It’s time to review your contract payment terms

There has always been an uneasy interaction between the payment provisions in the Construction Act and the need for parties to a construction contract to invoice one another. As Martin Ewen explains, a new Technology and Construction Court case heard earlier this year has closed a frequently used contractual “workaround” and made both clients and contractors look again at their standard terms.

A recent judgment has potentially significant ramifications for payment terms in construction contracts. A final date for payment in a construction contract must now be linked to the due date and be a set period of time rather than an event or mechanism. Consequently, a final date for payment cannot be linked to the provision of an invoice (e.g. payment due within 30 days of receipt of invoice) and any such provision will not comply with the requirements of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”). 

In those circumstances the relevant provisions of the Scheme for Construction Contracts 1998 (the “Scheme”) will be imported. The effect of this is that the final date for payment is just 17 days from the date payment became due. 

Given that the latest date for service of a pay less notice is normally a set period of time prior to the final date for payment, this could very well mean that a pay less notice is late and invalid. Accordingly, the sum stated as due in the payment notice must be paid. If no payment notice was issued, the sum applied for by the contractor (assuming it became a default payment notice) would be due and the opportunity to issue a pay less notice against it lost. 

Rochford Construction Limited [“Rochford”] v Kilhan Construction Limited [“Kilhan”] [2020] EWHC 941 (TCC)

On 3 August 2018 a subcontract was entered into between Rochford and Kilhan under which Kilhan was to provide a reinforced concrete frame on a project at Richmond upon Thames College. 

The dispute arose out of an adjudication dated 24 December 2019 in relation to a dispute between the parties over Interim Payment Application 9 (“IPA 9”). The Interim Payment Notice 9 (“IPN 9”) was issued on 23 October 2019. The dispute concerned the validity of IPN 9, and whether it was issued late and failed to specify how the sum was calculated. The adjudicator defined the issues as whether the payment provisions were compliant with the Construction Act and if not, what terms were to be implied.

The adjudicator concluded that the due date of IPA 9 was 20 May 2019, being the date on which the notice was served, and that the final date for payment was 30 days from that due date, being 19 June 2019. He concluded that the Claimant had served neither a Payment Notice within five days of the due date nor a Pay Less Notice no less than seven days prior to the final date for payment. On that basis, the adjudicator found that the sum claimed was owing in default.

Rochford did not concur with the adjudicator’s decision and brought proceedings in the Technology and Construction Court, also seeking a decision in relation to the due date and the final date for payment.

Rochford sought the following declarations (amongst others):

“In respect of the due date:

a.     Under the express terms of the Subcontract, the Defendant is obliged to serve any interim application for payment on the last day of each calendar month.

b.     As a result, no payment became due under the Subcontract in respect of the April 2019 payment cycle.   

In respect of the Final Date of Payment:

c.     Under the express terms of the Subcontract, the Final Date for Payment of any sum that has become due is 30 days from the date of service of a relevant invoice.

d.     Without prejudice to the fact that no sums had in fact become due, the Defendant did not serve an invoice until 7 January 2020.

e.     Insofar as the Claimant has served a payless notice more than 7 days prior to the Final Date of Payment, the Claimant is not obliged to pay the sums now claimed by the Defendant.


f.      As a consequence of the above matters, the Claimant does not owe the Defendant the sums ordered be paid by the Adjudicator in his Decision.”

Rochford said that the adjudicator’s decision was clearly wrong because he failed to give effect to two key expressed clauses in the subcontract: the date for making a claim and the requirements for a final date for payment.

The subcontract stated:

“The brief description of subcontractor works to be carried out

Works are lump sum … RCL will issue activity schedule to KCL, application date end of month … commercial … valuations monthly as per attached payment schedule end of month. Payment terms thirty days from invoice as per attached schedule. S/C payment cert must be issued with invoice.”

No payment schedule was issued. As Mrs Justice Cockerill noted, had one been issued, “it seems far less likely that this dispute would have arisen”. 

Section 110 (Dates for Payment) of the Construction Act stipulates that:

“Every construction contract shall –

(a)    provide an adequate mechanism for determining what payments become due under the contract and when, and

(b)    provide for a final date for payment in relation to any sum which becomes due.

The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.”

If a construction contract does not satisfy section 110 of the Construction Act, the relevant provisions of the Scheme will be implied into the contract.  

Due date

The contract particulars stated “Application date end of month”. Therefore, according to Rochford, it was clear that applications for payment had to be made on the last day of the month. When that date fell on a non-business day, Rochford submitted that the application would need to be submitted on the last business day of any month.

Kilhan noted that “end of month” could mean “by the end of the month”, “on the end of the month”, “after the end of the month”, “the final business day”, or “the final calendar day”.

Mrs Justice Cockerill concluded with little hesitation that Rochford’s case on this issue was incorrect and unsustainable. 

Paragraph 4 of the Scheme was therefore applicable and so the due date was 20 May 2019, the date on which the claim was made by Kilhan (IPA 9). 

Final date for payment

Mrs Justice Cockerill said that:

“Pegging the final date to service of an invoice, which itself is pegged to a payment certificate, is simply impractical. The best way of mending the misfire caused by the parties’ incomplete drafting of the contractual documents, which is the position which one faces here, is effectively the one on which the adjudicator settled …  I would reach the conclusion that the statutory Scheme comes into play as regards the final date for payment.”

She went on to say that:

“… while a due date can be fixed by reference to, say, an invoice or a notice, the final date has to be pegged to the due date, and be a period of time, and not an event or mechanism.”

The subcontract was unclear as to when the invoice triggering final payment was to be submitted. The subcontract referred to one of two items (the payment schedule or the payment certificate) neither of which existed, and so there was therefore no certainty as to when the invoice was to be issued, making it an unsuitable basis for determining the final date for payment.

As there was not an adequate mechanism for determining the final date for payment in the subcontract, the Scheme had to be implied. 

Under the Scheme the final date for payment is 17 days from the due date. Consequently, Rochford’s pay less notice was out of time and the full amount was due.

Rochford’s claim for the declarations sought, and to order Kilhan to repay the sums paid by Rochford pursuant to the adjudicator’s decision, was dismissed.


The court’s decision on this point is obiter (non-binding). Nonetheless, it will carry considerable force for most adjudicators and it is the first case to consider this point.

(i)     Standard forms

The payment provisions in unmodified JCT standard forms of contract and the unmodified NEC suites of contracts generally comply with the Construction Act. However, payment provisions are very commonly the subject of amendment and so extra care must be taken when drafting these amendments to ensure that the final date for payment is linked to the due date and a set period of time. It has to be certain. If not, the consequences could be grave.

(ii)    Bespoke forms of contract

Payment provisions in bespoke forms of contract arguably carry a greater risk of falling foul of the Construction Act. Again, care should be taken in the drafting to avoid linking the final date for payment to the provision of an invoice. 

(iii)   Pay less notices

Pay less notices run the real risk of being issued late and therefore being invalid if a final date for payment is only 17 days from the payment due date, as regularly a final date for payment is expressed as being greater than 17 days. This could result in the sum stated in the payment notice being due. In the absence of a valid payment notice, the sum in the application for payment could become due. 

(iv)   Beware the smash and grab adjudication

Paying parties should be wary that the timeframe for payment could be shorter than anticipated, thereby exposing them to a “smash and grab” adjudication. “Smash and grab” adjudications have become slightly less common following Grove Developments Limited v S&T (UK) Limited [2018] EWCA Civ 2448. However, given the continuing impact of COVID-19 on the construction industry and economic uncertainty, the opportunity to obtain potentially significant sums of money very quickly and on a straightforward contractual basis, could prove very tempting for payees. 

For payers, payment must be made in compliance with an adjudicator’s decision in a smash and grab adjudication before a “true value” adjudication can be commenced. In circumstances where the party in receipt of monies is in a perilous financial position, this could create a risk that even with success in a true value adjudication, there may be significant issues with clawing back some or all of the money.

(v)    Right to suspend

A right to suspend performance of the works is triggered by a failure to pay a sum due by the final date for payment. A final date for payment of 17 days after the due date could catch parties out and entitle the payee to payment. If payment is not made, the right to suspend would arise. This could affect the overall progress of the works and incur liquidated damages up the contractual chain. 

(vi)   What if my construction contract falls foul of the Construction Act?

Parties to construction contracts should check the final date for payment provisions and consider their positions. If those contracts fall foul of the Construction Act then it may be sensible to adopt a final date for payment as being 17 days from the due date (care should also be taken in establishing the due date). Pay less notices should then be served with reference to a final date for payment being 17 days from the due date.

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