Commercial & Contract · Mandatory · Construction

Payment Notice

A notice specifying the amount the payer considers due at a payment due date.

Last reviewed: 29 March 2026 — This guide reflects UK law as of this date. Construction Act 1996 remains current with no amendments enacted as of 29 March 2026. Next scheduled review: 29 March 2027.

Legal basis	Housing Grants, Construction and Regeneration Act 1996 s.110A (as amended 2009)
5-day deadline	The employer (or contract administrator on the employer's behalf) must issue a payment notice within 5 days of the payment due date — this deadline is statutory and non-negotiable
Consequence of failure	If no valid payment notice is issued within 5 days, the contractor's payment application becomes the notified sum and the full amount must be paid by the final date for payment
Placefirst v CAR Construction [2025]	The payment notice must be a genuine assessment of the sum considered due — issuing a nominal or holding amount (e.g. £1) does not constitute a valid payment notice

1. Payment Notice — The Employer's Critical 5-Day Deadline

The payment notice is the employer's formal response to a contractor's interim payment application. Under s.110A of the Construction Act 1996, the employer (or the contract administrator acting on the employer's behalf) must issue a payment notice within 5 days of the payment due date. The notice must state the sum that the employer considers to be due at the payment due date and the basis on which that sum has been calculated. This is not an optional administrative step — it is a statutory obligation with severe consequences for non-compliance.

The significance of the payment notice cannot be overstated. If the employer fails to issue a valid payment notice within the 5-day window, the contractor's payment application is treated as the payment notice under the Act, and the sum stated in the contractor's application becomes the notified sum. The employer must then pay that full sum by the final date for payment, unless a valid pay-less notice is served in time. This mechanism — smash and grab adjudication — has been consistently upheld by the courts and has resulted in employers being required to pay sums significantly in excess of the true value of the work done, simply because the payment notice was issued one day late.

The decision in Placefirst v CAR Construction [2025] reinforced that the payment notice must contain a genuine assessment of the sum considered due. An employer cannot issue a holding notice stating a nominal amount (such as £1 or £0) as a placeholder while the valuation is being finalised. The notice must reflect an honest evaluation of the work carried out, even if the employer disagrees with the contractor's application or has not completed its own detailed valuation. A nominal notice is not a valid payment notice under the Act.

A payment register that tracks all dates is essential

Every construction project should maintain a payment register that records the due date, the 5-day payment notice deadline, the pay-less notice deadline, and the final date for payment for every interim period. Missing any of these dates has immediate and costly legal consequences. A properly maintained payment register provides an early warning system that ensures no deadline is missed and every statutory obligation is met on time.

2. Payment Notice — Content

Field	Detail
Notice reference	Unique sequential reference for the payment notice (e.g. PN-001). Links to the corresponding interim payment application and payment register.
Date	The date the payment notice is issued. Must be within 5 days of the payment due date under s.110A of the Construction Act 1996.
To	Full legal name and address of the contractor to whom the payment notice is issued.
From	Full legal name and address of the employer or contract administrator issuing the notice. The notice must be issued by or on behalf of the paying party.
Application reference	Reference to the contractor's interim payment application to which this notice responds. Cross-references the application number and date.
Sum considered due	The sum that the employer considers to be due at the payment due date. This must be a genuine assessment of the value of work properly carried out — not a nominal or placeholder amount.
Basis of calculation	A clear statement of how the sum considered due has been calculated. Should reference the valuation, any adjustments for defects, variations, or other deductions, and the contractual basis for the assessment.
Retention	The amount of retention deducted at the applicable rate (typically 3–5%). The gross value, retention deduction, and net value should all be clearly stated.
Net sum	The net sum considered due after retention and any other deductions. This is the amount that will be paid by the final date for payment unless a pay-less notice is subsequently served.
Payment due by	The final date for payment as specified in the contract. This is the date by which the net sum must be received by the contractor.
Signed by	Name, position, and signature of the authorised person issuing the payment notice on behalf of the employer or contract administrator.

3. Common Mistakes

Missing the 5-day deadline

This is the most consequential mistake in construction payment administration. If the employer fails to issue a valid payment notice within 5 days of the payment due date, the contractor's application becomes the notified sum under s.110A. The full amount applied for must be paid by the final date for payment. There is no grace period, no reasonable excuse, and no discretion — the courts have enforced this provision strictly and consistently. A single missed deadline can result in the employer being required to pay hundreds of thousands of pounds more than the true value of the work done.

Issuing a nominal or holding notice

Following the decision in Placefirst v CAR Construction [2025], issuing a payment notice that states a nominal amount (such as £1 or £0) as a holding measure while the valuation is being completed does not constitute a valid payment notice. The notice must contain a genuine assessment of the sum considered due at the payment due date. An employer who issues a nominal notice is in the same position as an employer who issues no notice at all — the contractor's application becomes the notified sum.

Not issuing a payment notice when the sum considered due is zero

Even when the employer considers that no sum is due — for example, because the work has not progressed beyond what was previously certified, or because contra charges or deductions reduce the value to nil — a payment notice must still be issued within 5 days. The notice should state that the sum considered due is £0 and set out the basis for that calculation. Failing to issue a notice because the employer considers nothing is owed does not remove the statutory obligation, and the contractor's application will become the notified sum by default.

4. Frequently Asked Questions

What happens if the employer issues the payment notice late?▾

If the payment notice is issued after the 5-day deadline, it has no legal effect as a payment notice under s.110A of the Construction Act 1996. The contractor's payment application is treated as the payment notice, and the sum stated in the contractor's application becomes the notified sum. The employer must pay the full notified sum by the final date for payment, unless a valid pay-less notice is served in time. If the employer pays late or refuses to pay, the contractor can refer the matter to adjudication (smash and grab) and obtain an enforceable decision within 28 days. The employer's only remedy after paying the notified sum is to commence a separate true value adjudication to recover any overpayment.

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