Recent judgments underline the importance of ensuring construction contract payment provisions comply with the Housing Grants, Construction and Regeneration Act 1996 (the “Act”). If they do not, negotiated terms may be replaced by the default provisions in the Scheme for Construction Contracts (the “Scheme”), with unexpected consequences.

What does the Act require?

Section 110(1) of the Act requires every construction contract to provide:

1. an adequate mechanism for determining what payments become due and when; and
2. a final date for payment in relation to any sum that becomes due.

The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.

What does the caselaw say?

In Deerns UK Limited v VDC LHR11 Limited [2026] EWHC 1509 (TCC), the consultant’s appointment provided that, “…the final date for payment shall be 30 days after the relevant due date save that if the Consultant's invoice is issued late, the final date for payment shall be postponed by the same number of days by which the Consultant's invoice is late …”. The court held that this was non-compliant because the final date for payment depended on a future event: whether the invoice was late. The provision was therefore replaced by the Scheme, which imposed a tighter 17-day statutory payment period instead of the contractual 30 days. The employer’s pay less notices were consequently out of time and ineffective.

Previously a similar conclusion was reached in Lidl Great Britain Limited v Closed Circuit Cooling Limited [2023] EWHC 2243 (TCC), where the final date for payment was the later of the due date or receipt of a VAT invoice. This event-based mechanism was held to be non-compliant. It was highlighted that there is a blanket prohibition on party autonomy as regards ascertainment of the final date for payment save as to the length of the period. Requiring any further condition to be satisfied between the due date and the final date for payment would undermine the wording and clear intention of the Act. 

In Rochford Construction Limited v Kilhan Construction Limited [2020] EWHC 941 (TCC), the court indicated albeit obiter, that pegging the final date for payment to an event rather than a fixed period would be inconsistent with the Act.

Are your payment provisions compliant? 

The compliance test: The final date for payment must be set by reference to a fixed period after the due date. It should not be capable of being adjusted by later events.

Now is a good time for parties to review their construction contracts carefully to ensure that their payment provisions are compliant with the Act or face unexpected consequences of non-complaint payment provisions being replaced automatically by the Scheme, which may result in:

• shorter payment periods than the parties originally intended;
• earlier deadlines for serving payment notices and pay less notices;
• increased risk of notices being served out of time; and
• significant financial exposure to the paying party in payment disputes.

Looking ahead: Further reform on the horizon.

Alongside banning retention clauses (read our blog here), the Commercial Payments Bill proposes further reforms to the Act, including a requirement that pay less notices should be served no later than seven days before the final date for payment.

For further discussion on payment provisions in construction contracts please contact Priya Kale.