Most contractor payment application problems are not about the valuation. They are about the format and the timing. A payment application under the Housing Grants Construction and Regeneration Act 1996 that does not meet the formal requirements is not a valid payment application - which means the five-day window for the employer to issue a pay less notice has not started, and the employer has no obligation to pay by the final date.
The Statutory Framework
Under the Construction Act 1996 as amended by the Local Democracy Economic Development and Construction Act 2009, a contractor is entitled to payment on the dates set out in the contract. The JCT D&B 2016 payment provisions under Clauses 4.7 to 4.12 set out the mechanism:
The Interim Due Date triggers when the contractor's payment notice must be served.
The employer then has five days to issue a Payment Notice specifying the notified sum. If the employer fails to issue a Payment Notice, the contractor's application becomes the default Payment Notice.
The employer then has a further window to issue a Pay Less Notice before the Final Date for Payment.
If no Pay Less Notice is issued, the employer must pay the notified sum in full.
What the Application Must Contain
The following ten elements must be present in a valid JCT payment application. Missing any one of them may give the paying party grounds to dispute the application's validity.
Common Errors That Invalidate Applications
These are the most common formatting failures that give the paying party grounds to challenge an application's validity - separate from any dispute about the valuation itself.
The application is served after the contractual due date, making it early for the next period rather than valid for the current one.
Stating only the amount applied for without the gross cumulative value and retention position.
The application does not identify the contract under which it is made.
Applying the retention percentage to gross value rather than to the correct retention-applicable element.
Applying for the total value rather than the amount due in this period.
A payment application produced with the correct format and served on the correct date gives the employer no grounds to dispute the procedure, only the valuation. That is the position you want to be in. The argument about value is a normal commercial negotiation. The argument about whether the application was valid at all is one you cannot afford to lose.
Written by a Senior PM with 18 years of UK fit-out experience. Content is for guidance only and does not constitute professional advice. Always verify against your specific contract and applicable legislation.