Minimal timeline showing valuation, payment notices and final payment dates in a UK construction project

Payment compliance is a control discipline, not an administrative afterthought.

On a construction project, your commercial team must establish what is due, issue the correct notices on time, preserve an auditable record and ensure that payment is made by the final date.

This guide summarises the principal UK payment requirements for contractors, subcontractors, commercial managers, quantity surveyors, project controls professionals and clients. It focuses on the Construction Act payment regime, the Scheme for Construction Contracts, late-payment legislation and the proposed Commercial Payments Bill 2026.

For SME and Tier 2 or Tier 3 contractors, the process needs to be proportionate. You do not need a system designed for a billion-pound programme. You do need a reliable payment calendar, clear valuations, properly served notices and records that withstand scrutiny.

Important: This article is a practical guide, not legal advice. The contract, project jurisdiction and current legislation must always be reviewed before relying on a payment position.

The legislation that governs construction payment

The principal framework is formed by four sources.

1. The Construction Act

The Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009, requires qualifying construction contracts to contain an adequate payment mechanism.

The contract must identify:

  • when a payment becomes due;
  • the final date for payment;
  • who must issue the payment notice;
  • how the notified sum is calculated; and
  • how the payer may issue a pay less notice.

Payment cannot generally be made conditional on the payer receiving payment from another party. These “pay when paid” provisions are ineffective, subject to limited insolvency-related exceptions.

The Act also gives parties a statutory right to adjudicate disputes and, where payment is not made, may provide a right to suspend performance after the correct notice has been served.

2. The Scheme for Construction Contracts

The Scheme for Construction Contracts (England and Wales) Regulations 1998 supply contractual payment and adjudication provisions where a construction contract does not comply with the Construction Act.

Common default timings include:

  • a payment notice no later than five days after the payment due date;
  • a final date for payment 17 days after the payment due date, where the contract is silent; and
  • a pay less notice at least seven days before the final date for payment, where the contract does not specify a different period.

The contract should always be checked first. Scheme provisions are a statutory safety net, not a substitute for proper contract administration.

3. The Late Payment of Commercial Debts (Interest) Act 1998

The Late Payment of Commercial Debts (Interest) Act 1998 may provide statutory interest and compensation where qualifying commercial debts are paid late and the contract does not contain a substantial alternative remedy.

Statutory interest is generally calculated at 8% above the Bank of England base rate. Fixed compensation may also be available, depending on the value of the debt.

For contractors, late payment affects more than the ledger. It can restrict labour payments, delay procurement and reduce the working capital available for the next project.

4. The proposed Commercial Payments Bill 2026

The proposed Commercial Payments Bill 2026 is not currently law. It must therefore be treated as a prospective policy and legislative change, not as a present payment obligation.

The proposals include:

  • restrictions on construction retentions;
  • maximum payment periods of 60 days for private-sector business transactions;
  • prompt payment arrangements for relevant public contracts;
  • tighter controls around late invoice disputes;
  • stronger statutory interest provisions; and
  • additional powers for the Small Business Commissioner.

The Bill remains subject to parliamentary change. Current payment procedures should not be changed solely because the Bill has been proposed.

However, clients and contractors should assess the likely effect on procurement strategy, cash flow, security arrangements, retention clauses and contract templates. The September 2026 legal update from Trowers & Hamlins provides further context on the proposed reforms.

Abstract construction payment control board linking valuation, notices, forecast and cash flow

The payment cycle: an eight-step practical guide

Step 1: Read the payment provisions before the cycle begins

Identify the relevant clauses in the executed contract and record:

  • the payment due date;
  • the final date for payment;
  • the valuation or application date;
  • the party responsible for issuing the payment notice;
  • the required form and method of service;
  • the pay less notice deadline;
  • any retention provisions;
  • the contractual interest provisions; and
  • the adjudication and dispute resolution provisions.

For NEC3 and NEC4 contracts, read the assessment and payment provisions with the Contract Data, payment schedule and amendments. For JCT contracts, review the relevant payment notice and pay less notice clauses carefully.

Prepare a project payment calendar at mobilisation. Review it whenever the contract changes.

Step 2: Prepare the valuation and supporting evidence

Base the valuation on an integrated assessment of:

  • measured work;
  • preliminaries;
  • compensation events or variations;
  • approved materials and off-site goods;
  • design and documentation status;
  • Defined Cost or target cost information, where relevant;
  • contra-charges and deductions;
  • retention; and
  • previous payments.

Your commercial record should show how the figure was calculated. A payment notice that states only a total, without a clear basis of calculation, may be challenged as invalid or incomplete.

This is where practical cost consultancy for contractors adds value. We get onto the numbers early, test the supporting records and tell you what the valuation actually shows.

Step 3: Confirm the payment due date

The payment due date comes from the contract’s payment mechanism.

Do not confuse it with:

  • the date an invoice is issued;
  • the date the valuation is prepared;
  • the date a payment certificate is signed; or
  • the final date for payment.

The due date triggers the statutory notice timetable. If you get that date wrong, every following deadline may also be wrong.

Step 4: Serve the payment notice within five days

A compliant payment notice must be issued no later than five days after the payment due date, unless the contract contains an earlier or different compliant mechanism.

Depending on the contract, the notice may be issued by:

  • the payer;
  • a specified person acting for the payer; or
  • the payee.

The notice should state:

  • the sum considered due at the payment due date; and
  • the basis on which that sum has been calculated.

The sum may be zero, but a notice is still required.

Issue the notice strictly in accordance with the contract’s service requirements. Keep evidence of:

  • the date and time of issue;
  • the recipient;
  • the delivery method;
  • the document served;
  • any attachments; and
  • delivery or receipt confirmation.

Emailing a notice is not enough if the contract requires service in a particular way.

Step 5: Protect the payee’s position if the payer does not issue its notice

Where the contract requires the payer to issue the payment notice and the payer fails to do so, the payee may have the right to issue a default notice.

The payee’s application or notice should state:

  • the sum considered due; and
  • the basis of calculation.

Under section 110B of the Construction Act, a payee’s notice issued in default may also affect the final date for payment if it is issued late.

The practical point is straightforward: do not assume that the payer’s silence removes your entitlement. Check the contract and protect the payment position promptly.

Step 6: Check whether a valid pay less notice has been served

The payer can pay less than the notified sum only if it serves a valid pay less notice by the applicable deadline.

The notice must state:

  • the sum the payer considers due; and
  • the basis on which that sum has been calculated.

Where the contract is silent, the Scheme for Construction Contracts commonly requires the notice to be served at least seven days before the final date for payment.

A pay less notice is not a general reservation of rights. It must identify the amount being paid and provide a sufficiently clear calculation.

A late or defective notice may leave the payer obliged to pay the full notified sum, even where the payer believes the valuation is overstated.

Construction payment notices aligned with a deadline ruler and calendar grid

Step 7: Pay the notified sum by the final date

If no valid pay less notice is served, the payer must pay the notified sum in full by the final date for payment.

That remains the position even if the payer believes the valuation is higher than the true value of the work. The valuation dispute may need to be dealt with separately.

Where the contract is silent, the Scheme commonly provides a final date 17 days after the payment due date.

Finance and the project team should be able to see this date clearly. Payment deadlines should not sit only in the QS’s inbox.

Step 8: Escalate non-payment properly

If payment is not made by the final date, the payee should:

  • confirm the amount unpaid;
  • check that all notices were validly served;
  • issue a formal payment demand;
  • calculate contractual or statutory interest;
  • consider adjudication; and
  • assess whether suspension rights are appropriate.

Under section 112 of the Construction Act, the payee may have a right to suspend performance for non-payment. At least seven days’ notice of intention to suspend must be given, stating the grounds for suspension.

Suspension should be treated as a controlled legal and commercial decision. Do not stop work informally or rely on a frustrated telephone conversation. Get the contract position, notice history and commercial consequences reviewed first.

Adjudication: the statutory dispute route

The Construction Act gives parties to a qualifying construction contract a statutory right to refer a dispute to adjudication at any time.

The process is intended to provide a rapid interim decision. The adjudicator normally has 28 days from referral to reach a decision, subject to extensions and the adjudicator’s jurisdiction.

Adjudication is particularly relevant where:

  • the notified sum has not been paid;
  • a payment notice or pay less notice is disputed;
  • the valuation basis is contested;
  • a party has failed to assess a payment correctly; or
  • the parties disagree about an instruction, variation or compensation event.

A strong adjudication position depends on disciplined records:

  • the executed contract;
  • the payment calendar;
  • applications and valuations;
  • payment notices;
  • pay less notices;
  • calculations;
  • delivery evidence;
  • correspondence; and
  • contemporary project information.

The well-known “smash-and-grab” adjudication usually concerns notice compliance rather than the true value of the work. That is why payment administration cannot be separated from record keeping.

Minimal adjudication graphic showing two document sets converging on a 28-day decision timeline

A simple monthly payment control checklist

Before closing each payment cycle, confirm that:

  • the payment due date is recorded;
  • the valuation has been reviewed and evidenced;
  • the correct payment notice has been issued;
  • the notice states the sum due and calculation basis;
  • service evidence has been retained;
  • any pay less notice was served by the deadline;
  • the final date for payment is visible to finance and the project team;
  • payment has been made in full or in accordance with the valid pay less notice;
  • interest and compensation exposure has been assessed; and
  • any potential adjudication or suspension action has been escalated.

This is practical SME construction cost management. It is not about building an oversized process. It is about making the important actions visible and repeatable.

Why payment governance matters

Payment administration links commercial control, cash flow, programme delivery and supply chain confidence.

A missed notice deadline can convert a valuation disagreement into an immediate payment obligation. A weak audit trail can make a defensible calculation difficult to prove. Late decisions create pressure that earlier records could have prevented.

The reliable approach is to integrate the contract, valuation, notice timetable, forecast, risk register and executive reporting into one controlled process.

We tell you the truth about the numbers. We preserve your entitlement. We hand you a plan you can act on.

Sources and references

Need support with payment and contract administration?

BHD Limited provides practical quantity surveying services across the UK, with particular experience supporting contractors and SMEs across the West Midlands, Staffordshire and Shropshire.

We can help you review the payment mechanism, prepare valuations, manage payment notices, maintain the payment calendar, assess deductions and organise the records needed if a dispute develops.

If payment is late, notices have been missed or the contract process is unclear, contact BHD Limited for an initial conversation and a straight view of the position.