The UK Construction Payment Process: A Step-by-Step Compliance Guide

Payment compliance is a control discipline, not an administrative afterthought. On a complex construction programme, the 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 commercial managers, quantity surveyors, project controls professionals, contractors 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.

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 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.

2. The Scheme for Construction Contracts

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

For payment administration, the key default timings are commonly:

• Payment notice: no later than five days after the payment due date;
• Final date for payment: 17 days after the payment due date, where the contract is silent;
• 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, with fixed compensation also potentially available depending on the value of the debt.

The Act operates alongside the Construction Act. It does not remove the need to follow the construction contract’s payment notice procedure.

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.

As proposed, the Bill would introduce:

• A ban on construction retentions;
• Maximum payment periods of 30 days for public-sector payers and 60 days for private-sector payers; and
• A phased transition to allow businesses and existing arrangements to adjust.

The precise commencement date, transitional provisions and final wording will depend on the legislative process. Existing payment procedures should not be changed solely because the Bill has been proposed. However, clients and contractors should assess the effect on procurement strategy, cash flow, security arrangements and contract templates.

The payment cycle: a practical user guide

Step 1: Read the payment provisions before the payment 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, the assessment and payment provisions must be read with the contract data, payment schedule and any amendments. A project payment calendar should be prepared at mobilisation and reviewed whenever the contract is amended.

Step 2: Prepare the valuation and supporting evidence

The valuation should be based 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.

The 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.

Step 3: Confirm the payment due date

The payment due date is determined by the contract’s payment mechanism. It should not be confused 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 is the trigger for the statutory notice timetable. Enter it into the payment tracker and calculate every subsequent deadline from it.

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 specifies 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:

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

The notice should be issued 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 to the wrong address, or relying on a document that does not comply with the contract, can create avoidable risk.

Step 5: If the payer does not issue its notice, protect the payee’s position

Where the contract requires the payer to issue the payment notice and it 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. Subject to the contract and statutory mechanism, this can become the notified sum for payment purposes.

Under the Construction Act, a payee’s notice issued in default may also affect the final date for payment if it is issued late. The project team should therefore act promptly rather than assuming that a missed payer notice ends the payment cycle.

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 commonly requires the notice to be served at least seven days before the final date for payment.

A pay less notice should not be treated as a general reservation of rights. It must identify the amount being paid and provide a sufficiently clear calculation. Deductions for defects, delay, contra-charges, set-off or other matters should be supported by the contract and the project records.

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.

This remains the position even if the payer believes the valuation is overstated. The underlying valuation dispute can usually be addressed separately, including through adjudication, but failure to serve the correct notice does not normally permit the payer to withhold the notified sum.

Where the contract is silent, the default final date is commonly 17 days after the payment due date under the Scheme. A compliant contract may specify a different period.

Step 8: Escalate non-payment properly

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

1. Confirm the amount unpaid;
2. Check that all notices were validly served;
3. Issue a formal payment demand;
4. Calculate contractual or statutory interest;
5. Consider adjudication; and
6. 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. The programme, safety position, demobilisation risk, costs and client relationship should all be assessed before action is taken.

Adjudication: the statutory dispute route

The Construction Act gives the parties to a qualifying construction contract a statutory right to refer a dispute to adjudication. The process is intended to provide a rapid interim decision, generally within 28 days of the referral, 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 the effect of a contract instruction or compensation event.

A strong adjudication position depends on disciplined records: the contract, payment calendar, applications, notices, calculations, delivery evidence, correspondence and contemporary project information.

A simple monthly control checklist

Before closing each payment cycle, confirm:

• 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.
• Any potential adjudication or suspension action has been escalated.

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. A poorly controlled payment cycle can also create avoidable escalation at board and government-stakeholder level.

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

Sources and references

• Housing Grants, Construction and Regeneration Act 1996 : payment provisions
• Local Democracy, Economic Development and Construction Act 2009
• Scheme for Construction Contracts (England and Wales) Regulations 1998
• Late Payment of Commercial Debts (Interest) Act 1998
• Late Payment of Commercial Debts (Interest) Act 1998 : statutory interest
• Proposed Commercial Payments Bill 2026 : Government overview and factsheet

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A practical guide to payment notices, pay less notices, final dates for payment, adjudication and suspension rights under the UK construction payment regime.

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About the Author

Nick Garvey is a chartered construction professional (MCIOB, FCaSA, FQSi) with more than 25 years of experience in commercial leadership and project controls across defence infrastructure, government estates, highways, facilities management and public-sector programmes. He leads cost, schedule, risk and performance reporting on major defence infrastructure programmes, chairs risk reviews at senior governance level, and writes about earned value management, quantitative risk analysis, NEC4 contracts and forecast integrity.

All views my own, shared in a personal capacity.