Payment notices vs pay less notices: common mistakes that lead to disputes

Getting paid on time is critical to every construction business. Yet many payment disputes arise not because the parties disagree about the work, but because a notice was late, unclear or served incorrectly.

Under the Housing Grants, Construction and Regeneration Act 1996, commonly known as the Construction Act, payment notices and pay less notices play different roles. Getting either one wrong can have serious cash-flow consequences.

This guide explains the difference between payment notices and pay less notices, the common mistakes that lead to disputes, and the practical steps contractors, employers, developers and contract administrators can take to protect their position.

What is a payment notice?

A payment notice states the sum considered due at the relevant payment date and explains the basis on which that amount has been calculated.

Depending on the contract, the notice may be issued by the payer, a specified person, such as a contract administrator, or, in some circumstances, the payee’s application may become the relevant notice.

Under section 110A of the Construction Act, the required payment notice must generally be given no later than five days after the payment due date.

A valid payment notice should clearly identify:

• The relevant payment cycle
• The sum considered due
• The basis on which that sum has been calculated
• The application or valuation to which it relates.

Novus Resolve has a separate guide that explains the difference between a payment notice and a pay less notice in more detail.

What happens if no payment notice is issued?

This is where the payment regime can become particularly important.

If the paying party fails to issue the required payment notice, the payee may be able to rely on its own application or issue a default notice, depending on the contractual arrangements.

The amount identified in the relevant notice may then become the notified sum. Unless the paying party serves a valid pay less notice, the notified sum must generally be paid by the final date for payment.

This is why missing a payment notice is not simply an administrative error. It can materially change the amount that must be paid.

What is a pay less notice?

A pay less notice is used where the paying party intends to pay less than the notified sum.

For example, the payer may consider the valuation too high, certain work incomplete, or deductions justified under the contract.

The notice should clearly state:

• The sum the payer considers due at the date of the notice
• The basis on which that sum has been calculated
• Which payment cycle or application the notice relates to.

A pay less notice must also be served within the required timeframe. The exact deadline depends on the contract, so the parties should always check the payment provisions and any bespoke amendments rather than relying on a standard number of days.

Payment notice vs pay less notice

Common mistakes with payment notices and pay less notices

Most payment notice disputes come down to a small number of recurring mistakes.

1. Missing the deadline

Timing is one of the most important issues in the payment regime.

A perfectly drafted notice may still fail if it is served too late. Construction teams should therefore record the due date, payment notice deadline, final date for payment and pay less notice deadline at the beginning of every payment cycle.

Automated calendar reminders can be valuable, particularly where several contracts or subcontract packages are being administered simultaneously.

2. Referring to the wrong payment application

A notice needs to be clear about the payment cycle it addresses.

This was a central issue in Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC). The court considered whether a pay less notice could be relied on in relation to an earlier application when the documents themselves referred to a later payment cycle.

The court concluded that the notice was not effective against the earlier application. The practical lesson is straightforward: make it unmistakably clear which payment application and payment cycle the notice relates to.

You can read the full Advance JV v Enisca judgment.

3. Failing to explain the calculation

A notice should not simply state a figure with no explanation.

The recipient needs to understand how the amount has been calculated. Where deductions are being made, showing them individually makes the notice much easier to understand and defend.

For example, rather than simply reducing an application by £25,000, the notice might separately identify amounts relating to alleged defective work, incomplete work and valuation differences.

4. Serving the notice incorrectly

Even a notice that is accurate and on time can create problems if it is served contrary to the contract.

Check:

• the contractual address for notices
• whether email service is permitted
• which person or organisation must receive the notice
• any specific contractual service requirements.

Keep evidence of service, including emails, timestamps and delivery confirmations.

5. Treating informal correspondence as a formal notice

Project teams exchange hundreds of emails. Do not assume that an informal message will automatically satisfy the requirements of a payment notice or pay less notice.

If a document is intended to operate as a formal notice, make that purpose clear.

Why payment notice disputes often end in adjudication

Payment disputes are particularly suited to adjudication because the process is designed to provide a rapid interim decision and keep cash flowing through the construction industry.

A party claiming an unpaid notified sum may refer the dispute to adjudication. The timetable then moves quickly, which can expose weaknesses in notice administration almost immediately.

This is why it is worth understanding how to prepare for a construction adjudication before a payment dispute reaches that stage.

Once an adjudication begins, there may be little time to reconstruct missing records or work out which notice was meant to respond to which application.

Can the true value of the work still be disputed?

Payment notice disputes often focus on what must be paid at that particular stage, rather than finally determining the true value of the work.

A payer who is required to pay the notified sum because it failed to serve a valid notice may still have options to pursue a later valuation dispute, depending on the circumstances and contractual position.

This is one reason payment disputes can become complicated. There may be a distinction between the immediate obligation to pay the notified sum and the parties’ underlying disagreement about the true value of the account.

Practical checklist for serving notices

Before issuing a payment notice or pay less notice, check:

• Have you confirmed the due date?
• Have you calculated the notice deadline correctly?
• Does the notice identify the correct application and payment cycle?
• Is the sum clearly stated?
• Is the calculation explained?
• Are deductions itemised where appropriate?
• Have you checked the contractual service provisions?
• Do you have evidence showing when and how the notice was served?

A simple compliance check before service can prevent a much more expensive dispute later.

How to reduce payment disputes on live projects

Good payment administration is largely about consistency.

Project teams should maintain a payment calendar for every contract, use standard notice templates, train those responsible for issuing notices and periodically audit payment procedures.

Early intervention is also central to effective dispute avoidance. If there is uncertainty over a valuation, notice or deadline, dealing with it before the final date for payment is usually far easier than arguing about it afterwards.

Frequently asked questions

What is the main difference between a payment notice and a pay less notice?

A payment notice states the sum considered due. A pay less notice is used where the paying party intends to pay less than the notified sum.

What happens if a pay less notice is late?

If the notice is not served within the period required by the contract and statutory payment regime, it may be ineffective. The payer may then be required to pay the full notified sum.

Can a pay less notice show £0 due?

Potentially, yes, provided the notice complies with the contractual and statutory requirements and clearly explains the basis on which the payer considers that amount due.

Should payment notices be sent by email?

Only if the contract permits or recognises that method of service. Always check the notice provisions rather than assuming ordinary project correspondence is sufficient.

Conclusion

Payment notices and pay less notices are simple in principle, but small administrative errors can lead to significant construction disputes.

The most important points are to understand the payment timetable, refer to the correct application, explain the figures clearly and follow the contractual service provisions precisely.

Good notice administration protects cash flow and gives both parties greater certainty. Poor administration can turn a routine valuation disagreement into an urgent adjudication.

Contact Novus Resolve

Payment disputes are among the most common issues in construction, but many can be prevented through careful contract administration.

At Novus Resolve, we help contractors, developers, employers and professional teams understand payment provisions, manage notice requirements and resolve disputes when they arise.