Getting paid in construction
Construction has its own payment law, and it is unusually favourable to the person waiting for money. Most subcontractors never use it, largely because nobody tells them it is there.
Updated 13 September 2026
The Construction Act, and what it gives you #
Construction act payment terms come from the Housing Grants, Construction and Regeneration Act 1996, amended by the Local Democracy, Economic Development and Construction Act 2009. Everyone calls it the Construction Act.
It applies to most construction contracts in the UK, written or not, and the rights below cannot be contracted out of. A term that tries to remove them does not work.
- A right to be paid in stages, rather than only on completion, on contracts lasting more than 45 days
- A right to a payment notice stating the sum considered due
- A right to the full notified sum where no valid pay less notice was served in time
- A right to suspend performance for non-payment, after 7 days notice
- A right to refer a dispute to adjudication at any time
- A ban on pay-when-paid clauses, except where a third party is insolvent
How the payment mechanism works #
Construction contract payment terms follow a fixed sequence, and each step has a deadline.
| Step | What happens | When |
|---|---|---|
| Due date | Set by the contract for each payment | Contract |
| Payment notice | States the sum considered due, the notified sum | Within 5 days of the due date |
| Pay less notice | Required if paying less than the notified sum | Before the final date for payment |
| Final date for payment | The money must actually arrive | Contract |
When payment does not arrive #
Three routes, in ascending order of seriousness.
- Statutory interest. Late commercial payments carry interest at 8% above base rate plus fixed compensation, calculated on the late payment interest calculator
- Suspension. Give at least 7 days written notice stating the grounds, and you may stop work until you are paid. Costs and time caused by a valid suspension are recoverable
- Adjudication. Refer the dispute at any time. A decision normally follows within 28 days and binds the parties until finally resolved
Adjudication is the reason construction payment disputes settle. It is fast enough that a paying party cannot use delay as leverage, which is exactly what the Act was written to stop.
Retention in construction #
Retention is money held back from what you have earned, as security against defects. Unlike everything above, it is not a statutory right: it exists only because the contract says so.
| Typical | |
|---|---|
| Percentage withheld | 3% to 5% of each payment |
| First half released | At practical completion |
| Second half released | At the end of the defects liability period |
| Defects liability period | Commonly 6 or 12 months |
On a £100,000.00 job at 5%, that is £5,000.00 held back, half of it for a year or more after you finish. It is worth pricing that in rather than treating it as a windfall when it arrives.
Two contract points worth checking before signing: whether the retention is held in trust in a separate account, which protects it on insolvency, and what the defects liability period actually is, because a two-year period doubles how long you wait.
Labour only subcontractors #
A labour only subcontractor supplies labour while the contractor supplies materials and plant. It is common, and it raises two questions that get run together.
Are labour only subcontractors classed as employees? Not automatically. Employment status turns on control, the right of substitution, and mutuality of obligation, the same tests set out in IR35. A labour only arrangement can be genuinely self-employed or can be employment in all but name, and the label on the contract does not settle it.
What about CIS? Labour only payments are entirely labour, so there is no materials element to deduct first. That makes the CIS deduction simple and also larger, because materials are what normally reduce it.
Invoicing so you get paid #
The notice regime only protects you if your application or invoice is clear about what sum you say is due and when. A vague application makes it harder to argue a notified sum later.
The invoice generator produces a compliant UK invoice, and if you are within the domestic reverse charge, which most construction subcontractors are, the wording on the invoice changes and it is worth getting that right at the same time.
Common questions #
What is the Construction Act?
The Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009. It gives anyone working under a construction contract a set of payment rights that the contract cannot remove, including adjudication and a right to suspend work for non-payment.
What are standard construction contract payment terms?
Under the Act, payment must be in stages on any contract expected to last more than 45 days, with a payment notice stating the sum due within 5 days of the due date, and a final date for payment set by the contract. Thirty days from the due date is common, but it is a contract term rather than a legal maximum.
What is retention in construction?
A percentage of each payment the client or main contractor holds back as security for defects, typically 5%. Half is usually released at practical completion and half at the end of the defects liability period. It is a contract term, not a statutory right.
What is a pay less notice?
A notice the paying party must serve if it intends to pay less than the notified sum. If it is not served in time, the full notified sum becomes payable regardless of what the paying party thinks the work was worth.
Can I stop work if I have not been paid?
Yes. The Act gives a right to suspend performance for non-payment, but only after giving at least 7 days written notice stating the grounds. Suspending without that notice is a breach of contract rather than a remedy.
Are pay-when-paid clauses legal?
No, other than where the third party is insolvent. A clause making your payment conditional on the main contractor being paid by the client is ineffective, and cannot be relied on.
What is adjudication?
A fast dispute process, normally producing a decision in 28 days, that either party to a construction contract can start at any time. The decision binds the parties until the dispute is finally resolved. The right cannot be excluded by the contract.
Are labour only subcontractors classed as employees?
Not automatically. Labour only means the subcontractor supplies labour and the contractor supplies materials, which is a commercial arrangement, not an employment one. Employment status depends on control, substitution and mutuality of obligation, the same tests used for IR35.