Construction & Property

Construction payment rights and adjudication

Your statutory rights to payment and rapid dispute resolution under the Housing Grants, Construction and Regeneration Act 1996. Covers payment notices, pay-less notices, stage payments, suspension rights, retention, and the 28-day adjudication process including 'smash and grab' claims.

UK-wide
Guide summary

If you work in construction, you have legal rights to payment and quick dispute resolution. You must issue payment notices, can suspend work if unpaid, and can use a 28-day adjudication process for disputes. These rights apply even if your contract says otherwise.

  • Issue payment notices stating what and when you will pay
  • Suspend work if not paid the notified amount
  • Use adjudication for disputes with a decision in 28 days
  • Contracts lasting 45+ days must have stage payments
  • Adjudication decisions are binding and must be paid immediately
  • Enforce unpaid decisions through the Technology and Construction Court
  • Residential work for homeowners is not covered
  • Payment disputes can be resolved in 28 days via adjudication
  • Keep records of all payment notices and correspondence
  • Check if your contract is covered by the Construction Act
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If you work in the construction industry, you have powerful statutory rights to payment and dispute resolution that cannot be contracted away. The Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996, often called the "Construction Act") was introduced to address chronic payment problems in the construction sector.

Before the Act, late payment and non-payment caused business failures throughout the supply chain. Main contractors delayed paying subcontractors, who delayed paying suppliers, creating a cascade of financial distress. The Act changed this by giving you:

  • Right to stage payments on contracts lasting 45 days or more
  • Right to a payment notice telling you what will be paid and when
  • Right to suspend work if not paid the notified sum
  • Right to adjudication with a binding decision in 28 days

These rights exist regardless of what your contract says. Any contract term that attempts to remove or restrict these rights is void and unenforceable.

Which contracts are covered?

The HGCRA 1996 applies to most construction contracts in Great Britain, but with important exclusions.

Contracts covered include:

  • Building contracts (new build, refurbishment, repair)
  • Civil engineering contracts
  • Installation of mechanical, electrical and plumbing systems
  • Demolition and site clearance
  • Painting and decorating
  • Professional appointments (architects, engineers, surveyors)
  • Labour-only contracts

Contracts NOT covered:

  • Contracts with residential occupiers (homeowners commissioning work on their own home)
  • Drilling or extraction of oil, gas or minerals
  • Assembly, installation or demolition of plant on processing sites
  • Manufacture of components delivered to site
  • Some PFI contracts

Key point: The "residential occupier" exemption is narrower than people think. It only applies where the occupier (or someone who intends to occupy) commissions work on their dwelling. A landlord commissioning work on rental property IS covered by the Act.

28-day adjudication: rapid dispute resolution

Adjudication is the most powerful right under the Act. It gives you access to rapid, binding dispute resolution that courts must enforce - even if the other party disputes the decision.

Before adjudication existed, construction disputes could take years and cost tens of thousands of pounds to resolve through litigation or arbitration. Adjudication provides a decision in 28 days at a fraction of the cost.

How to refer a dispute to adjudication

You can refer any dispute under a construction contract to adjudication at any time. The other party cannot stop you, delay you, or require you to follow other dispute resolution procedures first.

Step 1: Serve a Notice of Adjudication

Your notice must identify:

  • The parties involved
  • The contract and project
  • The nature of the dispute in brief terms
  • The redress you seek (what you want the adjudicator to decide)

Step 2: Appoint an adjudicator

Your contract may name an adjudicator or specify an Adjudicator Nominating Body (ANB). If not, you can apply to an ANB such as:

  • Royal Institution of Chartered Surveyors (RICS)
  • Chartered Institute of Arbitrators (CIArb)
  • Technology and Construction Solicitors Association (TeCSA)
  • Institution of Civil Engineers (ICE)

The ANB must nominate within 5 days. The adjudicator must confirm acceptance within 2 days.

Step 3: Serve your Referral Notice

Within 7 days of the Notice of Adjudication, serve your Referral Notice with full details of your case and supporting documents. This is when the 28-day clock starts.

Step 4: Receive the decision

The adjudicator must decide within 28 days (extendable to 42 days with your consent, or longer by agreement). The decision is binding and must be complied with immediately.

Enforcing adjudication decisions

An adjudication decision is binding until finally determined by court proceedings, arbitration, or agreement. This means:

  • The losing party must pay even if they disagree with the decision
  • They can challenge the decision later through litigation or arbitration
  • But they must pay NOW and argue later

If the other party refuses to pay, you can enforce the decision through the Technology and Construction Court (TCC) using a summary judgment application. Courts routinely enforce adjudication decisions within weeks.

Very limited grounds exist to resist enforcement:

  • The adjudicator lacked jurisdiction (contract not covered by the Act)
  • The adjudicator breached natural justice (serious procedural unfairness)
  • The decision is unclear or contradictory

Simply disagreeing with the decision is NOT a ground for resisting enforcement. Courts have emphasised repeatedly that adjudication decisions must be enforced regardless of merit.

Payment notice requirements

The HGCRA 1996 (as amended in 2011) imposes strict requirements on payment notices. Understanding these requirements is critical because failure to issue valid notices can result in automatic liability for the full amount claimed.

The payment notice mechanism

Construction contracts must specify:

  • A due date for each payment (when the right to payment arises)
  • A final date for payment (when payment must actually be made)
  • Who issues the payment notice (payer or payee)

Within 5 days of the due date, the specified party must issue a payment notice stating:

  • The sum considered due
  • The basis of calculation

If the payer is meant to issue the notice but fails to do so, the payee's application/invoice becomes the "notified sum" by default. This is crucial - it means your application automatically becomes the payment due if they do not issue a valid notice.

Pay-less notices: the payer's defence

If a payer wants to pay less than the notified sum, they MUST serve a pay-less notice in time. Without a valid pay-less notice, they are legally obligated to pay the full notified sum - even if the claim is inflated or incorrect.

Pay-less notice requirements:

  • Must be served at least 7 days before the final date for payment (unless contract specifies otherwise)
  • Must specify the sum the payer considers due
  • Must state the basis of calculation

Critical point: A pay-less notice is not limited to the grounds in the payment notice. It can rely on matters not raised in any payment notice, including cross-claims and set-offs such as liquidated damages or defects, provided it specifies the sum considered due and the basis of calculation. And even if you failed to issue a payment notice - so the payee's application became the notified sum by default - a valid pay-less notice served in time is still effective on its own to reduce the sum payable (S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448). The pay-less notice is the payer's last line of defence: never assume it is pointless because the payment notice deadline has passed.

Practical advice for payers:

  • Diary the notice deadlines for every application received
  • Issue payment notices even if you agree with the amount claimed
  • If you dispute the amount, issue a pay-less notice with detailed reasons
  • Serve notices by recorded delivery and email to prove timing

Stage payments for contracts over 45 days

If your construction contract lasts 45 days or more, you have a statutory right to periodic (stage) payments. This right cannot be excluded by contract.

What if your contract is silent on payment intervals?

If your contract does not specify payment intervals, the Scheme for Construction Contracts applies automatically. Under the Scheme:

  • Payments become due 7 days after the end of each 28-day period
  • The final date for payment is 17 days from the due date

Statutory interest on late payments at 8% above the Bank of England base rate applies under the Late Payment of Commercial Debts (Interest) Act 1998 - not under the Scheme itself, which sets due dates and final dates but not interest.

Many disputes arise because contracts have inadequate payment mechanisms. If your contract lacks clear provisions for determining amounts due or payment timing, the Scheme fills the gaps - which may not be what either party expected.

"Smash and grab" adjudications explained

A "smash and grab" adjudication is a payment dispute where the payee claims the full amount of their application because the payer failed to issue valid payment notices or pay-less notices in time.

How it works:

  1. You submit an interim application for GBP 100,000
  2. The employer/main contractor fails to issue a valid payment notice within 5 days of the due date
  3. Your application becomes the "notified sum" by default
  4. They fail to issue a valid pay-less notice at least 7 days before the final date for payment
  5. They are now legally obligated to pay GBP 100,000 - even if they dispute your valuation
  6. You refer the dispute to adjudication seeking payment of the notified sum
  7. The adjudicator orders payment (because this is what the statute requires)

Can they challenge this later?

Yes. The paying party can start their own adjudication (or litigation) to determine the "true" valuation. But they must pay the notified sum first. This is the "pay now, argue later" principle central to the Act.

Statistics: A King's College London/Adjudication Society report (November 2024) found around 63% of adjudications were "smash and grab" payment disputes. Many are resolved in the claimant's favour because the notice requirements are strict and non-compliance is common.

Your right to suspend work for non-payment

If you are not paid the notified sum by the final date for payment, you have a statutory right to suspend performance. This is a powerful remedy that cannot be contracted away.

Exercising suspension properly

To suspend lawfully, you must:

1. Confirm you are owed the notified sum

This is either the amount in the payment notice, your application (if no valid notice was issued), or the balance after any valid pay-less notice.

2. Wait until after the final date for payment

You cannot suspend before this date, even if you know payment will not be forthcoming.

3. Serve 7 days' written notice of intention to suspend

Your notice must state the ground(s) for suspending - i.e., that you have not been paid the notified sum by the final date for payment.

4. Wait the full 7 days

If payment arrives during the notice period, you cannot suspend.

5. Suspend any or all obligations

You may suspend all work, or continue some obligations while suspending others (e.g., stop site work but continue design).

Protection during suspension:

  • Contractual time limits are extended by the suspension period
  • You can recover reasonable costs caused by the suspension
  • You are not in breach of contract by suspending

Warning: Suspending without following the proper procedure IS a breach of contract. Serve the notice correctly and keep evidence of service.

Retention payments

Retention is money withheld from payments as security against defects. While common in construction, understanding how the HGCRA applies to retention is essential for protecting your cash flow.

Retention and HGCRA payment mechanisms

Release of retention is subject to the same payment notice requirements as interim payments. This means:

  • The release of first-half retention at practical completion requires a valid payment notice
  • The release of second-half retention after the defects period requires a valid payment notice
  • If valid notices are not issued, you can pursue a "smash and grab" adjudication for retention

Retention release triggers:

  • First half: Usually released at practical completion or certificate of making good defects
  • Second half: Usually released at the end of the defects liability period (12-24 months)

Many subcontractors lose significant sums through retention that is never released. Track retention carefully and pursue it actively through adjudication if necessary.

Note on retention reform: On 24 March 2026 the Government announced that it will legislate for a full ban on retentions in construction contracts, alongside a 60-day cap on payment terms for large firms and statutory minimum interest on late payments at 8% over base rate. These measures are not yet law - further consultation on implementation and transition is expected, so retention clauses remain lawful and common for now. Check current guidance before relying on the reform.

Construction & Property Requirement

Construction supply chain considerations

The HGCRA was specifically designed to address construction industry payment problems. Key sector-specific points:

  • Main contractors: You have rights against employers AND obligations to subcontractors. Issue valid payment notices down the chain or face smash and grab claims
  • Subcontractors: Your rights apply regardless of whether your main contractor has been paid ("pay when paid" clauses are void)
  • Consultants: Professional appointments are construction contracts under the Act. You have the same payment and adjudication rights
  • Suppliers: Supply-only contracts are generally excluded. But installation contracts (supply and fix) are covered

"Pay when paid" clauses are void: Any contract term making payment conditional on the payer being paid by a third party is unenforceable, except in cases of third-party insolvency.

Common mistakes to avoid

Payers:

  • Missing payment notice deadlines: Diary every application. Five days passes quickly on a busy project
  • Vague payment notices: "We disagree with your valuation" is not a valid notice. State the specific sum due and how you calculated it
  • Missing pay-less notice deadlines: If you miss this deadline, you must pay the notified sum whatever you think of its accuracy
  • Relying on invalid contract terms: Contract terms that restrict HGCRA rights are void. Do not assume your contract overrides the statute

Payees:

  • Not issuing default payment notices: If your contract allows you to issue payment notices, do so. This protects you if the payer fails to issue theirs
  • Suspending without proper notice: Improperly suspending is a breach of contract. Follow the procedure exactly
  • Accepting verbal assurances: "The cheque is in the post" is not payment. Pursue your rights in writing
  • Delaying adjudication: Time limits may apply to some claims. Refer disputes promptly

Protecting your payment rights

Follow these steps to maximise your protection under the Act:

  1. 1

    Review your contract payment terms

    Check that your contract specifies due dates, final dates for payment, payment notice procedures, and pay-less notice timing. If terms are missing or unclear, the Scheme for Construction Contracts applies.

  2. 2

    Submit applications in the correct form

    Follow the contract requirements for interim applications exactly. Include all required detail. Serve on the correct person at the correct address. Keep proof of submission and date.

  3. 3

    Diary all payment notice deadlines

    When you submit an application, immediately diary: (a) 5 days after due date for their payment notice, (b) the final date for payment, (c) 7 days before final date (pay-less notice deadline).

  4. 4

    Issue default payment notices where permitted

    If your contract allows you to issue payment notices, do so for every application. This ensures a notified sum exists even if the payer fails to respond.

  5. 5

    Chase missing payment notices in writing

    If no valid payment notice arrives within 5 days of the due date, write immediately noting that your application has become the notified sum by default. Keep the letter/email.

  6. 6

    Document everything

    Keep copies of all applications, notices, emails, and letters. Note dates of issue and receipt. This evidence is essential if you need to adjudicate.

  7. 7

    Act promptly on non-payment

    If not paid by the final date for payment, decide quickly whether to serve suspension notice or refer to adjudication. Delay weakens your commercial position.

  8. 8

    Take legal advice before major disputes

    Adjudication is fast and the rules are strict. A poorly prepared referral can result in losing a claim you should win. Consider specialist construction law advice for significant sums.