Construction Act payment rules explained
Part II of the Housing Grants, Construction and Regeneration Act 1996, known as the Construction Act, gives everyone in the construction supply chain the same basic payment rights. Here is what they are, how the deadlines fit together, and what you can do when a payment does not arrive.
- 1,453 large companies reported construction contracts in their latest payment report, with a typical average of 31 days to pay. See them all.
- 815 of them say those contracts hold back retention money. See the rates.
Who it covers
The Act applies to construction contracts: agreements to carry out construction operations, to arrange for others to carry them out, or to provide labour for them, in England, Wales or Scotland. Architectural, design and surveying work, and advice on building, decoration or landscaping, count too.
Construction operations are broad. They include building, altering, repairing, maintaining and demolishing buildings and structures, civil engineering works such as roads, railways, pipelines and sewers, installing heating, lighting, ventilation, power, drainage, fire protection, security and communications systems, site clearance, scaffolding and landscaping, and painting and decorating.
Some work is left out: drilling for or extracting oil, gas and minerals; installing plant and machinery on sites whose main business is power generation, water treatment, nuclear processing, chemicals, pharmaceuticals, oil, gas, steel, or food and drink; making or delivering components or materials without installing them; and making artistic works. The Act also does not apply to a contract with a residential occupier for work on the home they live in, or to a contract of employment.
Since 1 October 2011 in England and Wales, and 1 November 2011 in Scotland, the Act has covered contracts that are oral or only partly written. Scotland has its own Scheme for Construction Contracts, and Northern Ireland has equivalent rules in the Construction Contracts (Northern Ireland) Order 1997.
How the deadlines fit together
The parties are free to agree their own payment periods. Where a contract does not set them, the Scheme for Construction Contracts fills the gaps. This worked example uses the Scheme's default terms for an interim payment: a 28 day valuation period, payment due seven days after it ends, and a final date for payment 17 days after that.
- Payment due date, day 7. Under the Scheme an interim payment becomes due seven days after the end of the valuation period, or when the payee makes its claim if that is later.
- Payment notice, by day 12. The payer, or someone named in the contract such as a contract administrator, must say what it considers due and how that is worked out, no later than five days after the due date.
- Pay less notice, by day 17. If the payer means to pay less than the notified sum, it must say so, with its reasons and its sum, no later than seven days before the final date for payment.
- Final date for payment, day 24. The notified sum, or the sum in a valid pay less notice, must be paid by this date, 17 days after the due date.
- Suspension, from day 32. If payment has not been made in full, the payee can give seven days' notice and then suspend work.
The final payment under the Scheme becomes due 30 days after the work is completed, or when the payee makes its claim if that is later, with the same 17 days to the final date for payment.
Payment notices
Every construction contract must require a notice for every payment, given no later than five days after the payment due date (section 110A). Usually the payer gives it. The contract can instead make the payee's own notice, such as its application for payment, the one that counts. Either way the notice must state the sum considered due and the basis on which it is calculated, even if that sum is zero.
A contract also has to provide an adequate way of working out what is due and when. It cannot make the due date depend on the giving of a notice, and it cannot make payment depend on obligations being performed under another contract, or on someone deciding that they have been (section 110). That rules out "pay when certified" terms that tie a subcontractor's payment to certification under the main contract.
If the payer gives no notice: the default notice
If the payer misses the payment notice deadline, the payee can give its own notice at any time afterwards, stating the sum it considers due and how it is calculated (section 110B). That becomes the notified sum. The final date for payment is pushed back by the same number of days as the default notice was given after the missed deadline. Where the contract lets the payee apply for payment before the payment notice deadline, that application stands as the default notice automatically.
Pay less notices
The payer must pay the notified sum by the final date for payment unless it gives a pay less notice in time (section 111). The notice must state the sum the payer considers due when the notice is given and the basis of the calculation. The deadline is whatever the contract says, or, if it says nothing, seven days before the final date for payment under the Scheme.
If a pay less notice is given and an adjudicator later decides more should have been paid, the extra amount is due within seven days of the decision, or by the original final date for payment if that is later. There is one exception to paying the notified sum: if the contract says so and the payee becomes insolvent after the pay less notice deadline has passed.
Pay when paid is banned
A term that makes payment conditional on the payer receiving payment from someone else is ineffective (section 113). The only exception is where the party further up the chain who was meant to pay is insolvent. If a pay when paid term falls away and the contract has no other payment terms, the Scheme's payment terms apply instead.
The right to suspend work
If the notified sum is not paid in full by the final date for payment, and no valid pay less notice was given, the payee can suspend any or all of its obligations (section 112). It must first give at least seven days' notice saying it intends to suspend and why. The time spent suspended is added to the time allowed to finish the work, and the party in default must pay a reasonable amount for the costs and expenses the suspension causes. The right ends as soon as payment is made in full.
Adjudication
Any party to a construction contract can refer a dispute to adjudication at any time (section 108). The process starts with a notice of intention to refer. The adjudicator should be appointed and the dispute referred within seven days of that notice, and must reach a decision within 28 days of referral. The adjudicator can extend that by up to 14 days if the referring party agrees, and the parties together can agree longer. The decision binds both sides until the dispute is finally decided in court, by arbitration or by agreement. If a contract does not meet these requirements, the adjudication rules in Part I of the Scheme apply.
Stage payments
Unless the work is to last, or is estimated to last, less than 45 days, the payee is entitled to be paid in instalments, stages or other periodic payments (section 109). The parties can agree the amounts and intervals. If they do not, the Scheme applies, with payment valued over 28 day periods.
Late payment interest
Construction debts are business debts, so if a contract sets no rate of interest for late payment, the Late Payment of Commercial Debts (Interest) Act 1998 applies. Work out what you can claim with the late payment interest calculator.
What is changing
The government intends to ban the deduction and withholding of retention payments under construction contracts, to cap business to business payment terms at 60 days, and to make the right to statutory interest compulsory in every commercial contract. These measures follow its Time to pay up consultation and are in the Commercial Payments Bill, which passed the House of Lords in October 2026 and is now before the House of Commons. None of them is law yet. See the retention release calculator and retention bonds explained.
Questions
Does the Construction Act apply to my contract?
It applies to agreements to carry out construction operations in England, Wales or Scotland, including building, civil engineering, installing heating, lighting and other systems, demolition, painting and decorating, and the design, surveying and advice that goes with them. It does not apply to a contract with a homeowner for work on the home they live in, to contracts of employment, or to excluded work such as oil and gas extraction, mining, and supplying components without installing them. Northern Ireland has equivalent rules in its own legislation.
What happens if no payment notice is given?
If the payer misses the deadline for a payment notice, the payee can give its own notice, called a default notice, saying what it considers due. That sum then has to be paid unless a valid pay less notice is given, although the final date for payment moves back by the number of days the default notice was late. Many contracts treat the payee's application for payment as that notice automatically.
When must a pay less notice be given?
By the deadline in the contract. If the contract does not set one, the Scheme for Construction Contracts says no later than seven days before the final date for payment. The notice must say what the payer considers due and how that is worked out. A late or missing pay less notice means the notified sum has to be paid in full.
Can a contractor refuse to pay me until they are paid?
No. A term that makes payment conditional on the payer being paid by someone else, known as pay when paid, is ineffective under section 113, unless the party further up the chain is insolvent. Making payment depend on what happens under another contract, such as the main contract being certified, does not count as an adequate payment mechanism either.
Can I stop work if I am not paid?
Yes. If the notified sum is not paid in full by the final date for payment, you can suspend any or all of your work after giving at least seven days' written notice stating why. The time you are suspended is added to your contract time, and you can claim the reasonable costs and expenses the suspension causes you. The right ends when you are paid in full.
How long does adjudication take?
Either party can start it at any time by giving notice. The adjudicator should be appointed and the dispute referred within seven days of that notice, and the decision is due within 28 days of referral. That can be extended by up to 14 days if the referring party agrees, or longer if both parties agree. The decision is binding until the dispute is finally settled in court, by arbitration or by agreement.
Does it cover contracts that were not written down?
Yes, for contracts made from 1 October 2011 in England and Wales and 1 November 2011 in Scotland. Before then the Act only covered contracts in writing.
Sources
This page is general information, not legal advice. Deadlines depend on the wording of each contract and on where the work is done. Take advice on a particular contract or dispute.