The Construction Act 1996 — properly the Housing Grants, Construction and Regeneration Act 1996 — is the UK statute that gives almost every party to a construction contract two non-negotiable rights: the right to refer any dispute to adjudication “at any time”, and the right to staged payment backed by strict payment and pay-less notices. Part II of the Act applies to construction work in England, Wales and Scotland and cannot be contracted out of.
If your contract is silent or non-compliant, the statutory Scheme for Construction Contracts fills the gaps automatically. Below is a fully fact-checked 2026 guide to what the Act covers, the 2011 amendments that reshaped it, the payment regime, and a drafting checklist you can apply today.
- The Act gives a statutory right to adjudicate at any time under section 108 — the foundation of all construction adjudication in the UK.
- Sections 109–113 create a mandatory payment regime: stage payments, payment notices, pay-less notices and a ban on “pay-when-paid”, central to most construction payment disputes.
- The Local Democracy, Economic Development and Construction Act 2009 amended the Act from 1 October 2011 (England & Wales), removing the “in writing” requirement and adding pay-less notices.
- Residential occupiers, finance and development agreements, and most collateral warranties are excluded — the Supreme Court confirmed the warranty point in 2024.
- Where a contract fails to comply, the Scheme for Construction Contracts 1998 (as amended 2011) is implied as a statutory fallback.
- The 2026 late-payment reforms propose to ban cash retentions and impose 60-day maximum payment terms — relevant to ongoing retention disputes.
What the Construction Act 1996 is
The “Construction Act” is shorthand for Part II of the Housing Grants, Construction and Regeneration Act 1996. While the wider Act also dealt with housing grants and urban regeneration, it is Part II — “Construction Contracts” — that practitioners mean when they refer to “the Act”. Part II came into force on 1 May 1998 and applies to construction contracts relating to operations in England, Wales or Scotland.
Part II does two things. First, it confers a statutory right to adjudication: a fast, interim dispute-resolution process that produces a binding decision in 28 days. Second, it imposes a statutory payment regime designed to keep cash flowing down the supply chain. Both rights are mandatory. Parties cannot validly draft them out; if they try, the law substitutes compliant terms through the Scheme.
The Act was a direct response to the 1994 Latham Report, Constructing the Team, which found that adversarial payment practices and slow, expensive litigation were crippling the industry. Adjudication and a statutory payment ladder were Latham’s headline recommendations.
Purpose and background
Sir Michael Latham’s review concluded that the single biggest cause of dispute was money — late payment, set-off without notice, and “pay-when-paid” clauses that pushed insolvency risk down the chain. Litigation took years; arbitration was little faster. The Act’s answer was to give every contractor and sub-contractor a right to a quick, enforceable decision and a predictable payment cycle.
The policy aim is summed up in a phrase the courts repeat: the Act exists to ensure cash flow is “the very lifeblood of the construction industry”. Adjudication decisions are enforced robustly by the Technology and Construction Court precisely to protect that cash flow, even where one party believes the decision is wrong — the “pay now, argue later” principle.
Three features make this regime distinctive. It is mandatory: parties cannot opt out, and the Act overrides inconsistent contract terms. It is interim: adjudication produces a temporarily binding answer that keeps money moving while the parties retain the right to a final determination in court or arbitration. And it is self-executing: where the contract is silent or non-compliant, the Scheme is implied automatically, so there is no gap a clever clause can exploit. Together, those features explain why adjudication has become the default route for resolving construction disputes in the UK — far more common in practice than litigation or arbitration.
The 2011 amendments: the LDEDC Act 2009
The Act was significantly amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009 (the “LDEDC Act” or, informally, “the 2011 amendments” or “Construction Act 2011”). The amendments came into force for contracts entered into on or after 1 October 2011 in England and Wales, and 1 November 2011 in Scotland.
The principal changes were:
| Change | Effect | Section affected |
|---|---|---|
| Removed the “in writing” requirement | Oral and partly-oral contracts are now caught; jurisdiction can no longer be defeated by arguing the contract was not fully written | s.107 repealed |
| Adjudication terms must be “in writing” | The adjudication procedure still has to be set out in writing even though the contract itself need not be | s.108(2)–(4) |
| New “slip rule” | An adjudicator may correct a clerical or typographical error within a short period | s.108(3A) (new) |
| Adjudicator’s costs | Agreements to allocate the costs of adjudication are largely ineffective unless made after the notice of intention to refer | s.108A (new) |
| New payment-notice architecture | Mandatory payer/payee payment notices, default notices and “pay-less” notices replaced the old withholding-notice regime | ss.110A, 110B, 111 (recast) |
A practical consequence: the date the contract was entered into determines which version of the Act applies. A contract concluded in 2010 still runs on the pre-2011 regime (withholding notices, written-contract requirement); a contract from 2012 onwards runs on the amended regime.
What counts as a “construction contract”
Under section 104, a construction contract is an agreement for the carrying out of construction operations, for arranging for others to carry them out, or for providing labour for them. Crucially, it also includes agreements to do architectural, design or surveying work, or to give advice on building, engineering or landscape — so consultants’ appointments are caught.
“Construction operations” are defined broadly in section 105 and cover construction, alteration, repair, maintenance, extension and demolition of buildings and works forming part of the land; installation of fittings such as heating, lighting and drainage; site clearance, scaffolding, landscaping and painting or decorating.
Where a contract covers both construction operations and other matters, the Act applies only to the construction-operations part — the so-called “hybrid contract” problem that frequently produces jurisdictional arguments in adjudication.
Exclusions — and the 2024 collateral-warranty ruling
Several categories fall outside the Act. Some are carved out by section 105(2), others by section 106 or by the Construction Contracts (England and Wales) Exclusion Order 1998.
| Excluded category | Basis | Why |
|---|---|---|
| Contract with a residential occupier (work on a dwelling the party occupies or intends to occupy) | s.106 | Consumer protection — homeowners are not forced into adjudication |
| Drilling/extraction of oil, gas or minerals; certain process-plant work (nuclear, power generation, chemicals, oil, gas, steel, food & drink) | s.105(2) | Specialist process engineering excluded by Parliament |
| Manufacture or delivery of materials, plant or components without installation (supply-only) | s.105(2)(d) | Pure supply is not a construction operation |
| Wholly artistic works (sculptures, murals) | s.105(2)(e) | Artistic, not constructional |
| PFI/PPP concession agreements, finance agreements, development agreements | 1998 Exclusion Order | These are funding/procurement vehicles, not works contracts |
| Most collateral warranties | Case law (2024) | See below — Abbey Healthcare in the Supreme Court |
The 2024 Supreme Court ruling. In Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [2024] UKSC 23, decided on 9 July 2024, the Supreme Court held that most collateral warranties are not construction contracts under section 104. A warranty will only qualify if it contains a separate and distinct promise to carry out construction operations — not merely a warranty that work already promised under the building contract has been or will be done. In doing so the Court overruled the earlier Parkwood Leisure v Laing O’Rourke [2013] decision. The practical effect: a beneficiary of a typical collateral warranty generally cannot adjudicate under it, and must rely on litigation or arbitration instead.
The right to adjudicate “at any time” (section 108)
Section 108 gives a party to a construction contract the right to refer a dispute “arising under the contract” to adjudication. The defining feature is timing: a party may give notice of intention to refer at any time. There is no requirement to wait for practical completion, and any contractual clause that tries to restrict when a party can adjudicate is unenforceable.
The statutory timetable, which any compliant contract must reflect in writing, is:
| Stage | Statutory requirement | Source |
|---|---|---|
| Notice of intention to refer | May be given “at any time” | s.108(2)(a) |
| Appointment + referral to adjudicator | Within 7 days of the notice | s.108(2)(b) |
| Adjudicator’s decision | Within 28 days of referral | s.108(2)(c) |
| Extension by referring party’s consent | Up to a further 14 days | s.108(2)(d) |
| Longer extension | Only with both parties’ agreement | s.108(2)(c) |
| Status of decision | Binding until finally determined by litigation, arbitration or agreement | s.108(3) |
The decision is temporarily binding: it must be complied with even if a party intends to challenge it later in court or arbitration. The 2011 amendments added the slip rule (s.108(3A)) and section 108A, which renders most pre-dispute agreements about who pays the adjudicator’s fees ineffective — a protection against employers loading cost risk onto contractors. If a contract’s adjudication terms fall short of s.108(1)–(4), the Scheme’s adjudication provisions apply instead.
Worked example — Meridian Fit-Out Ltd. Meridian, a sub-contractor, completes mechanical works on a Manchester office refurbishment but the main contractor disputes £180,000 of the final account. Rather than litigate, Meridian serves a notice of adjudication on 3 March. The adjudicator is appointed and the dispute referred by 9 March (within 7 days). On 6 April — 28 days after referral — the adjudicator decides £142,000 is due. The main contractor believes the figure is too high but must pay within the contract’s payment period; it can pursue the £38,000 difference later in court, but the adjudicator’s decision is enforced first. That is “pay now, argue later” in action.
The payment provisions (sections 109–113)
The payment ladder is the Act’s second pillar. Its core rules are:
- Section 109 — right to stage/periodic payments. A party is entitled to interim or stage payments for any contract estimated to last 45 days or more.
- Section 110 — payment mechanism. Every construction contract must provide an adequate mechanism for determining what becomes due and when, and a final date for payment.
- Section 110A/110B — payment notices. A payment notice must be given (within 5 days of the due date) stating the sum due and how it is calculated — even if that sum is zero. If the payer fails to serve one, the payee may serve a default notice.
- Section 111 — the “notified sum” and pay-less notice. The payer must pay the notified sum by the final date for payment unless it serves a valid pay-less notice.
- Section 112 — right to suspend. If a sum is not paid, the payee may suspend performance after 7 days’ written notice, and recover reasonable costs and an extension of time.
- Section 113 — ban on “pay-when-paid”. Clauses making payment conditional on the payer being paid by a third party are ineffective — except where that third party is genuinely insolvent.
Payment and pay-less notices: how the regime works
The 2011 amendments rebuilt the notice regime around a single concept: the notified sum. Whatever sum is “notified” (by the payer’s payment notice, or by the payee’s default notice if the payer stays silent) becomes the amount that must be paid by the final date — unless the payer serves a valid pay-less notice in time, specifying the lower sum and the basis for it.
This is why so-called “smash-and-grab” adjudications arise: if the payer fails to serve either a payment notice or a pay-less notice, the payee’s application becomes the notified sum by default, and an adjudicator will order it paid in full — regardless of the true value of the work. The discipline of serving notices on time is therefore not a formality; it is the whole game.
Two points trip up payers most often. First, timing is measured against the final date for payment set by the contract, not the due date — miscalculating the window invalidates an otherwise sound pay-less notice. Second, the notice must be substantive: it has to specify the sum the payer considers due and the basis on which it is calculated. A bare assertion of a lower figure, or a generic reservation, will not satisfy section 111. A valid payment application by the payee can do double duty as a default payment notice, so payees should make their applications clear, dated and compliant in form.
Worked example — the missed pay-less notice. Northgate Developments receives an interim application from its groundworks contractor for £240,000, with a final date for payment of 30 April. Northgate’s quantity surveyor values the work at only £185,000 but, busy with another project, serves no payment notice and no pay-less notice. Because nothing was notified to displace the application, the £240,000 becomes the notified sum by default. The contractor adjudicates and is awarded the full £240,000, payable immediately. Northgate can later seek a “true value” adjudication to recover the £55,000 over-payment — but only after it has paid the notified sum first. The lesson: a single missed notice can cost more than the disputed value of the work.
| Notice | Who serves it | Timing | Consequence if missed |
|---|---|---|---|
| Payment notice (s.110A) | Payer (or specified person) | Within 5 days of due date | Payee may serve a default notice |
| Default payment notice (s.110B) | Payee | After payer’s notice deadline passes | Payee’s application sets the notified sum |
| Pay-less notice (s.111) | Payer (or specified person) | Before the final date for payment (period set by contract) | Full notified sum becomes payable |
The Scheme for Construction Contracts (the statutory fallback)
The Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649), amended in 2011 (SI 2011/2333), is the safety net. Wherever a contract fails to provide compliant adjudication terms, the Scheme’s Part 1 adjudication provisions are implied. Wherever it fails to provide a compliant payment mechanism or notices, the Scheme’s payment provisions are implied.
Importantly, the implication is surgical, not wholesale: only the missing or non-compliant elements are replaced. A contract can keep its own valid payment dates while having, say, the Scheme’s notice provisions read in. Scotland has its own parallel Scheme. The upshot for drafters is that you cannot escape the Act by drafting an inadequate clause — you simply hand control to the default Scheme, which may suit the other side better than you.
Oral and partly-oral contracts after 2011
Before October 2011, section 107 limited the Act to contracts “in writing”, which spawned a cottage industry of jurisdictional challenges — a respondent could resist adjudication by arguing that some term had only been agreed orally. The LDEDC Act repealed section 107 entirely.
For contracts entered into on or after 1 October 2011 (E&W), the Act now applies to oral, written or partly-oral contracts. The one residual writing requirement is narrow: the adjudication procedure itself (the s.108 terms) must be evidenced in writing, even if the underlying bargain was struck verbally. In practice, if the adjudication terms are not in writing, the Scheme is implied — so an oral contract still carries full adjudication rights via the Scheme.
Compliance checklist for contract drafters
Use this checklist when drafting or reviewing a JCT, NEC or bespoke construction contract to confirm Construction Act compliance:
| # | Requirement | Compliant? |
|---|---|---|
| 1 | Adjudication clause allows notice “at any time” (no time-bar on referral) | s.108(2)(a) |
| 2 | Timetable secures appointment + referral within 7 days | s.108(2)(b) |
| 3 | Adjudicator must decide within 28 days (+14 with referring party’s consent) | s.108(2)(c)–(d) |
| 4 | Adjudicator’s decision binding until finally determined | s.108(3) |
| 5 | Slip-rule provision included in writing | s.108(3A) |
| 6 | No pre-dispute clause allocating the adjudicator’s fees to one party | s.108A |
| 7 | Stage/periodic payment entitlement for works of 45+ days | s.109 |
| 8 | Adequate mechanism: what is due, when, and a final date for payment | s.110 |
| 9 | Payment-notice and pay-less-notice regime fully set out with timing | ss.110A–111 |
| 10 | Right to suspend on non-payment after 7 days’ notice | s.112 |
| 11 | No “pay-when-paid” clause (save for third-party insolvency) | s.113 |
If any row fails, the corresponding part of the Scheme will be implied — usually on terms less favourable to the party who drafted badly.
2024–2026 reform: retentions and late payment
The Act is under active reform pressure. Following a UK Government consultation on late payment and retentions that ran from July to October 2025 (closing 23 October 2025), the Government published its response, Time to Pay Up, on 24 March 2026. The headline proposals include an intention to ban the withholding of cash retentions in construction contracts (subject to further consultation on implementation), a 60-day maximum payment term between businesses, and mandatory interest on late payments.
Retentions — sums (often 3–5%) held back to secure performance and defects — are not currently regulated by the Act itself, which is why they sit at the centre of so many retention disputes. If the ban proceeds, it will be one of the most significant changes to construction payment since 1998. Drafters and contractors should monitor the implementing legislation closely; until it is in force, existing retention clauses remain valid and the current Act applies in full.
Common mistakes
- Assuming a homeowner contract is covered. Work for a residential occupier is excluded under s.106 — you cannot adjudicate against the homeowner unless the contract expressly adopts the Scheme.
- Missing the pay-less notice deadline. A late or absent pay-less notice means the full notified sum is payable, however inflated — the leading cause of “smash-and-grab” losses.
- Relying on a collateral warranty to adjudicate. After Abbey Healthcare (2024), most warranties do not give adjudication rights. Check whether a third-party rights schedule or assignment is needed instead.
- Treating a “pay-when-paid” clause as valid. It is ineffective under s.113 except on genuine third-party insolvency.
- Trying to time-bar adjudication. Any clause restricting when a party may refer a dispute conflicts with the “at any time” right and will be struck down.
- Ignoring the contract date. Pre-1 October 2011 contracts run on the old regime — applying the post-2011 notice rules to them is a frequent and costly error.
How Hayhills can help
Hayhills Legal Advisory advises contractors, sub-contractors, developers and consultants on the Construction Act day to day. Because adjudication, contract drafting and payment-notice strategy are non-reserved advisory work, we act for you directly: reviewing and drafting JCT and NEC contracts for full Act compliance, building a watertight payment-notice and pay-less-notice protocol, and supporting you through adjudication from notice of intention to enforcement strategy. Where a dispute moves to court enforcement of an adjudicator’s decision or involves insolvency, we advise on strategy and introduce and coordinate a regulated solicitor so the litigation is handled by the right professional.
Facing a payment dispute, a tight pay-less deadline, or an adjudication notice? Speak to the Hayhills construction team. Call 0203 581 5789 or visit our contact page for a confidential discussion of your position and next steps.
Frequently asked questions
What is the Construction Act 1996 in simple terms?
It is Part II of the Housing Grants, Construction and Regeneration Act 1996. It gives parties to a construction contract a right to refer disputes to fast adjudication and a right to staged payment backed by strict notice rules. These rights are mandatory and apply across England, Wales and Scotland.
Does the Construction Act apply to homeowners?
No. Section 106 excludes contracts with a residential occupier — work on a dwelling that one party occupies or intends to occupy as a home. Homeowners cannot be forced into adjudication unless the contract voluntarily adopts the Scheme or Act provisions.
What changed in the 2011 amendments?
The Local Democracy, Economic Development and Construction Act 2009 amended the Act from 1 October 2011 (England and Wales). It removed the written-contract requirement, added the slip rule and rules on adjudicator costs, and rebuilt the payment regime around payment notices and pay-less notices.
What is the “at any time” right?
Section 108 lets a party give notice of intention to adjudicate at any time during or after a contract. No clause can restrict when a dispute may be referred. The adjudicator must then be appointed within 7 days and decide within 28 days of referral.
What is a pay-less notice?
It is a notice the payer must serve before the final date for payment if it intends to pay less than the notified sum. It must state the reduced amount and how it was calculated. Without a valid pay-less notice, the full notified sum becomes payable.
Are “pay-when-paid” clauses legal?
No. Section 113 makes clauses conditioning payment on the payer being paid by a third party ineffective — with one exception: where that third party is genuinely insolvent. Otherwise the payee is entitled to payment regardless of upstream cash flow.
Does the Act cover oral contracts?
Yes, for contracts entered into on or after 1 October 2011 in England and Wales. The old section 107 “in writing” rule was repealed. Oral and partly-oral contracts now carry adjudication and payment rights, though the adjudication procedure itself must be evidenced in writing or the Scheme applies.
Are collateral warranties covered by the Act?
Usually not. In Abbey Healthcare v Augusta 2008 [2024] UKSC 23, the Supreme Court held that most collateral warranties are not construction contracts, overruling earlier case law. A warranty only qualifies if it contains a distinct promise to carry out construction operations.
What is the Scheme for Construction Contracts?
It is the statutory fallback (SI 1998/649, amended 2011). Where a contract’s adjudication or payment terms fail to comply with the Act, the relevant Scheme provisions are automatically implied to replace only the non-compliant parts — you cannot escape the Act with a defective clause.
Is the Construction Act changing in 2026?
Reform is proposed. The Government’s March 2026 late-payment response signalled an intention to ban cash retentions and impose a 60-day maximum payment term, subject to further consultation. Until implementing legislation is in force, the current Act and existing retention clauses continue to apply.
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.