Public construction contracts: Guidance on payment terms

Question: Contracting authorities are required under Regulation 113 of the Public Contracts Regulations 2015 (“PCR”) to make payments within 30 days of an invoice being regarded as “valid and undisputed” – but when exactly does this 30 day window begin when dealing with a public construction contract subject to the Housing Grants, Construction and Regeneration Act 1996 as amended (“Construction Act”)?

If the payment mechanism does not involve a contractor sending the contracting authority an invoice, then the payment should be made within 30 days after the contracting authority has confirmed the amount for payment.

However, the exact point at which an invoice in a construction contract is regarded as “valid and undisputed” may not always be obvious. Under the Construction Act:

• a Payer Notice (s110A) can be issued within 5 days of the Payment Due Date (“PDD”) setting out the sum that the payer considers to be or to have been due at the PDD and the basis on which that sum is calculated;
• a Default Notice (s110B) can be issued by the payee within 5 days of the PDD if a Payer Notice is not issued or is issued incorrectly; and
• a Pay Less Notice (s111) can be issued by the payer within 30 days from the issue of the initial payment notice.

The question is, therefore, when does the 30 day timeframe prescribed by the PCR start?

Answer: The Crown Commercial Service has issued guidance on how Regulation 113 of the PCR applies in light of the Construction Act payment regime. The answer to the question is that the 30 day period begins from the date that the payment amount is made final.  Arguably in construction contracts this could be either (a) the last of the Payer or Default Notices or (b) as a firm long stop date, the beginning of the prescribed period (i.e. the last date on which the payer can serve a Pay Less Notice).

For more information on payment and pay less notices, click here.