What are Pay Less Notices?
Managing payments in the construction industry can be complicated and contentious. They are usually made up of many interim payments. A Pay Less notice is a tool that enables a payer to resolve disputes by informing the other party of their intention to pay less than what was agreed or applied for.
Understanding how these notices work, the content required, and what makes them valid or invalid is essential if you’re considering issuing one. This guide will tell you everything you need about Pay Less notices. It will also explain what you can do if you disagree with the value stated in a payment request. We would love to assist you if you are a professional in the construction industry facing these issues. Read on for more information.
What is the Meaning of a Pay Less Notice and Why is it Important?
Pay Less notices, also known as Notices to Pay Less, are most frequently used in larger construction projects, where discrepancies in payment amounts often arise due to variations in work, delays, or defects. They allow the paying party formally to document that they will be paying less than the amount that the receiving party had requested in a Payment Application or that the paying partie previously agreed to in a Payment Certificate. If the paying party wants to rely on a Pay Less Notice they must specify the amount they consider due at the date of the notice and how this amount has been calculated.
For example, if a contractor submits an invoice for additional work that was not approved, the employer could issue a Pay Less Notice to reduce the payment amount to ensure that the contractor is only entitled to payment for agreed work.
Importantly if the paying party fails in serving a valid pay-less notice in time, the sum that the contractor has applied for becomes a “notified sum”, which allows the receiving party to make a “smash and grab” claim for the amount in the payment application. A Pay Less notice must meet certain requirements to be valid. You should always consult your contract for the specific requirements but at a minimum, a valid pay less notice must set out:
The sum that the paying party considers due on the date the pay less notice is served; and
The basis on which that sum has been calculated.
Other factors:
A pay less notice might also include:
- Identification details for the Contract: This might include referencing the contract number or any specific identifiers (e.g. the payment application number) to which the payment relates.
- Date of Notice: The date when the Pay Less Notice is issued.
A Title: A clear heading setting out that this document is a Pay Less Notice.
How Should Pay Less Notices Be Served?
- Serving a Pay Less Notice correctly is as important as its content:
- You should check whether your contract includes any notice or service provisions that require Pay Less Notices to be served in a particular manner (e.g. How should Pay Less Notices be served?
- Serving a Pay Less Notice correctly is as important as its content:
You should check whether your contract includes any notice or service provisions that require Pay Less Notifications to be served in a certain manner (e.g.
You have to ensure that you serve the pay less notice within the time specified in the contract. If the contract does not specify the time to serve a pay-less notice, it must be delivered no later than seven days before the date of the final payment specified in the agreement. The notice will be invalid if it is served late.
- Finally depending on the requirements of service in the contract it may be prudent to obtain a proof of delivery or postage by using an email receipt or obtaining a receipt at the post office or by courier service.
- Can the Pay Less notice have a negative value?
This depends on the contract’s wording, but we do not recommend including a pay less notice with a negative value. The amount payable could be stated as PS0.
Are pay less notices legal the day before payment is due?
This depends on the wording in your contract. The contract can be drafted to allow for a pay-less notice to be served one day before the due date. It is important that you include the reasons for any deductions in your Pay Less notice. Avoid vague language like “payment reduced due errors” or “we believe there are issues with plumbing”. The Pay Less Notice should clearly set out the basis of any deductions so that the receiving party can understand the paying party’s position on the value of the works.
As a starting point, a Pay Less Notice will generally be valid if it provides an ‘adequate agenda’ for a true value dispute.
Steps to Take if You Disagree With a Pay Less Notice
If you disagree with a Pay Less Notice, acting promptly and methodically is crucial. If you get any of the elements wrong, it can have a devastating impact on your ability to recover money or respond to a notice. Here are the steps to take:
Reviewing the Notice: Carefully review the Pay Less notice to ensure that it meets contractual requirements, and understand the calculations and reasons behind the reduced payment. Look for any discrepancies between the notice and the work completed, and note any missing or incorrect information.
Gather Evidence: Collect all relevant documents and evidence that support your claim for the full payment. It could include contracts, invoices, correspondence, and records of work completed.
Communicate: Contact the payer to discuss the Pay Less Notice, ideally via a face-to-face or video call. A conversation can sometimes resolve misunderstandings and errors without the need for further legal action. A solicitor can confirm that the pay less notice you received is valid and give you advice on how to get paid for the work you have completed.
Adjudication: Consider formal dispute resolution methods like adjudication, if necessary. Adjudication is a fast and temporary binding decision on payment with the option of proceeding to Court for a definitive determination, if needed.
Need Advice? Contact Helix Law.
- Pay less notices are used to reflect discrepancies between payment amounts due to variations in work, delays or defects. These notices allow the payer to state that they will pay less than expected. Helix Law’s construction litigation and adjudication group has extensive experience in resolving disputes over payment through negotiation, adjudication and litigation. Our team of experts provides advice to protect and enhance your position by using these notices strategically where possible or responding to them in an effective manner where necessary. Contact Helix Law if you want to dispute or issue a Pay Less notice. We would love to help you.
