Interim Application Payment Recovery

Construction projects are not paid for all in one go. Interim payments and interim payment regimes are required by law as part of construction contracts, if the work is expected to exceed 45 days to complete, under Section 109 of the Housing Grants, Construction and Regeneration Act 1996. This is so that there is a structure for all parties to follow as to when and how much is to be paid on specific dates throughout the project. Without such a scheme, a large-scale project would soon run out of funding and never reach completion.

A payment regime may include stage payments, instalments or other forms of periodic payment. It must also define a process to apply for and determine what is owed, when it’s due and the final dates for paying. This law covers both payees and payers as part of the construction project or supply chain, including developers, building owners, contractors, subcontractors and consultants.

Most standard construction contracts ask for a Payment Application or valuation from payees. This should be submitted in accordance with the contract and begins the process of payment upon submission.

To ensure your Payment Application is valid, you should read the contract payment terms carefully and:

• Value the work according to the method and the date specified on the contract
• Submit within the deadline specified by the contract
• Include the sum due and how it was calculated
• Submit calculations in a summary sheet breaking down all costs relating to the sum
• Title your Payment Application according to the language used in the contract: for instance, if the contract calls it an ‘Interim Payment Application’, use this title to avoid any doubt by the payer
• Make sure you use the correct address and method of service, whether it is post, email or some other method

Getting any one of these wrong can give the payer grounds to argue your application never triggered the payment timetable at all, which is why we recommend having your application checked before problems arise, or as soon as you sense a dispute developing.

In response to the Payment Application, the payer must issue the payee with a Payment Notice. This should usually be given no later than five calendar (not working) days after the Due Date.

Depending on the contract terms, a Payment Notice is usually valid when it specifies the sum considered to be due and the calculation for this amount. If the contract does not require the payee to serve a notice in default of a certificate, then unless a pay less notice is served, the sum specified by the Payment Notice constitutes the ‘Notified Sum’ which needs to be paid before or on the contract’s Final Date for Payment. If it is not, the payee may suspend work or adjudicate.

If the payer does not issue a Payment Notice, then the amount submitted in a valid Payment Application becomes the Notified Sum, if the contract states a Payment Application must be made. By failing to provide a Payment Notice, the payer is considered to have agreed to pay the Payment Application’s Notified Sum. However, the payer may send a Notice to Pay Less if they disagree with the sum in question.

In the case that a contract does not expressly provide that a Payment Application should be submitted, then the payee is entitled to serve a Default Payment Notice to the payer as soon as they default (they don’t issue a Payment Notice). Again, the payer can mitigate this by issuing a Notice to Pay Less.

Default Payment Notices are validated in the same way as Payment Applications: by specifying the amount calculated to be due, how these costs were calculated, and by using the same language as the contract. This way, the amount specified by the Default Payment Notice becomes the Notified Sum, unless a Pay Less Notice is served.

Don’t delay if you need to serve a Default Payment Notice, as the Final Date for Payment will then be postponed accordingly. For instance, if the Payment Notice should have been received by 1 March and the Default Payment Notice is issued on the 3rd, the Final Date for Payment is then postponed by two days.

Seek legal advice from Helix Law to ensure any Default Payment Notice you need to serve is valid, and for advice on what to do thereafter.

A Notice to Pay Less (or Pay Less Notice) is the payer’s last opportunity to pay less than the Notified Sum, in whatever form it was made. The contract should specify a deadline for serving a Pay Less Notice. If it does not, the default deadline is seven days prior to the Final Date for Payment in the contract.

Again, this must specify the amount believed to be due and how this calculation was made. This then becomes the Notified Sum which will be due to be paid by the Final Date for Payment in the contract.

A Pay Less Notice served out of time, or one that fails to set out the basis for the reduced figure, is generally treated as invalid. If you have received a Pay Less Notice that looks defective, or you are a payer deciding whether one is worth serving at all, we can review it against the contract terms and the notice’s own drafting before you commit to a position.

This is used when the payee has served either a valid Payment Application as set out in the contract or a Default Payment Notice, and the payer has failed to issue either a Payment Notice or Pay Less Notice. The Notified Sum is therefore the amount stated in whichever notice the payee submitted. This can then be recovered via ‘smash and grab’ adjudication as the payer is said to have made a procedural failure.

Alternatively, if a valid Payment Notice or Pay Less Notice has been issued, but the Notified Sum in those notices is not paid by the Final Date for Payment, the sum can also be recovered with this method.

Similar consequences may be suffered by the payee if they fail to issue valid or correct notices. If the payee’s notices are absent or deficient, they will have no grounds to commence a smash and grab.

Smash and grab adjudication is attractive because it turns on the paper trail rather than the underlying merits of the valuation dispute. The adjudicator decides whether the correct notice was served on time, not whether the sum claimed was the right one. That makes it one of the fastest ways to put pressure on a non-paying party, though it is not without risk. A payer who has missed the notice deadline can, in some circumstances, still bring a subsequent ‘true value’ adjudication to revisit the underlying valuation once the smash and grab sum has been paid, so we advise on this risk from the outset rather than treating an initial win as the end of the matter.

If the payee is not paid by the deadline stated in the contract, they can suspend some or all of their work, provided that they give the payer the notice required under the contract. If the contract does not provide for such suspension, the payee can give seven or more days’ notice of this intention under Section 112 of the Housing Grants, Construction and Regeneration Act 1996, as amended.

The payee may recover the costs of suspending the work, including any expenses reasonably incurred during the suspension period. They’re also entitled to extra time to remobilise after the suspension.

Suspension is a powerful lever, but it needs to be exercised carefully. Suspend without giving proper notice, or suspend where no sum is actually due, and you risk being the one in breach of contract instead of the party enforcing your rights. Before you stop work, we recommend having the underlying payment position checked, so you know the notice you rely on is sound and the suspension itself is lawful.

We understand that cash flow pressure is often exactly why you’re chasing an unpaid interim payment in the first place, and that funding a dispute on top of an unpaid invoice can feel like the last thing you need. Depending on the value and strength of your claim, we may be able to offer funding on a Conditional Fee Agreement (CFA), sometimes known as No Win No Fee, or a Damages-Based Agreement (DBA), where our fee is a percentage of what we recover for you.

We only enter into CFA or DBA arrangements for some commercial, property and construction disputes, typically where the amount in dispute is over £10,000, and we assess the prospects of success as strong. This is always subject to a full case assessment and our funding criteria, and it is not available for every type of dispute or every claimant. Where funding isn’t appropriate for your matter, we will tell you plainly and set out the alternative fee arrangements available.

Adjudication and litigation carry risk on both sides, whatever the funding arrangement. Outcomes depend on the specific facts, the quality of the paper trail, and how a tribunal or court exercises its discretion, so we will never promise a particular result — only an honest, evidence-based assessment of where you stand and what recovery is realistically achievable.

Interim payment disputes reward speed and precision. The statutory notice timetable runs in days, not months, and a single missed deadline (yours or the other side’s) can decide the outcome before the underlying dispute is even argued. We focus exclusively on litigation and dispute resolution, which means construction payment disputes are a core part of what we do day to day, not an occasional matter handled alongside a broad general practice.

That specialism shapes how we work. We read your contract’s payment mechanism before we advise, rather than assuming the statutory default applies. We tell you when a notice you’ve served is weak, not just when one served on you is. And we act on national instructions from our base in Brighton, so wherever your project is based, you get the same direct, responsive service. We aim to respond to new enquiries in under an hour, because in a payment dispute, the time you spend waiting for a first response is time you can’t get back.