Payment, notices and the Construction Act
How construction payment works in law: payment notices, pay less notices, the notified sum, the right to suspend, 28-day adjudication, retention and pay-when-paid.
Construction payment in the UK is governed by statute, not just by contract. Part II of the Housing Grants, Construction and Regeneration Act 1996, amended in 2009, sets out how payment must work — and where a contract falls short, the Scheme for Construction Contracts fills the gap whether the parties like it or not.
It is worth understanding on both sides of a contract. The mechanism is strict, the timescales are short, and the remedy for getting it wrong is fast.
Stage payments are a right
A party to a construction contract is entitled to payment by instalments unless the work is specified or agreed to take less than 45 days. The parties can agree the amounts and the intervals; if they do not, the Scheme supplies them.
A contract cannot make payment conditional on the performance of obligations under a different contract, and it cannot set the due date only by reference to when a notice is given.
The payment notice
Not later than five days after the payment due date, a payment notice must be given specifying the sum considered due and the basis on which it is calculated. That obligation sits with the payer, or with a specified person such as a contract administrator.
If the payer does not give one, the payee can give a default payee notice, and the final date for payment is postponed by the time taken to give it. This is the mechanism behind the so-called smash-and-grab: a payee's notice, unanswered, becomes the sum that must be paid.
The notified sum, and paying less
Whatever sum has been notified must be paid by the final date for payment. The only way to pay less is a valid pay less notice, given within the period the contract prescribes before the final date, stating the sum considered due and how it is calculated.
No pay less notice means the notified sum is payable in full, even where the payer believes the valuation is wrong. The argument about value can still be had — but afterwards, and having paid.
Suspension
Where the notified sum is not paid in full by the final date, the payee may suspend performance of any or all obligations after giving seven days' written notice.
The period of suspension does not count against contractual time limits, so the programme extends, and the party in default must reimburse a reasonable amount for the costs and expenses of suspending and resuming. It is a real remedy rather than a threat, but it must follow the notice procedure exactly.
Adjudication
Either party may refer a dispute to adjudication at any time. An adjudicator is appointed within seven days and decides within 28 days of referral, extendable by 14 days with the referring party's consent.
The decision binds until the dispute is finally determined by litigation, arbitration or agreement — which in practice usually means it is the end of it. Twenty-eight days is what makes the payment provisions enforceable rather than aspirational.
Pay-when-paid, and retention
Pay-when-paid clauses are ineffective, with a narrow exception where the third party further up the chain has become insolvent. A main contractor cannot make payment to a subcontractor conditional on being paid by the employer.
Retention is lawful and remains common — typically a small percentage held from each payment, with half released at practical completion and the balance at the end of the defects liability period. Where a contract provides for retention, the release dates should be stated in it as clearly as the payment dates, because an unstated release date is how retention quietly becomes permanent.
The residential occupier exclusion
None of this applies to a construction contract with a residential occupier — an individual having work done on a dwelling they occupy or intend to occupy.
For a homeowner, therefore, the statutory payment regime and the right to adjudicate are simply not there. What the written contract says is what there is, which is the strongest practical argument for having a proper one.
Where this comes from
Everything on this page was checked against the primary source in September 2026. Regulations, designations and thresholds change, and nothing here is a substitute for advice on your own property or contract. If you spot something that has moved, tell us and we will correct it.
The sources are listed opposite. They are the published guidance and legislation themselves rather than a summary of them, so you can check any of it directly.
Common questions
Questions on this
What is a smash-and-grab adjudication?
Where a payer fails to serve a payment notice or a valid pay less notice, the payee's notified sum becomes payable in full and an adjudicator will order it paid, regardless of the true value of the work. The valuation can be revisited in a later adjudication, but the money moves first.
Can we agree different payment terms?
Within limits. The parties can agree amounts and intervals, but they cannot contract out of the notice regime, the right to suspend or the right to adjudicate. Where a contract does not comply, the Scheme for Construction Contracts supplies the missing terms automatically.
Is retention still allowed?
Yes. It is lawful and widely used. What matters is that the contract states the percentage, the release at practical completion and the release at the end of the defects period as clearly as it states the payment dates.
Does any of this help a homeowner?
No — contracts with a residential occupier are excluded from Part II, so there is no statutory payment regime and no right to adjudicate. For domestic work the written contract is the whole of the protection, which is why the scope, the stages and the variation procedure should be agreed before work starts.
Where this applies
The work this affects
- Commercial fit-outs & refurbishment Office, retail and hospitality fit-out, including phased and out-of-hours working.
- Public sector & framework contracts Framework and direct-award work, with pre-qualification documentation available on request.
- Social housing & planned maintenance Planned programmes and occupied-property works for housing associations and local authorities.
Before you shortlist us
Everything a pre-qualification asks for, set out as it actually stands rather than as we would like it to.