Cash flow is the lifeblood of construction, and the UK has some of the strongest statutory protections for construction payment in the world. The Housing Grants, Construction and Regeneration Act 1996 (as amended by the LDEDC Act 2009) gives every party to a construction contract the right to stage payments, payment notices, and rapid adjudication. Despite this, many contracts — particularly those drafted by main contractors for subcontractors — attempt to work around these protections with complex payment notice regimes, pay-when-paid clauses, and onerous set-off provisions. Understanding your statutory rights is critical before you start work.
What is a Payment Terms and Adjudication?
A UK construction contract is any agreement for the carrying out of construction operations as defined by the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), s 104-105. The Act provides mandatory payment and adjudication provisions that apply regardless of what the contract says, with certain exceptions for residential occupiers.
Red flags to watch for
Section 113 of the HGCRA renders pay-when-paid clauses ineffective except in cases of upstream insolvency. A clause that ties your payment to the main contractor receiving payment from the client is void.
Section 109 requires a construction contract to provide for interim, stage, or periodic payments. If the contract is silent, the Scheme for Construction Contracts (England and Wales) Regulations 1998 implies a payment mechanism.
Under s 110A-B, the payer must give a payment notice within 5 days of each payment due date. The notice must specify the sum considered due and the basis for calculation.
Section 112 gives the payee a right to suspend performance if a notified sum is not paid by the final date for payment. The contract cannot exclude this right.
Section 108 gives every party the right to refer any dispute to adjudication at any time. Clauses that restrict this right — such as requiring mediation first — may be overridden by the Scheme.
While not yet mandated by statute, best practice (and many standard forms) require retention to be held in a separate trust account. A retention clause with no trust provisions puts your money at risk if the payer becomes insolvent.
Your legal rights
The Housing Grants, Construction and Regeneration Act 1996 (as amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009) provides: right to interim payments (s 109); payment and pay less notices (s 110A-B); prohibition of pay-when-paid clauses (s 113); right to suspend for non-payment (s 112); right to adjudicate any dispute at any time (s 108). Where the contract does not comply, the Scheme for Construction Contracts (SI 1998/649) implies compliant terms. Key cases include Henia Investments v Beck [2010] EWHC 1614 (TCC) on payment notices and ISG v Seevic College [2014] EWHC 4007 (TCC) on the consequences of failing to serve a pay less notice.
Questions to ask before you sign
- 1Does the contract comply with HGCRA payment notice requirements?
- 2Are there any pay-when-paid or pay-when-certified provisions?
- 3What is the payment cycle, and when are payment and pay less notices due?
- 4Is retention held in a separate trust account?
- 5Does the adjudication clause comply with s 108, including the right to adjudicate at any time?
- 6What is the right to suspend performance for non-payment?
- 7Does the contract use a standard form (JCT, NEC, or FIDIC)?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.