Set off runs through most disputed final accounts: sums withheld for defective work, for delay, for attendance, or for liabilities on other contracts. The underlying grievance is frequently justified and the mechanics are frequently not, which is why these items are examined early in a final account dispute review.
The question is rarely whether something went wrong. It is whether the party withholding money did what the contract required before doing so.
What set off actually is
Reducing a payment otherwise due by an amount claimed in respect of something else: defective work, delay, costs incurred on the other party’s behalf.
It is not the same as valuing work at less than claimed. Assessing an application downwards is valuation; deducting a separate liability from the assessed figure is set off.
Confusing the two is common and it matters, because the contractual requirements differ and so do the consequences of getting them wrong.
What contracts usually require
Notification, in a stated form and by a stated time, identifying the amount and the basis.
Sometimes a prior determination of liability, where the contract requires the underlying matter to be established before money can be withheld for it.
And compliance with the payment mechanism, since a deduction applied after the deadline for a notice to pay less is exposed however well founded it is.
The timing problem
Contra charges tend to be quantified when somebody has time, and the deadline for notifying them is rarely convenient.
The result is a deduction applied in the month after the one in which it could properly have been notified, which is the commonest failure in this area.
The protection is procedural: quantify early, notify within the cycle, and carry forward anything not ready rather than applying it late.
Set off across contracts
Withholding money due on one project against a liability arising on another is a different question again, and whether it is permitted depends on the contracts and on the relationship between the parties.
It is also a question on which contracts frequently say something specific, either permitting or excluding it.
Assuming it is available because both projects involve the same two companies is a weak position and a common one.
Evidence for the underlying charge
A deduction has to be supported by something: records of the defect, the cost of putting it right, the basis for the delay period, the attendance actually provided.
Charges calculated as a round sum, or as a percentage, are difficult to sustain, because they do not correspond to anything that can be checked.
The evidence should exist at the time the deduction is made, not be assembled when it is challenged a year later.
Where the charge is justified but the process failed
The liability does not disappear. What is lost is the ability to take it from that payment, and the money usually has to be paid first and recovered afterwards.
That is uncomfortable and it is the mechanism working as intended: cash flow is protected by requiring the paying party to follow a procedure.
Where the same failure has repeated across several cycles, the cumulative exposure is significant and worth establishing properly rather than discovering item by item.
Responding to a set off
Establish the mechanics first: was a notice served, when, in what form, stating what. Those questions are answered from documents and decide a great deal.
Then deal with the merits of the charge itself, which is a separate exercise and frequently a longer one.
Running the two together produces an argument in which neither is resolved, because each side responds to the point it prefers.
The commercial reality
Set off is used tactically as well as legitimately, and a deduction appearing for the first time when a contractor is pressing for payment deserves scrutiny.
Equally, contractors sometimes treat every deduction as illegitimate, which wastes the credibility needed for the ones that genuinely are.
Separating the well founded from the opportunistic, on both sides, is most of the work, and it is better done privately before positions are stated.
What to keep
For each deduction: the notice, its date, the calculation, and the evidence of the underlying matter.
Kept per item rather than aggregated, so that each can be examined without unpicking the whole account.
That structure is also what allows the well supported deductions to be agreed while the others are resolved, which releases cash on both sides.
Aggregating them into one figure guarantees that none of them is agreed, because accepting any part looks like accepting all of it.
Withholding as leverage
Deductions sometimes appear for the first time when a contractor is pressing hardest for payment, which is a pattern worth recognising on both sides of it.
Used that way, set off tends to harden a dispute rather than resolve it, because the contractor reads the timing rather than the substance.
Where a charge is genuine, raising it when it arises rather than when it is useful preserves the ability to rely on it.
The charge that should have been a variation
Some contra charges are really the cost of work the employer wanted done differently, characterised as a deduction because that is simpler than instructing a change.
Those are worth identifying, because the contractual answer is quite different: an instruction and a valuation rather than a notice and a deduction.
The test is the same one that separates a variation from a defect, and it turns on what the contract actually required.
Where it sits
Set off disputes are usually part of a wider account rather than standalone, which is why they are addressed alongside everything else in a final account dispute review.
Where the deduction relates to a single payment cycle and the question is whether the notice was valid, the narrower payment and pay less notice review is the right piece of work.
The discipline that avoids most of it is quantifying and notifying charges as they arise, which belongs with cost control and variations during the works.
Final account stopped moving?
A final account dispute review reconciles the account, sets the disputed items out on a schedule with their basis and evidence, and gives a view on where the gap can realistically be closed.