Pay Less Notice or Withholding Notice
The Local Democracy, Economic Development and Construction Act 2009
The Local Democracy, Economic Development and Construction Act 2009 covers both Scotland and England, and amends the Housing Grants, Construction and Redevelopment Act 1996. It came into force in England on 1 October 2011 and in Scotland on 1 November 2011.
In terms of disputed payments the amended Construction Act replaced the witholding notice with a pay less notice. The revisions:
- Allow the parties to negotiate and agree whether the client or the contractor issues payment notices.
- Where the employer (or its architect, engineer, etc.) has to issue payment notices under the building contract but fails to do so timeously, the contractor can issue a notice of default specifying the sum it considers due.
- Unless a properly formulated pay less notice is issued in time, the sum specified by the contractor becomes the sum which must be paid.
Pay Less Notice
Section 111 (3) of the Construction Act requires a pay less notice to specify:
- The sum that the payer / specified person writing the notice considers to be due on the date the notice is served (even if this sum is zero), and
- The basis on which that sum is calculated (again, even if the sum is zero).
To be effective, a pay less notice must be served before any contractual deadline. If no deadline is expressly agreed, then the amended Scheme2 implies a strict timetable into the contract.
Enforcing Payment of Certified Sums
In a recent dispute, the Employer disagreed with his project manager who issued interim certificates for work which the employer thought defective or otherwise non-compliant with the contract. This was raised in discussion and moneys were withheld.
The Employer did not know the statutory requirement for pay less notices and thought that the fact that the issue was openly being discussed allowed him to withhold payment until the matter was resolved. The Builder went to law to seek payment of the sums certified. The Employer was advised that he did not have a sustainable defence.
Whether or not the work was defective, the Employer's failure to notify in accordance with the Act compelled him to pay the certified sums in full. The absence of pay less notices does not bar an action or counterclaim for the cost of putting right defective building work. As the Employer believed much of the work failed to meet the standards stipulated in the contract, he was left to consider whether, having paid the Builder, it was worthwhile claiming the cost of correcting the defective work through adjudication or litigation.