Payment notices in construction

Payment notices are a critical part of how payments under construction contracts are managed. In the recent case of Laing O’Rourke Delivery Ltd v Shepperton Studios Ltd [2026], the court considered a previously unresolved question in construction payment law: does a defective payment notice automatically invalidate a subsequent pay less notice?

The case arose from a £331m design and build contract for the expansion of Shepperton Studios in Surrey, including new sound stages, workshops and associated infrastructure. Laing O’Rourke, the contractor, submitted an interim payment application (AFP 45) for around £5.6m. In response, the employer’s agent issued a payment notice valuing the works at approximately £2.4m, followed by a pay less notice stating that, once deductions were applied, nothing was payable.

The issue went to the construction sector’s 28-day dispute procedure, adjudication. The adjudicator found both the payment notice and the pay less notice to be invalid, awarding Laing O’Rourke the full £5.6m. Shepperton Studios sought to resist enforcement of that decision in the court.

The court agreed that the payment notice was invalid. It failed to provide a breakdown of the gross valuation, offering only a headline figure without showing how it was calculated by reference to the relevant contractual provisions. The court rejected the suggestion that separately provided spreadsheets could cure the defect, reiterating the principle from S&T (UK) Ltd v Grove Developments Ltd [2018] that supporting documents must be expressly incorporated by reference on the face of the notice itself.

However, when it came to the pay less notice, the court held that the invalidity of the payment notice didn’t affect it. The pay less notice included a clear and detailed schedule of deductions, covering items such as liquidated damages, utilities and catering costs.

Provided a pay less notice properly explains the deductions being applied, it can stand independently of a flawed payment notice. The enforceable sum in the Shepperton case was accordingly reduced to approximately £3.2m.

This decision carries important lessons for both employers and contractors.

For employers:

• Provide a full breakdown in payment notices. A bare headline valuation figure will not suffice — the notice must show how the sum has been calculated by reference to the relevant contractual provisions
• Expressly incorporate supporting documents. If relying on external spreadsheets or valuations for detail, these must be incorporated by reference on the face of the notice itself; simply assuming the recipient has access to the information elsewhere isn’t enough
• Always issue a pay less notice. Employers who rely on a payment notice alone leave themselves exposed. A properly detailed pay less notice can significantly reduce liability, even where the payment notice is found to be defective.
• Ensure pay less notices are self-contained. The pay less notice should clearly set out each deduction and the basis for it, independently of any payment notice, so that it can stand on its own if challenged.

For contractors:

• Don’t assume a defective payment notice automatically invalidates a pay less notice. This judgment confirms that the two notices serve distinct purposes, and a well-drafted pay less notice can survive even where the payment notice has failed
• Scrutinise deductions carefully. Where a pay less notice contains sufficiently detailed deductions, those deductions are likely to be upheld, so contractors should review and, where appropriate, challenge them on their merits
• Be alert to historical exposure. The judgment could prompt a wave of challenges to historical payment notices that lacked adequate detail of the underlying calculations
• For all parties, attention to detail in payment documentation remains critical.