When the payment rules apply
Part II of the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009 for contracts made from 1 October 2011 in England and Wales (and 1 November 2011 in Scotland), applies to most “construction contracts”: building, civil engineering, repair, demolition, installation of building services, and related design and surveying work. It covers main contracts and subcontracts, written or oral.
Important exclusions include contracts with a residential occupier for work on their own home, and some process plant and extraction work. Where a contract doesn’t meet the Act’s requirements, the relevant Scheme for Construction Contracts fills the gaps. Northern Ireland has equivalent rules in the Construction Contracts (Northern Ireland) Order 1997, as amended.
The payment cycle, step by step
- Stage payments: if the work is expected to last 45 days or more, the payee is entitled to interim, periodic or stage payments.
- Payment application: many contracts ask the payee to apply for payment before each due date. Check what the contract says about timing and content.
- Due date: the contract must set an adequate mechanism for when payments become due. Under the Scheme, interim payments fall due 7 days after the end of the relevant period, or on the making of a claim, whichever is later.
- Payment notice (within 5 days): the payer (or a specified person, such as the contract administrator) must give a notice, no later than 5 days after the due date, stating the sum it considers due and how that sum is calculated.
- Pay less notice: if the payer intends to pay less than the notified sum, it must give a pay less notice stating the sum it considers due and the basis of calculation, no later than the prescribed period before the final date. Under the Scheme, that’s 7 days.
- Final date for payment: the last date to pay without being in breach. Under the Scheme, the final date is 17 days after the due date.
What if no payment notice is given?
If the payer doesn’t give a payment notice in time, the payee can give a default payment notice, or, where the contract says so, its own payment application stands as the notice. The sum stated becomes the notified sum, and unless a valid pay less notice is given in time, the payer must pay it by the final date, even if it thinks the work is worth less.
This is the basis of the so-called “smash and grab” adjudication. In S&T (UK) Ltd v Grove Developments Ltd [2018] the Court of Appeal confirmed that the payer must pay the notified sum first, but can then start its own adjudication to establish the true value of the work. See our case studies.
Your right to suspend
If the notified sum isn’t paid in full by the final date and no effective pay less notice has been given, the payee can suspend all or part of its work, after giving at least 7 days’ notice of its intention to suspend, stating the grounds. The right ends when payment is made in full. The payee is entitled to its reasonable costs of suspension and remobilisation, and to an extension of time for the delay caused. There’s an example notice of intention to suspend on our examples page.
Payment terms the Act doesn’t allow
- Pay when paid: clauses making payment conditional on the payer being paid by someone else are ineffective, except where a third party further up the chain is insolvent.
- Pay when certified elsewhere: making payment depend on a certificate under another contract is also ineffective, as is making the due date depend on performance of obligations under another contract.
- Pay-less by default: the requirement for a valid pay less notice can’t be contracted out of.
Where a term is ineffective, the Scheme’s payment provisions apply instead.
Late payment interest and debt recovery
For business-to-business contracts, the Late Payment of Commercial Debts (Interest) Act 1998 lets you claim statutory interest at 8% above the Bank of England base rate, plus a fixed sum for debt recovery costs of £40, £70 or £100 depending on the size of the debt, unless the contract provides a substantial remedy for late payment. Many standard forms set their own interest rate instead. As of October 2026, a government bill to strengthen late payment rules, including a ban on cash retentions, is going through Parliament: see our explainer.
CIS deductions are separate
The Construction Industry Scheme (CIS) is an HMRC tax scheme, not part of the Construction Act payment rules. Contractors must deduct tax from payments to subcontractors for construction work and pass it to HMRC: 20% for registered subcontractors, 30% for unregistered ones and nothing for those with gross payment status. Deductions apply to the labour element, not materials. Make sure CIS deductions and any pay less amount are shown clearly so they aren’t confused.
General information, not legal advice. What applies to you depends on your contract, the facts and where the work is, and the law changes. Check the sources below and take advice from a qualified professional before acting on anything that matters.
Last updated: 15 October 2026
