Building contracts have their own particular procedures when it comes to the management of payments.
The intention, via a system of notices, is to ensure that both employer and contractor are clear what sums are due for payment and the basis on which those sums have been assessed.
A simple principle, but it can be a challenge to get the notice system right. So, what are the key points to think about?
Forms of notice
There are two forms of building contract notices to be aware of, payment notices and pay less notices. Each serve different purposes, even though they may contain similar information. A payment notice states the sum due for payment and the basis for the calculation of that sum, while a pay less notice allows the payer to state a lesser sum is due for payment if they disagree with the notified sum.
Timing and sequence
Payment notices must be served by the date specified in the contract. Pay less notices can only be served after the notified sum is established (usually after a payment application or payment notice). A pay less notice served before the notified sum is established will be invalid.
Labelling and clarity
Notices do not have to be explicitly labelled as ‘payment notice’ or ‘pay less notice’, but clarity as to just what they are meant to be doing is crucial. The content must clearly state the sum considered due and the basis for calculation of that sum. Best practice is to label notices clearly to avoid disputes.
Serving notices together
Both forms of notice can be served at the same time, but they must be separate documents unless the contract requires otherwise. One notice cannot serve as both a payment and a pay less notice.
Negative sums
A payment notice can state a negative sum, but it must be clear that this is the amount considered due.
Supporting calculations
Notices can refer to other documents for calculations, but it must be objectively clear how the sum stated in either form of notice is calculated. Including all relevant information in one notice document is advisable.
Contractual compliance
It’s important to follow the specific notice requirements and procedures set out in the contract. Depending on what contract applies, some may require notices to be served separately.
General points:
- Check your contract: Always review your contract’s requirements for payment and pay less notices, including the requirements for timing and format
- Be clear and precise: Ensure all notices clearly state the sum due and the basis for calculation. Label them appropriately to avoid confusion
- Serve notices on time: Missing deadlines can result in the payee’s application becoming the notified sum, limiting your ability to dispute amounts
- Keep records: Retain copies of all notices and supporting documents to evidence compliance.
For further advice on building contract payment notices, contact a member of the HCR Construction team.