By now, most construction practitioners will be aware that Part II of the Construction Act 1996 has been amended by Part 8 of the LDEDC Act 2009. Among the many changes, this has introduced the pay less notice (in place of the withholding notice).
Therefore, the two key notices under the Construction Act 1996 (as amended) are:
- The payment notice.
- The pay less notice.
Under the Construction Act 1996 (as enacted), a paying party could combine a payment notice and a withholding notice. The question is, can a paying party still combine those two notices under the amended Act?
In short, no. Before we explain why, there are three things to briefly consider under the amended Act:
- When does the amended law apply from?
- What is a payment notice?
- What is a pay less notice?
When does the amended law apply from?
The Construction Act 1996 (as amended) applies to construction contracts entered into (that is, dated) on or after 1 October 2011 in England and Wales (1 November 2011 in Scotland) (the effective date). So, for older contracts, the parties must stick to payment and withholding notices, as required.
For a mark-up of the amended legislation and more information on our other Construction Act 1996 resources, see Getting ready for the Construction Act 1996 changes.
What is payment notice?
The most common form of payment notice is the notice envisaged by section 110A(1)(a) of the Construction Act 1996 (as amended). That subsection requires a payer to provide a notice to the payee “not later than five days after the payment due date”.
Often, the payment process under a construction contract starts with a notice from the payee (an application for payment). This usually sets the “due date for payment” as the date of the application, or the date the payer receives the application.
However, because the Construction Act 1996 (as amended) also allows the payer to initiate a payment cycle, the payee may give the payment notice in some circumstances. To keep this post simple, we only refer to a payment cycle initiated by a payee’s application for payment.
Section 110A(2) of the Construction Act 1996 (as amended) requires the payment notice to set out the:
- Sum the party serving the notice considers to be due, on the due date for payment. This may be given by the payer or the architect, project manager or other “specified person”.
- Basis on which that sum is calculated.
What is a pay less notice?
A pay less notice under the Construction Act 1996 (as amended) is broadly equivalent to the withholding notice under the Construction Act 1996 (as enacted). It allows a paying party to, for example, give notice that it intends to set off a sum due from the payee against a sum otherwise due to the payee. The details are set out in sections 111(3) to (7) of the Construction Act 1996 (as amended).
Can the paying party combine the two notices?
As we mentioned above, in short the answer is no.
Under the Construction Act 1996 (as enacted), section 111(1) allowed a payer to combine a payment notice and a withholding notice into one notice (as long as it set out all the necessary details for both notices). However, for construction contracts dated on or after the effective date, “old” section 111(1) has been deleted. (The Construction Act 1996 (as amended) does not reinstate “old” section 111(1) somewhere else). As a result, from a legal perspective, the Construction Act 1996 (as amended) requires separate notices.
From a practical point of view, the need for two notices is reinforced by, for example, section 111(5)(b) of the Construction Act 1996 (as amended), which provides that a pay less notice can’t be served before the payment notice to which it relates.
While we cannot be certain how a court would interpret the situation where both notices are included in the same envelope, even if a party decides to take that potential short cut, it does not seem appropriate to risk combining the two notices into one document.