Pay less notice? What is the difference to a withholding notice?

Pay less notice? What’s it all about?

A significant change to construction contracts was enforced in 2011 with the introduction of the new Construction Act under the amended section 111 of the Housing Grants, Construction and Regeneration Act 1996.

This effectively replaced the old ‘withholding notices’ with what is now known as a ‘pay less notice’. Under the old law, there would be no penalty if the paying party failed to issue a payment notice. Under the previous law, only the payer could serve a payment notice. A withholding notice will still apply to contracts entered into prior to 01 October 2011.

Under the new law, the contract must state who is required to issue the payment notice and this can be either payer, payee or the Contract Administrator. If you are the party that is required to give payment it is crucial that you have a clear understanding of the new law. An inadequate pay less notice’ will require the payer, which is usually the client, with very little alternative but to pay the sum notified. You are required to issue a pay less notice if you disagree with the amount requested in relation to the contract by the contractor. This is a fundamental change as the contractor can now issue a payment notice for an amount he feels is due. The client or payee can then issue a pay less notice within the allocated time, usually set out in the contract and agreed by all parties, if he fails to do this then the amount notified will become due.

This was a fundamental change to the way that payment occurred in construction contracts and over the last couple of years now seems to have settled into common practice. This is something that all contractors and clients must bear in mind.

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