A pay less notice is how a paying party reduces the sum otherwise due. Serve it correctly and in time, and the reduction stands to be argued on its merits. Equally, serve it late, or not at all, and the notified sum generally becomes payable regardless of what the works are worth.
That is unusual in commercial life and it catches out competent people regularly, because it makes procedure decisive over substance.
The structure of a payment cycle
A due date, fixed by the contract. A payment notice from the paying party within a set period after it, stating the sum considered due and the basis of calculation. A final date for payment.
If the paying party does not serve a payment notice, the payee's application generally becomes the notified sum. In the event that the paying party wishes to pay less than the notified sum, they must serve a pay less notice before a stated deadline.
Every one of those steps is date driven, and the dates come from the contract particulars. Missing one has consequences that no amount of subsequent argument about value repairs.
Why competent teams miss them
Holidays, illness, a change of surveyor, an application arriving on a Friday. The deadlines are short and they do not move for anybody's circumstances.
Applications arriving early or late also cause problems, because the cycle dates are tied to the due date rather than to when the application actually arrived.
The practical protection is administrative: a diary with every due date, notice deadline and final date for payment for the whole contract, set up at the start and owned by a named person.
Content matters as much as timing
A notice must state the sum considered due and the basis on which it is calculated. A figure without a basis may not be a valid notice, and a notice that is invalid is the same as no notice.
The basis does not need to be elaborate, but it needs to show how the figure was reached. Referring to an attached valuation is normally sufficient; asserting a number is not.
Where a notice is challenged, the argument is usually about validity rather than about the arithmetic, which is why the form is worth getting right the first time.
The consequence of getting it wrong
Where no valid payment notice and no valid pay less notice have been served, the payee is generally entitled to the notified sum in full. Adjudications brought on that basis are decided quickly and enforced robustly.
The paying party is not left without remedy for the underlying value; the position can generally be corrected in a later cycle or in the final account. But the money has to be paid first, and on a scheme with cash flow constraints that timing is the problem.
The consequences of a missed notice are a legal matter as much as a commercial one, and where the position is live it belongs with solicitors. What sits with us is establishing what the works are actually worth.
Both directions
Contractors face the same regime with subcontractors, and a main contractor who is scrupulous about notices upstream and casual downstream is carrying an exposure they have not priced.
Clients who are late with notices to the contractor while insisting on strict compliance from the contractor are in a weak position when the point is tested.
The regime applies to most construction contracts in the United Kingdom, and the safest assumption on any project is that it applies until somebody establishes otherwise.
It affects how valuations are prepared
Because the deadlines are short, the assessment has to be done properly within the cycle rather than deferred. That is a resourcing question: a surveyor covering several projects will eventually be late on one.
It also means valuations should be prepared to a standard that would stand up if challenged, every month, rather than being tidied at the final account. That discipline is covered in the monthly cost report a developer can use.
Where a valuation cannot be completed properly in time, serving a notice for a defensible lower figure with a stated basis is better than serving nothing.
What this means for you
Build the payment calendar at the start of the contract and give it an owner with cover arrangements. It is the single highest value administrative task on a construction project.
Then treat every notice as a document that may be read by an adjudicator. Stating the sum and the basis takes a few extra minutes and removes the argument about validity entirely. Where a dispute has already formed, the position is set out under commercially contentious.
Unsure whether your notices are being served correctly?
Send the last three payment cycles. We will check the dates, the notices and where the exposure sits.