What Makes a Valid Payment Notice?

A Practical Guide for Contractors, Subcontractors and Employers

Payment disputes remain arguably the most common cause of construction adjudications in the UK construction industry.

A significant number of those disputes arise not because the parties disagree about the value of the works, but because one party - usually the payee - contends that the payer has failed to serve a valid payment notice or pay less notice in accordance with the requirements of the Housing Grants, Construction and Regeneration Act 1996 (as amended) ("the Construction Act"), and the contract, as applicable, and that consequently, the payer has failed to pay the "Notified Sum".

Understanding what constitutes a valid payment notice is therefore essential for contractors, subcontractors, employers and contract administrators alike.

This guide explains the purpose of payment notices, what they must contain, common mistakes, and the consequences of failing to issue a compliant notice.

What Is a Payment Notice?

A payment notice is a formal notice which states the amount that the payer (or in certain cases, the payee) considers to be due at a particular payment cycle or due date under a construction contract.

The payment notice serves several important purposes:

It identifies the amount considered due.
It explains how the amount has been calculated.
It provides transparency in the payment process.
It allows the receiving party to understand the basis of any deductions.

A valid payment notice is a fundamental component of the statutory payment regime established by the Construction Act (see section 109 to 113).

Why Are Payment Notices Important?

The payment notice regime was introduced by the Construction Act to improve cash flow throughout the construction supply chain.

Without clear notification requirements:

Contractors may not know why sums have been withheld.
Subcontractors may be left uncertain regarding what they are getting paid, and when.
Payment disputes become more likely.

A valid payment notice promotes transparency and provides certainty regarding payment obligations.

Failure to comply with the notice provisions can have significant consequences.

Who Is Required to Issue a Payment Notice?

This depends upon the terms of the contract. Section 110A of the Construction Act leaves it open to the parties to decide under the contract whether the Payment Notice will be issued by the "payer" (i.e. the person making the payment, or a specified person who may issue it on their behalf) or the "payee" (i.e. the person receiving the payment).

Typically:

Employer to Contractor

The employer or contract administrator / project manager (i.e. as a 'specified person') may issue the payment notice.

Main Contractor to Subcontractor

The main contractor may issue the payment notice.

Contractor as Payee

In some contracts, the contractor's application for payment may become the payment notice, in particular if no separate notice is issued.

It is critical to review the contract carefully to understand which party is responsible for issuing notices, and when.

What Must a Valid Payment Notice Contain?

Whilst every contract should be reviewed individually - particularly to identify if there are any additional requirements over and above those expected by the Construction Act - a valid payment notice will generally need to include the following key elements:

1. The Sum Considered Due

The notice must clearly state the amount that the payer considers to be due at the relevant payment due date.

This figure should be expressed clearly and unambiguously.

A notice that leaves doubt regarding the amount considered due may be vulnerable to challenge.

2. The Basis of Calculation

The notice must explain how the stated sum has been calculated.

Examples may include:

Valuation of completed works
Variations
Previous payments
Retention deductions
Contra charges
Other contractual adjustments

The recipient should be able to understand how the amount has been derived.

A figure without explanation may not be sufficient. In this respect, one should be mindful of the Court of Appeal's judgement in 'RBH Building Contractors Ltd v James & Anor [2026] EWCA', in which the court stated that such a notice should provide "...an adequate agenda for adjudication as to the true value of the works".

3. Clear Identification as a Payment Notice

Whilst there is no strict requirement for a document to be titled "Payment Notice", it should be clear from the document that its purpose is to operate as a payment notice. The qualities of 'form, substance and intent' have often been cited by the courts in this regard.

Adjudicators and courts will often consider the substance of the document rather than simply its title. However, clarity is always advisable.

4. Compliance with Contractual Timing Requirements

Even a perfectly drafted notice may be ineffective if served late.

Construction contracts usually specify:

The due date
The date by which a Payment Notice must be given
The date by which a Pay Less Notice may be given
The final date for payment

Payment notices must be issued within the timeframes required by the Construction Act, and the contract (or the Scheme, as applicable).

Failure to do so can have serious consequences.

What Happens If No Valid Payment Notice Is Served?

The consequences can be significant.

Depending on the contractual arrangements:

The contractor's application may become the notice which specifies "the notified sum" (i.e. the amount to be paid).
The payer may lose the opportunity to challenge the valuation at that payment cycle.
Adjudication proceedings may follow, if the amount specified in the application is not paid by the final date for payment.

This is why Payment Notice / Notified Sum disputes feature so frequently in construction adjudications - these being commonly known now as "Smash and Grab" adjudications.

Payment Notices and "Smash and Grab" Adjudications

One of the most widely discussed areas of construction law in recent years concerns so-called "smash and grab" adjudications.

These adjudications typically arise where:

A contractor submits an application for payment.
The payer fails to issue a valid payment notice.
The payer fails to issue a valid pay less notice.
The final date for payment passes, without any payment being made.
The contractor seeks payment of "the notified sum" i.e. the amount claimed in its application, and refers this dispute to adjudication.

Whilst the precise legal position depends upon the facts of each case, failures in the payment notice process can expose parties to significant financial risk. There is a significant body of case law on this topic.

Frequently Asked Questions

Does a payment notice need to use specific wording?

Not necessarily. The important issue is whether the document clearly communicates the amount considered due and the basis of calculation (i.e. what is due, and why?).

Can an email be a valid payment notice?

Potentially yes, provided the contract permits email service and the statutory requirements are satisfied.

What happens if a payment notice is served late?

A late notice will in most scenarios be ineffective and could expose the payer to significant payment risk (i.e. a 'smash and grab' adjudication).

Does every construction contract require payment notices?

Only construction contracts falling within the scope of the Construction Act will require such provisions (irrespective of whether the contract contains such payment notice provisions).

Can a payment notice or the right to a "Notified Sum" be challenged in adjudication?

Yes. This is essentially the basis of all "smash and grab" adjudications. The validity of payment notices, and applications for payment (being deemed Default Payment Notices) is frequently considered in construction adjudications.

How Can Sum ADR Help?

Payment notice / Notified Sum disputes are among the most common issues encountered in construction adjudication.

Sum ADR regularly advises contractors, subcontractors, employers and developers on:

Payment notices
Pay less notices
Interim applications
Final account disputes
Construction adjudication
NEC and JCT contract administration
Construction payment disputes

Whether you are seeking to recover payment or responding to a claim, obtaining advice at an early stage can help protect your position and avoid costly mistakes.

Need advice on a potential adjudication?

Contact Sum ADR for an initial discussion with one of our adjudication specialists.