What payment provisions must a construction contract include?

The Construction Act requires every construction contract to include a clear mechanism for determining what payments are due, when those payments become due, and the final date for payment. These requirements are designed to ensure transparency and certainty, and to prevent parties from being left out of pocket due to unclear or unfair payment arrangements.

To comply with the Construction Act, your payment mechanism should include:

• Due date: The contract must specify the date when payment becomes due (the “due date”). If it doesn’t, the Scheme implies a due date of 7 days after the later of the valuation date or the date the unpaid party submits a claim.
• Final date for payment: This is the deadline by which payment must be made. If the contract is silent, the Scheme provides a period of 17 days from the due date. If the paying party fails to pay by this date and hasn’t served a pay less notice, the unpaid party gains a statutory right to suspend work and may initiate a “smash-and-grab” adjudication to recover the amount claimed.
• Payment notice: A payment notice must be issued no later than 5 days after the due date, even if the sum due is zero. This timeframe is fixed by statute and cannot be amended by contract. The amount stated becomes the “notified sum.” If the paying party fails to issue a notice, the sum in the contractor’s application for payment can become the notified sum which is automatically due and payable irrespective of the true value of the works carried out.
• Pay less notice: If the paying party intends to pay less than the notified sum, it must serve a pay less notice within the prescribed timeframe. Otherwise, the full notified sum must be paid by the final date for payment. If the contract does not set out a deadline for a pay less notice, the Scheme requires pay less notices to be served no later than 7 days before the final payment date. Once served, the paying party must pay the amount stated in the pay less notice by the final date (unless assessed as nil or negative).

What if the payment provisions are missing or non‑compliant?

If a construction contract omits key payment terms or includes provisions that do not comply with the Construction Act, the Scheme will apply – but only to the parts that are non-compliant. It doesn’t replace the entire payment mechanism; instead, it fills gaps where the contract fails to meet statutory requirements. The result is a hybrid mechanism, where some provisions come from the contract and others from the Scheme.

This is where problems typically arise. For example, a contract might contain a final date for payment but fail to include a compliant due date. In that scenario, the Scheme inserts a due date, while the contractual final date remains in place. Unless the parties spot the interaction between the two, payment deadlines can easily be miscalculated.

Why relying on the Scheme creates risk

The Scheme is designed as a safety net, not a substitute for clear drafting. Hybrid payment regimes are often very difficult to manage. You can end up with a patchwork of contractual and statutory terms, which is harder to operate and more prone to disputes.

The most common risks that arise from relying on the Scheme include:

• Inconsistent rules: For example, the due date and final date for payment may be governed by the Scheme, while notice requirements follow the contract. This inconsistency makes it unclear which deadlines apply.
• Misaligned timelines: Parties often miscalculate deadlines because the Scheme and contract provisions don’t align perfectly. A frequent mistake is assuming contractual timeframes apply when the Scheme has overridden certain elements.
• Operational complexity: Managing two sets of rules requires careful cross-referencing, increasing administrative burden and the likelihood of error.

Because the Scheme only intervenes to the extent strictly necessary, it often leaves parties operating under a fragmentated set of rules. In practice, this commonly results in payment or pay less notices being served late or in the wrong form, statutory deadlines being missed – exposing parties to suspension rights or “smash-and-grab” adjudications – and errors in calculating the notified sum or amounts due.

For these reasons, reliance on the Scheme rarely provides certainty. Instead, it introduces avoidable risk and complexity. The most effective way to protect your cashflow and reduce the scope for dispute is to make sure your payment provisions are clearly drafted and fully compliant from the outset.

How we can support you

Payment provisions aren’t optional – they’re a legal requirement under the Construction Act. Missing or defective provisions trigger the Scheme, which can lead to complexity and disputes. The best approach? You need to draft clear, compliant terms from the start.

If you need help reviewing or updating your contracts, we can guide you through the process to ensure compliance and reduce risk.