Payment Notices, Pay Less Notices and Smash and Grab Adjudications: When a Main Contractor Refuses to Pay

By Brian Moriarty MCIArb | Founder, BAM Consult

Few things place greater pressure on a construction subcontractor than completing substantial works and then finding that the main contractor is unwilling to release the payment due.

Unfortunately, payment disputes remain a familiar feature of the construction industry. Subcontractors can find themselves chasing outstanding applications, challenging unexplained deductions and spending considerable time arguing over sums they believe have already been agreed.

What many subcontractors fail to appreciate, however, is that their entitlement to payment does not necessarily depend solely upon the valuation of the works undertaken. It can also depend upon whether the main contractor has complied with the payment procedures required by the contract and, more importantly, the legislation governing construction payments.

The consequences of failing to comply with those procedures can be substantial.

In January 2025, I successfully conducted an adjudication in which a main contractor’s failure to comply with the applicable payment notice requirements resulted in an award of £279,263.14, including interest.

The case provides a useful example of how the legislation operates, but it also raises an important question: when is it appropriate for a subcontractor to pursue what has become known as a smash and grab adjudication?

Understanding Payment Notices and Pay Less Notices

The Housing Grants, Construction and Regeneration Act 1996, as amended, commonly known as the Construction Act, introduced statutory payment procedures designed to improve cash flow throughout the construction industry.

The underlying principle is straightforward. Construction businesses should know when payment becomes due, how much is to be paid and when that payment must be made.

For qualifying construction contracts, the legislation requires an appropriate payment mechanism, including provision for payment notices identifying the amount considered due and the basis upon which that amount has been calculated.

Where the main contractor is responsible for issuing the Payment Notice, it must ordinarily do so within five days of the payment due date.

The main contractor is perfectly entitled to disagree with a subcontractor’s valuation. If it considers that certain variations are overstated, works remain incomplete or deductions are justified, it can reflect that assessment in a properly issued notice.

The important distinction is that the main contractor must follow the correct procedure. It cannot simply disregard the payment mechanism because it disagrees with the subcontractor’s application.

Where a required Payment Notice is not issued, a compliant application submitted by the subcontractor may, depending on the contractual arrangements, become the default payment notice. In other circumstances, the subcontractor may need to issue a separate notice.

This can establish what the legislation refers to as the notified sum.

If the main contractor intends to pay less than that notified sum, it must issue a valid Pay Less Notice within the applicable deadline, identifying the amount it considers due and explaining the basis of its calculation.

A Pay Less Notice can legitimately state that the amount due is zero. However, that does not remove the obligation to comply with the statutory and contractual requirements governing its content and timing.

Once the deadline has passed, a late Pay Less Notice cannot simply be used to retrospectively defeat an established obligation to pay the notified sum.

What Is a Smash and Grab Adjudication?

The expression smash and grab is an informal description of an adjudication in which a party seeks payment of the notified sum because the paying party has failed to comply with the applicable payment notice requirements.

It is sometimes misunderstood as a means of securing payment for works that have not been undertaken or for valuations that cannot be justified.

That is not how the legislation should be understood.

The distinction lies between the immediate obligation to make payment and the separate question of the true value of the works.

A main contractor may genuinely believe that a subcontractor’s application is excessive. Nevertheless, if the application establishes a valid notified sum and the main contractor has failed to issue effective notices, the legislation may require payment of that sum.

The underlying valuation can potentially be examined separately, but the main contractor cannot simply disregard its immediate statutory payment obligations.

This principle was examined in one of the construction industry’s most significant payment cases.

S&T v Grove: A Case I Know Personally

The Court of Appeal’s judgment in S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448 remains an important authority concerning payment notices and the relationship between notified sums and true-value adjudications.

This particular case is especially familiar to me because I was working at S&T at the time and was involved in the preparation for the proceedings as part of its commercial team.

That experience provided valuable exposure to the legal arguments surrounding payment notices and the consequences of failing to administer construction contracts correctly.

One of the important principles confirmed by the Court of Appeal was that a paying party may be entitled to pursue an adjudication to establish the true value of an interim application, even where a notified-sum payment obligation has arisen.

However, where the paying party is obliged to pay the notified sum, it must first discharge that obligation before commencing its own true-value adjudication.

The judgment distinguished between the immediate payment obligation and the parties’ ability to determine the correct valuation of the works.

That distinction is fundamental to understanding smash and grab adjudications.

The legislation is designed to maintain cash flow while preserving the ability to resolve genuine valuation disagreements through the appropriate contractual procedures.

It is not intended to provide either party with an excuse to avoid its obligations.

My experience of the S&T proceedings subsequently proved particularly valuable when I was faced with a substantial payment dispute involving a contractor whose main contractor had effectively stopped paying.

A Real Example: The Decon Adjudication

In late 2024, I acted as sole Lead Counsel for Decon Contracting Limited in a serious payment dispute with its main contractor.

The works had been completed, but substantial sums remained outstanding. The situation had progressed beyond an ordinary disagreement over a handful of variations or the valuation of incomplete works.

The main contractor was refusing to make payment, including against amounts that had previously been certified.

Despite Decon’s attempts to progress the account, payment remained outstanding.

The main contractor subsequently attempted to rely upon a Pay Less Notice reducing the notified sum to zero. However, that notice had been issued outside the applicable contractual deadline.

By this stage, the contractual payment procedures had become central to the dispute.

From our perspective, the issue was no longer simply whether individual elements of the final valuation could be debated. It was whether the main contractor could continue withholding payment despite having failed to comply with the requirements governing the notified sum.

Having considered the available options, we commenced adjudication.

Establishing the Payment Entitlement

Although the principle behind the claim was relatively straightforward, establishing the precise contractual entitlement required careful consideration.

The project documentation included pre-start meeting minutes, a purchase order and an executed JCT subcontract. Determining which payment arrangements applied was therefore essential to establishing the correct payment dates and notice deadlines.

Our Referral initially pursued an outstanding sum of £498,006.83, plus VAT and interest, based upon the payment application submitted in September 2024.

The adjudicator examined the contractual documentation, the validity of the application, the payment timetable and the notices relied upon by the parties.

This was important because a smash and grab adjudication does not mean an adjudicator simply accepts whatever figure the referring party has claimed.

The application must be valid, the relevant contractual and statutory procedures must have been satisfied, and the sum claimed must be properly established.

Following that examination, the adjudicator determined the amount payable under the applicable payment provisions.

The Adjudicator’s Decision

On 14 January 2025, the adjudicator issued his reasoned decision, confirming a substantial payment entitlement in favour of Decon.

The award comprised £273,359.83 in outstanding payment, together with £5,903.31 in contractual interest, producing a total of £279,263.14, plus applicable VAT.

The responding party was also directed to bear the adjudicator’s fees of £9,900.

Although the sum awarded was lower than the amount originally pursued, the fundamental payment argument succeeded.

The main contractor’s failure to comply with the effective notice requirements had significant financial consequences, and the adjudication established an enforceable obligation to pay the amount determined.

For me, the case reinforced the importance of understanding not only the valuation provisions of a subcontract but also the statutory obligations governing payment.

It also demonstrated that a subcontractor can have substantial contractual protection even where the main contractor refuses to recognise its payment entitlement.

Should Subcontractors Use Smash and Grab Adjudications?

This is where I believe an important distinction needs to be made.

BAM Consult would never recommend pursuing a smash and grab adjudication simply because a technical opportunity exists to do so.

Construction projects inevitably involve valuation disagreements. Variations may require further substantiation, works may need to be measured and legitimate commercial differences can arise between the parties.

Where those disagreements can be resolved through proper commercial engagement, that should ordinarily be the preferred approach.

A smash and grab adjudication should not become a substitute for sensible contract administration or constructive commercial negotiation.

However, there is a considerable difference between a main contractor raising genuine valuation concerns and one that refuses to honour its payment obligations.

In the Decon case, the works had been completed, previously certified amounts remained unpaid and the main contractor had attempted to reduce the payment position to zero through a Pay Less Notice issued outside the applicable deadline.

There came a point where continued negotiation was achieving nothing.

In those circumstances, adjudication was not simply a tactical choice. It became the appropriate means of enforcing the payment obligations that the legislation was designed to protect.

A subcontractor should not have to accept indefinite non-payment simply because a main contractor refuses to follow the payment procedures required by its own contract.

What Should Subcontractors Look Out For?

Although the legislation provides valuable protection, subcontractors must take care to ensure their own contractual procedures are followed correctly.

There are several matters I would encourage every subcontractor to consider:

1. Understand the payment schedule before signing the contract. Establish the application dates, due dates, Payment Notice deadlines, Pay Less Notice deadlines and final dates for payment. These dates can determine whether a substantial sum becomes legally payable.

2. Submit applications correctly. A payment application must satisfy the relevant contractual requirements. Ensure that it clearly identifies the sum applied for, the basis of the calculation and the payment cycle to which it relates. Keep evidence of submission.

3. Examine every Payment Notice. Check whether the main contractor has issued the notice within the required period and whether it properly identifies the amount considered due and the basis of its calculation.

4. Do not ignore late Pay Less Notices. Where a main contractor seeks to reduce an application, establish whether the notice was issued within the contractual deadline. A notice that appears comprehensive may nevertheless be ineffective if it was served too late.

5. Keep a proper record of certified and outstanding payments. Maintain an accurate record of applications, certificates, receipts, deductions and balances. This is particularly important where the main contractor begins withholding amounts previously recognised.

6. Distinguish valuation disagreements from payment defaults. A genuine disagreement over value does not automatically justify withholding the notified sum. Equally, the absence of a valid Pay Less Notice does not necessarily mean every figure in an application has been conclusively established as the true value of the works.

7. Seek advice before commencing adjudication. Establishing the correct payment entitlement can involve complex questions of contractual interpretation, document validity and statutory deadlines. Those matters should be examined carefully before proceedings are commenced.

Final Thoughts

Construction payment legislation exists for a reason.

Subcontractors are expected to finance labour, materials, plant and substantial project overheads while carrying out their contractual obligations. When payment is withheld, the consequences can extend far beyond a disputed valuation, placing considerable pressure on cash flow and the wider business.

The Construction Act recognises the importance of prompt payment by establishing procedures that both parties are expected to follow.

My involvement in the S&T proceedings and the subsequent Decon adjudication has reinforced how significant those procedures can become when commercial relationships break down.

However, I remain firmly of the view that the best commercial outcome is usually one achieved without formal proceedings.

Properly negotiated subcontract terms, correctly administered payment procedures and constructive engagement between contracting parties can prevent many payment disputes from arising in the first place.

Where a main contractor refuses to comply with its contractual and statutory obligations, though, subcontractors should understand that they have remedies available to them.

The objective should never be to find a technical reason to commence adjudication. It should be to secure the payment to which the subcontractor is entitled, using formal enforcement only when it becomes necessary.

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Brian Moriarty MCIArb is the founder of BAM Consult, providing specialist commercial management, contract reviews and construction dispute-resolution services exclusively to construction subcontractors.

This article is provided for general information and does not constitute legal advice.

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