Common Payment Disputes in Construction and How to Handle Them

Payment disputes are one of the most disruptive problems in UK construction. They damage cashflow, strain relationships, and consume time that should be spent on productive work. Many disputes are avoidable with better documentation and timely notices. This guide covers the most common types of payment dispute, how to prevent them, and what steps to take when a dispute arises.

Late Payment

Late payment is the most widespread payment problem in UK construction. A 2023 survey by the Specialist Engineering Contractors Group found that the average payment period for subcontractors was over 45 days beyond the contractual due date. Late payment causes cashflow stress, forces borrowing, and can push smaller firms into insolvency.

• Check your contract for the defined payment periods and final dates
• Issue applications on time and keep proof of submission
• Follow up immediately if payment is not received by the final date
• Interest accrues automatically under the Late Payment of Commercial Debts Act 1998
• Statutory interest rate is currently Bank of England base rate plus 8%
• Consider the right to suspend performance under the Construction Act if payment is significantly overdue

Disputed Valuations

Disputes over the value of work done are common, especially where there is incomplete measurement, disagreement about what was included in the contract price, or poorly documented variations. Prevention is always cheaper than resolution.

• Agree measurement rules and valuation methods at the start of the contract
• Submit detailed valuations with breakdowns, not just a single figure
• Attach evidence: progress photos, delivery records, signed daywork sheets
• Respond to any challenge with specifics rather than a general objection
• If the payer certifies less than applied for, they must issue a Payment Notice explaining why

Variation Disputes

Variations are a major source of payment disputes. The contractor says the work was extra; the client says it was included in the original scope. The root cause is almost always a lack of written instruction or agreement before the work was carried out.

• Always get variation instructions confirmed in writing before proceeding
• Price and agree variations before carrying out the work where possible
• If a written instruction is not possible, send a written confirmation of verbal instruction
• Record the variation in your next application for payment with a clear description
• Do not leave disputed variations until the final account -- raise them early

Invalid or Missing Notices

Under the Construction Act, if the payer does not issue a valid Payment Notice, the amount stated in the contractor's application becomes the notified sum and must be paid in full. Similarly, a Pay Less Notice must be valid in form and issued on time to be effective.

• If no Payment Notice is issued, the applied sum is due -- this is a powerful protection
• A Pay Less Notice must specify the amount and the basis for each deduction
• Notices issued late or in the wrong form are invalid
• Keep a record of all notices sent and received with dates and delivery evidence
• Use these notice rules defensively when challenging a disputed deduction

What to Do When a Dispute Arises

When a payment dispute cannot be resolved by negotiation, the Construction Act gives either party the right to refer the dispute to adjudication. Adjudication provides a quick, binding interim decision -- typically within 28 days. It is designed to keep cash flowing while the underlying dispute is resolved.

• Step 1: Raise the issue formally in writing, referencing the contract terms
• Step 2: Allow a reasonable time for response and negotiation
• Step 3: If unresolved, issue a Notice of Adjudication to the other party
• Step 4: An adjudicator is appointed (usually within 7 days)
• Step 5: The adjudicator reaches a decision within 28 days (can be extended)
• Step 6: The decision is binding until the dispute is finally determined by court or arbitration
• The losing party must comply with the adjudicator's decision immediately

Preventing Disputes

The most effective way to handle disputes is to prevent them. Good record-keeping, timely notices, clear communication, and consistent application processes reduce the risk of disputes arising in the first place.

• Keep a full paper trail of every application, notice, instruction, and valuation
• Use digital tools to track deadlines and automate reminders
• Raise issues early rather than saving them for the final account
• Maintain a professional, evidence-based approach to every payment cycle
• Know your Construction Act rights and use them when necessary