It is commonplace for disputes to crop up over the value of work carried out under construction contracts, and it is essential to identify these disputes clearly before they reach adjudication. Read on to discover what Pay Less Notices (PLN) are and how they could help your situation.
What are Pay Less Notices?
The Housing Grants, Construction and Regeneration Act 1996 (The Construction Act) enables employers to issue a notice stating their intention to pay less than the amount certified in a payment certificate or requested in a contractor's payment application. This notice is known as a Pay Less Notice. They are mandatory if the employer wishes to avoid paying the certified or claimed amount.
If the employer fails to issue a payment certificate and a PLN within the required timeframe, they will be legally obligated to pay the full amount claimed by the contractor. The contractor can force payment by initiating a quick adjudication on the limited issue of the payment. This situation is commonly referred to as a "smash-and-grab" adjudication, in which the contractor is awarded the full payment they have requested, and the employer must pay before any dispute about the actual value of the work is resolved. Consequently, it is crucial to ensure the PLN you issue is correctly formulated.
Drafting Pay Less Notices
When a disagreement arises over payment, it is crucial to promptly determine if any particular payment application is being disputed. It is important to issue a Pay Less Notice promptly, clearly specifying that it is related to a particular payment application or certificate. If a similar dispute arises later in the project, it will be of no benefit to the employer who intends to challenge a "smash-and-grab" adjudication regarding an earlier payment application.
PLN Time Frames
The client is required to send a payment notice within five days of the payment date, regardless of whether any amount is owed. Alternatively, if permitted by the agreement, the contractor can submit a payment application, which is treated as a notice.
To pay less than the amount indicated in the notice, the client must issue a PLN, stating the calculation basis. The notified amount is due by the final payment date.
If the client fails to issue a payment notice, the contractor can issue a default payment notice. The final payment date is extended by the duration between when the client was supposed to issue a payment notice and when the contractor delivered the default payment notice. If the client does not issue a Pay Less Notice, they must pay the amount specified in the default payment notice.
A PLN Problem
As a client who's recently purchased a house and initiated a major refurbishment, I was hoping that you could offer me some guidance on a problem I've been facing.
To ensure the success of my project, I employed an experienced Architect from the outset and executed a JCT Intermediate Form of Contract, 2011 with a contractor's design when engaging the builder. However, I'm increasingly concerned that the Architect may be overvaluing the work carried out by the builder. I've already sought professional advice from a quantity surveyor, who indicated that the work may be overvalued, but the advice was vague and lacked specifics.
Given the significant investment I've made in this project, I'm eager to ensure that I receive value for my money. Do you have any suggestions for me?
Benje, South Leicestershire
Our Response
Hello Benje. It seems that you have followed the correct procedures in procuring your project, and in theory, your Architect should be a reliable party when it comes to administering the Contract. However, if your Architect has issued an interim certificate for payment, you still have the right under the Contract to pay a lesser amount than what is certified, provided that you issue a valid and effective Pay Less Notice.
If you intend to issue a PLN, it is crucial that you do so on time and that it is effective. If the payment provisions of the Contract are unaltered (section 4), the builder must receive a payment within 14 days of the due date, unless they receive a Pay Less Notice no later than 5 days before the final date for payment. Even a late PLN, by just one minute, will not allow you to withhold any funds. The Pay Less Notice must also specify
- the sum you consider due on the notice's date of service, and
- the basis for calculating that amount.
Additionally, the PLN must come from you as the employer named in the Contract or a duly authorised person acting on your behalf, provided you have notified the builder in advance (refer to clause 4.12.1.1 of the Contract).
However, if you do issue a PLN, there is a risk that the builder may issue a notice of their intention to suspend performance under clause 4.13, followed by a notice to suspend. In such an event, you will need to consider your options under clause 8.4.1 of the Contract, particularly sub-clause 1. However, you must be entirely sure of your position and the validity/effectiveness of any PLN issued before invoking clause 8.4 and its sub-clauses. You must also recognise that by agreeing to the JCT IFC, the builder has the right to refer any dispute to adjudication (unless the relevant clause is omitted).
Your best bet would be to arrange a meeting with your Architect and discuss your concerns. Your Architect is experienced and should be able to explain how and why the costs have been evaluated. However, it is vital that you refrain from attempting to interfere or influence the Architect, as this could be considered a repudiatory breach of the Contract. This would allow the builder to accept the breach, terminate their employment under the Contract, and pursue you for damages.
Good luck with your project.
If you find yourself in a similar position as Benje, get in touch with our expert solicitors for advice on submitting your Pay Less Notice. Alternatively, they are also available to support you with another commercial property dispute you may have. Contact us today or send us an email to info@witansolicitors.co.uk.
