Construction Act Payment Terms

The Construction Act (the Housing Grants, Construction and Regeneration Act 1996) sets minimum payment rules for most commercial construction contracts in Great Britain. It gives you a right to stage payments on jobs lasting 45 days or more, requires the contract to fix a payment due date and a final date for payment, requires a payment notice within 5 days of the due date, makes pay-when-paid clauses ineffective, and gives you a right to suspend work for non-payment. You cannot be contracted out of it. It does not apply to work for a homeowner on their own home.

Does it cover your job?

Two questions decide it, and the second one is the one that catches trades out.

First, is it a construction contract? Broadly, an agreement to carry out construction operations: building, alteration, repair, installing systems in a building, and the site work around it. Most trade work on a commercial or subcontract basis is in.

Second, is the other party a residential occupier? Section 106 excludes any construction contract that principally relates to work on a dwelling one of the parties occupies, or intends to occupy, as their residence.

That second one changes everything. Fitting a bathroom for the homeowner who lives there sits outside the Act. Fitting the identical bathroom as a subcontractor to a developer sits inside it. Same work, same skills, completely different legal footing, purely because of who signed the contract.

If you’re outside the Act, everything below is something you have to write into your own terms yourself. Nothing hands it to you.

What the Act actually gives you

Stage payments on longer jobs (s109)

You’re entitled to payment by instalments, stage payments or other periodic payments unless the contract specifies, or the parties agree, that the work will take less than 45 days.

Amounts and intervals are for the parties to agree. If they don’t, the Scheme for Construction Contracts supplies them.

So on a job of 45 days or more, being told you’ll get paid once at the end isn’t something that can simply be imposed on you.

A payment mechanism and a final date (s110)

Every construction contract has to provide an adequate mechanism for working out what payments become due and when, plus a final date for payment for any sum that becomes due. How long you wait between the two is for the parties to agree, and the Act doesn’t fix it.

Two things specifically don’t count as an adequate mechanism. Section 110(1A) rules out making your payment conditional on performance under another contract, or on somebody’s decision about performance under another contract, which kills pay-when-certified drafting. Section 110(1D) rules out setting the due date by reference to giving you a notice about what’s due.

Where a contract falls short on any of this, the Scheme gets read in over the top.

A payment notice within 5 days (s110A)

For every payment, a notice has to be given not later than five days after the payment due date, specifying the sum considered due and the basis on which it’s calculated. Depending on the contract that comes from the payer or from you. The sum is allowed to be zero, and that doesn’t invalidate it.

If the payer should have served one and didn’t, section 110B lets you serve your own. Your figure becomes the notified sum. The catch is that the final date for payment shifts back by however many days late your notice was, so get it out quickly.

Pay the notified sum unless a pay less notice lands (s111)

The notified sum has to be paid in full by the final date, unless a valid pay less notice arrives in time stating the sum considered due and the basis of the calculation.

Most disputes on site turn on this one mechanism. Pay less notices have their own guide.

A right to suspend (s112)

Not paid the notified sum? You can suspend any or all of your obligations after at least seven days’ written notice stating the grounds. The right ends when you’re paid in full.

You’re also entitled to a reasonable amount for costs and expenses reasonably incurred as a result (s112(3A)), and the suspension period is disregarded against contractual time limits (s112(4)). So it shouldn’t cost you on programme, which is usually the thing people worry about.

Pay when paid is dead (s113)

A clause making your payment conditional on the payer being paid by someone else is ineffective, unless that third party is genuinely insolvent.

If a main contractor tells you they can’t pay until the client pays them, and the client is solvent, that clause isn’t worth the paper it’s written on. It still turns up in subcontracts constantly.

The default timetable when a contract says nothing

If your contract doesn’t set its own dates, the Scheme for Construction Contracts fills the gaps:

Treat that as a backstop rather than the norm. Most real contracts set longer periods and the contract’s own figures govern. The value in knowing the Scheme is spotting a contract with no adequate mechanism at all, because then these apply whether the payer fancies it or not.

Worked example

A subcontract for £46,000 of second fix over roughly ten weeks.

Ten weeks is well past 45 days, so section 109 gives a right to stage payments. A single payment on completion isn’t something that can be imposed.

The contract sets a due date on the 25th of each month, a final date 30 days later, and requires the payer to serve a payment notice. In month two the payer serves nothing at all.

So you serve your own under section 110B for £16,200. That becomes the notified sum. Because you served it four days after the payer’s 5-day window shut, the final date moves back four days.

No pay less notice follows. Under section 111 the full £16,200 falls due on the adjusted final date. If it isn’t paid, section 112 lets you give seven days’ notice and stop, recover the reasonable costs of doing so, and not lose programme time for it.

Common mistakes

Assuming it covers domestic work. It doesn’t, and this is the most expensive assumption in the whole area. Homeowner in their own home means you’re on your own terms and nothing else.

Thinking you can be contracted out of it. You can’t. Where a contract falls short, the Scheme gets read in.

Accepting pay-when-paid. Ineffective under section 113 unless the third party is insolvent, however firmly it’s written.

Ignoring the 5-day notice window. If the payer doesn’t serve a payment notice, serving your own is what creates an enforceable notified sum. Nobody does this and it costs them.

Treating the Scheme’s 17 days as your deadline. It’s only the default for a silent contract. Go and read yours.

Do this in FieldHive

If you work for homeowners the Act gives you nothing, so your payment terms have to live in your own paperwork. Build trade terms and conditions covering payment stages, deposits and late payment, free. For commercial work, keep every application and payment dated and in one place with the statement of account generator.

Aid, not advice

This guide summarises what the Construction Act requires so you can recognise your position. It is not legal advice. Whether the Act applies, and what your contract does on top of it, depends on the specific agreement. For a contested or high-value payment, get advice from a construction solicitor.

*Legislation checked August 2026: Housing Grants, Construction and Regeneration Act 1996 (as amended); Scheme for Construction Contracts (England and Wales) Regulations 1998.*