | A missed or invalid notice | Notified sum must first be paid in full |
| Net effect | Immediate cash to the payee | Any over-payment is repaid to the payer |
The combined effect of Grove and Bexheat is a clear sequence: the payee gets the cash now; the payer gets the chance to claw back any over-payment later. Cash flow — “the lifeblood of the construction industry”, as the courts have repeatedly described it — is protected, but no one is permanently enriched by a paperwork slip.
Suspension rights and the ban on “pay-when-paid”
If a notified sum is not paid in full by the final date, the payee has a statutory right under section 112 of the Construction Act 1996 to suspend performance, after giving at least seven days’ written notice. “Pay-when-paid” clauses, which make payment conditional on the payer itself being paid further up the chain, are largely prohibited.
The right to suspend (s.112)
Section 112 of the Construction Act gives an unpaid party a statutory right to suspend performance of any or all of its obligations where the notified sum is not paid in full by the final date for payment. The right is triggered by non-payment of a notified sum — not merely a sum the party believes it is owed — and is subject to a condition precedent: at least seven days’ written notice of the intention to suspend, stating the grounds, must be given. Since the 2011 amendments, a party that lawfully suspends is entitled to recover its reasonable costs and expenses of suspension and remobilisation, and to an extension of time for the period lost. Suspension is a serious step — wrongful suspension is itself a breach — but used correctly it is a potent lever short of adjudication.
“Pay-when-paid” is prohibited (s.113)
Section 113 renders “pay-when-paid” clauses ineffective. A term making payment to a sub-contractor conditional on the payer first receiving payment from a third party (typically the employer) is unenforceable — with a narrow exception for upstream insolvency. The point is to stop main contractors from passing the entire risk of an employer’s default down the chain. Note that the ban targets “pay-when-paid”, not “pay-when-certified” mechanisms, though the latter are heavily constrained by the notice regime too.
Statutory interest and the Late Payment of Commercial Debts (Interest) Act 1998
Late payment also carries interest. Where the contract is silent, the Late Payment of Commercial Debts (Interest) Act 1998 implies a right to interest at 8% above the Bank of England base rate, together with fixed compensation and reasonable debt-recovery costs.
Where a construction debt is paid late and the contract does not provide a “substantial” contractual interest remedy, the Late Payment of Commercial Debts (Interest) Act 1998 implies a right to interest into business-to-business contracts. The rate is 8% above the Bank of England base rate fixed at the relevant reference date (30 June or 31 December preceding the period in which the debt fell due).
The Bank of England base rate was cut to 3.75% in December 2025 and remains at that level in mid-2026. For debts where statutory interest began to run in the first half of 2026, the reference rate is the 31 December 2025 base rate of 3.75%, giving a statutory interest rate of 11.75% per annum.
On top of interest, the Act allows a creditor to claim a fixed sum in compensation for each unpaid debt, without proving actual costs, plus any reasonable recovery costs above that fixed sum:
| Size of unpaid debt | Fixed-sum compensation |
|---|---|
| Under £1,000 | £40 |
| £1,000 to under £10,000 | £70 |
| £10,000 or more | £100 |
For a six-figure construction debt the fixed sum is modest, but the interest is not. At 11.75%, a £250,000 debt accrues roughly £80 per day — a powerful incentive for the payer to settle and a meaningful add-on to any adjudication or court claim.
Worked example: a £250,000 application with no pay-less notice
Scenario — Northgate Fit-Out Ltd v Crownway Developments Ltd. Northgate, a sub-contractor, submits Interim Application 9 for £250,000 on 1 April 2026 under a contract that incorporates the Scheme defaults.
- Payment due date: 1 April 2026.
- Payment notice deadline (5 days): 6 April 2026. Crownway serves nothing.
- Northgate’s application doubles as a default payment notice, so the notified sum is fixed at £250,000.
- Final date for payment (17 days after due date): 18 April 2026.
- Pay-less notice deadline (7 days before final date): 11 April 2026. Crownway serves nothing.
Result. Because Crownway served neither a payment notice nor a pay-less notice, the full £250,000 becomes payable on 18 April 2026 under section 111. Northgate refers a smash and grab adjudication; the adjudicator does not value the works and simply awards the £250,000 notified sum, enforceable by the TCC.
Crownway’s only route back. Even if Crownway genuinely believes the works are worth only £180,000, it must first pay the £250,000. Only then can it launch a true value adjudication (per Grove and Bexheat) to recover the £70,000 over-payment. Meanwhile, statutory interest at 11.75% runs on the £250,000 from 18 April — about £80 a day — plus £100 fixed compensation.
What we see in practice
In our advisory work, construction payment disputes are won and lost on dates and notices, not on the underlying valuation. The most common pattern we see is a payer who genuinely disputes the sum but misses the pay-less deadline, and so has to pay the full application first and argue value later. On the other side, we see payees who weaken a strong “smash and grab” position with an invalid or ambiguous application. Diarising every payment and pay-less deadline, and getting the notice wording right, is worth far more than the strength of the valuation argument.
Common mistakes that lose payment disputes
- Treating a valuation email as a pay-less notice. A pay-less notice must state the sum the payer intends to pay and the basis of calculation. Vague correspondence does not count.
- Serving the pay-less notice late or to the wrong address. Even a valid notice served one day late, or sent other than by the contractual method, is ineffective — and the full notified sum falls due.
- Assuming a true-value adjudication can offset the debt. It cannot until the notified sum is paid; trying to set one off against the other is the mistake Bexheat shut down.
- Relying on a “pay-when-paid” clause. It is unenforceable under section 113 except on upstream insolvency.
- Suspending works without seven days’ written notice. Skip the notice and a lawful right becomes a repudiatory breach.
- Ignoring the Scheme. Parties on letters of intent often assume “no contract terms” means “no deadlines” — the Scheme says otherwise.
How to resolve a construction payment dispute, step by step
When a payment dispute crystallises, the sequence below reflects how disputes are actually run under the 2026 regime:
- Audit the notices and dates. Establish the payment due date, final date for payment, and whether valid payment and pay-less notices were served on time. This determines whether you have a smash and grab or a valuation fight.
- Quantify the notified sum. Fix the figure that section 111 makes payable, and calculate statutory interest from the final date for payment.
- Send a clear demand. A letter setting out the notified sum, the missing notices and the interest accruing often resolves matters before adjudication.
- Consider suspension or adjudication. Where non-payment persists, serve a section 112 notice or refer the dispute to construction adjudication — a 28-day, contractually binding process.
- Enforce or defend. Adjudication decisions are enforced through the Technology and Construction Court by summary judgment; resisting enforcement is difficult and limited to narrow grounds such as jurisdiction or breach of natural justice.
How Hayhills can help
Construction payment disputes are won on strategy and timing — exactly where Hayhills Legal Advisory acts directly. We review your JCT or NEC contract, build and police a compliant payment-notice and pay-less-notice calendar, and tell you within hours whether you hold a “smash and grab” or face one. Our advisory team prepares and supports adjudication referrals and responses, including true-value strategy after Grove and Bexheat, and we structure demands that put statutory interest and the Late Payment Act to work for you. Where a matter moves to court enforcement or insolvency, we advise on strategy and introduce and coordinate a regulated solicitor to handle the reserved court steps, so nothing falls between the cracks.
Facing a payment dispute, or want your notice regime watertight before the next cycle? Speak to our construction advisory team today on 0203 581 5789 or visit our contact page for a confidential review of your position.
Frequently asked questions
What is a construction payment dispute?
A construction payment dispute arises when a contractor, sub-contractor or consultant is not paid the sum due under a construction contract. Under the Construction Act 1996, most turn on whether valid payment and pay-less notices were served on time, rather than on the underlying value of the works.
What is the “notified sum”?
The notified sum is the amount fixed by the relevant payment notice (or, if the payer fails to serve one, the payee’s default notice or application). Under section 111 it must be paid in full by the final date for payment unless a valid pay-less notice is served in time.
What is a “smash and grab” adjudication?
It is an adjudication where the payee claims the full notified sum as a debt because the payer failed to serve a valid payment or pay-less notice. The adjudicator does not value the works — the only question is whether the notices were served on time.
What happens if no pay-less notice is served?
If the payer serves no valid pay-less notice (and no valid payment notice), the full notified sum becomes payable by the final date for payment, regardless of the true value of the works. This is the basis of a smash and grab adjudication.
Can a payer challenge an overvalued application?
Yes, but only through a “true value” adjudication, and only after first paying the notified sum awarded in the smash and grab. S&T v Grove and Bexheat v ESG confirm the payment obligation must be honoured before true value can be revisited.
What is the Scheme for Construction Contracts?
It is a set of statutory default terms imported into any construction contract whose payment provisions fail to comply with the Act. The Scheme supplies default deadlines — a payment notice within 5 days, a final date 17 days after the due date, and a pay-less notice 7 days before that.
Are “pay-when-paid” clauses legal?
No. Section 113 of the Construction Act makes “pay-when-paid” clauses ineffective, with a narrow exception where the third party further up the chain is insolvent. A main contractor cannot withhold payment from a sub-contractor simply because the employer has not paid.
Can I suspend work if I am not paid?
Yes. Section 112 gives an unpaid party the right to suspend performance where a notified sum is unpaid by the final date for payment, provided at least seven days’ written notice is given. You can recover reasonable costs of suspension and remobilisation and an extension of time.
What interest can I claim on a late construction payment?
Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest is 8% above the Bank of England base rate — 11.75% in early 2026 with the base rate at 3.75% — plus fixed compensation of £40, £70 or £100 depending on the size of the debt, unless the contract provides a substantial remedy.
How quickly can adjudication resolve a payment dispute?
Adjudication usually produces a binding decision within about 28 days of referral. The decision is enforced through the Technology and Construction Court by summary judgment, making it the fastest practical route to recovering a disputed construction payment.
This article is for general information only and does not constitute legal or accountancy advice. Hayhills Limited, trading as Hayhills Legal Advisory, provides non-reserved legal advisory services. Always check current requirements at GOV.UK.
Sources: Housing Grants, Construction and Regeneration Act 1996, s.110A (legislation.gov.uk); s.111, notified sum (legislation.gov.uk); Scheme for Construction Contracts (England and Wales) Regulations 1998 (legislation.gov.uk).