The Construction Act states that a pay less notice must specify 'the sum that the payer considers to be due on the date the notice is served' (S111(4)(a)).
There has been confusion as to whether this refers to the sum that was due at the due date or whether a further valuation is required to take account of work done between the due date and the date of the pay less notice.
We believe the pay less notice should set out the sum which was due at the payment due date and any deductions to be made from it.
The answer lies in the use of the word 'due'. Most contracts will provide for the payment due on each due date to be for work done in the period leading up to it. Payment for further work done after that date will become due on later dates. Accordingly, when a pay less notice is given between due dates, the only sum due for work done will be that which was due at the last date, and payment will not yet be due for work done since then. The sum due at the date of the pay less notice should therefore usually be for work done before the last due date but not for work done after.
The pay less notice can also take account of set-offs that arose after the due date.
It is necessary to sound a note of caution. First, it is possible to draft a contract that would require a revaluation as of the date of the pay less notice. It is unlikely that payers would draft contracts in that way deliberately but they may do so inadvertently. The JCT contracts could be clearer on this issue. The lesson is to make sure that the amount due on each due date is expressly stated to be the value of the works carried out no later than the due date.
Secondly, the Act does not consider a situation where a second due date has passed by the time the pay less notice is given. Imagine the following example:
- no payment notice is given for a sum due on payment due date 1
- payment due date 2 then occurs
- the payee then gives a default notice in respect of sums due at payment due date 1
- the payer then serves a pay less notice
What sum is due at the date of the pay less notice? Arguably, it is the amount due on payment due date 2, and such an argument may well be deployed in response to the view we have expressed above.
We do not think a court would accept such an argument, however we believe that our interpretation will prevail and reflects what Parliament intended.
You can avoid becoming embroiled in the debate by making sure that your contract is clear about what becomes due and when, and by giving payment notices on time. If you do slip up, as a paying party your pay less notice should deal only with work done in the period that should have been covered in your payment notice.
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