Pay Less Notice

Pay Less Notice

If you engage someone to carry out construction work for you, whether you be an employer or contractor or sub contractor, then you must be aware of the requirement for Pay Less Notices if you wish to withhold monies from a payment. The case of ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC) exemplifies why.

ISG were employed by Seevic to carry out work under a JCT Design and Build Contract 2011. The contract requires the contractor to submit monthly interim applications for payment stating the amount the contractor considers to be due to him, and the basis on which that sum has been calculated. The contract also contains a standard procedure requiring the employer not later than five days after the due date to serve a payment notice, stating the amount it considers to be due. Importantly if the employer intends to pay less than the sum stated in the payment notice or interim application, it must serve a pay less notice no later than five days before the final date for payment.

ISG submitted an application for interim payment 13. Not only did Seevic fail to make any payment they also failed to issue a payment notice or a pay less notice. In the consequent Adjudication the adjudicator decided ISG was entitled to the sum of £1,097,696.29 as set out in Interim Application 13 because Seevic had failed to issue the notices required – a purely technical victory.

Seevic did not comply with the Adjudicator’s decision and they started their own Adjudication in which they requested the Adjudicator to value ISG’s works at the date of their Application No 13. In this second Adjudication it was decided that the value was in fact less than the amount that had been claimed by ISG.

ISG applied for summary judgment to enforce the first decision and further that the Adjudicator in the second Adjudication did not have jurisdiction to make the decision that he had arrived at. They stated that the value of its work at the time of interim payment 13 had already been decided because, in the absence of any notices served by Seevic, the value must be taken to be that stated in the application.

Mr Justice Edwards-Stuart concluded:

  • In the absence of fraud then where there was no payment or pay less notice the contractor becomes entitled to the amount stated in the interim application – irrespective of the true value of the work actually carried out. The employer can, defend itself by serving the notices provided for by the contractual provisions;
  • However, it is not open to either party to go back over such ground in order to revisit the amount of the valuation by issuing adjudication proceedings.

On that basis the court found that the value of interim payment 13 had already been decided in the first Adjudication because the effect of the payment notice regime meant that there could be no dispute about the value of the work that was the subject of the second Adjudication.

The Judge allowed the enforcement of the decision in Adjudication No 1 and held that the adjudicator in Adjudication No 2 had no jurisdiction to make the decision he did. He said:

“the statutory regime would be completely undermined if an employer, having failed to issue the necessary payment or pay less notice, could refer to adjudication the question of the value of the contractor’s work at the time of the interim application (or some later date) and then seek a decision requiring either a payment to the contractor or a payment by the contractor based on the difference between the value of the work as determined by the adjudicator and the sums already paid under the contract.”

The lesson is that as an ‘employer’ you must ensure that you serve the requisite notices if you disagree with an application or a valuation because otherwise you will be forced to make payment of the amount applied.