Before addressing if a Pay Less Notice can be challenged, we must first understand why one would be served in the first place. As part of the Housing Grants, Construction and Regeneration Act 1996, a Pay Less Notice is a formal, legal document served by the payer to inform the payee that they intend to pay less than the amount stated in a Payment Notice.
Now, on the surface, this may seem like an unfair notice when a payment has already been agreed. However, like with most disputes, that all depends which side you are on. There are legitimate reasons for a Pay Less Notice to be served, including:
Defects in the completed work
Delays caused by the contractor
Accounting mistakes
Other issues with the contractor’s performance
Regardless of the reason for the notice, there are conditions that must be adhered to for the notice to be valid.
What are the conditions of a Pay Less Notice?
Timing: If a Pay Less Notice is served too early or too late, it invalidates the notice. The notice must be served within the parameters set out in the construction contract. If the contract does not specify then the Scheme for Construction Contracts implies a period of no less than seven days before the final date for payment.
Details: The notice must clearly state the reasons for the reduced payment with a full breakdown of how this sum has been calculated. This includes any documentation or evidence that supports the notice.
Dispute: The information provided in the notice must be sufficient enough for the payee to have a clear understanding of the grounds in which the notice is being served. This information may also provide the evidence needed for the payee to dispute the notice.
How to challenge a Pay Less Notice
If any of the conditions of a Pay Less Notice are not adhered to then this invalidates the notice and gives the payee grounds to dispute it. The favourable method for this dispute resolution is adjudication – an ADR (Alternative Dispute Resolution) method that involves an impartial third party acting as adjudicator.
The first step in challenging a Pay Less Notice is to check its validity by reviewing your construction contract to assess if it abides to the proper timing, content and method of service. For example, I worked with a subcontractor who was faced with a pay less notice but this was issued out of time. This left the payee significantly underpaid.
Once the invalidity has been identified, the payer must be informed of the specific reasons for the challenge to demand the full payment. In some cases, the payer may withdraw the notice and pay the full amount, resolving the issue fairly quickly. In cases where they do not withdraw, this is where adjudication can help.
Referring back to my previous example, I advised on the statutory framework and commenced adjudication to challenge the validity of the notice. The adjudicator agreed, confirming the notice was ineffective, and ordered immediate payment of the full interim sum claimed.
As you can see, the adjudication process can be swift with the correct professional advice.
Should you need further advice regarding challenging a Pay Less Notice (or any other dispute resolution advice), Mercantile Barristers are waiting to hear from you.
