A payment application has not been paid and no valid payment notice or pay less notice was issued. Alternatively, you are facing an adjudication seeking payment of a substantial notified sum.
Holmes & Hills’ construction solicitors advise contractors, subcontractors, employers and developers on bringing and defending adjudications concerning the non-payment of a notified sum.
Claims of this kind are often referred to within the construction industry as “smash-and-grab” adjudications. That is an informal expression coined and commonly used within the industry. Strictly speaking, the dispute concerns the paying party’s obligation to pay the notified sum.
These disputes are highly technical. The outcome can depend on the wording of a payment application, how and when it was served, and whether the paying party issued the correct notice by the contractual deadline.
We advise clients across the UK from our offices in Essex and Suffolk.
Construction contracts are required to contain an adequate mechanism for determining what payments become due and when.
The contract should establish a procedure involving payment applications, payment notices and, where the paying party intends to pay less, pay less notices.
Where the payer or specified person fails to issue an effective payment notice, the amount contained in a valid application may become the notified sum. If no valid pay less notice is then issued, the paying party may be required to pay that sum by the final date for payment.
If payment is not made, the unpaid party can refer the dispute to adjudication.
The adjudication is therefore concerned with the non-payment of the notified sum, rather than necessarily determining the final or true value of the work.
Although the phrase “smash and grab” is widely understood in the industry, it can be misleading. The claim is not simply a shortcut to obtaining a windfall. It arises from the payment procedure agreed in the contract or imposed by construction legislation.
The starting point is always the contract. It should identify the due date, final date for payment and the applicable procedure for payment applications, payment notices and pay less notices.
Where the contractual payment provisions do not comply with construction legislation, relevant provisions from the Scheme for Construction Contracts may apply.
Whether a notified sum has arisen will commonly depend on:
A small difference in wording, timing or service can be decisive. The complete payment history should therefore be reviewed rather than looking at one document in isolation.
If you have made a payment application that has not been paid, we will review the contract and payment documents to determine whether the amount applied for became the notified sum.
This will include checking the payment mechanism, the relevant dates, the content of the application and how it was served. We will also examine any payment notice or pay less notice relied upon by the paying party.
Before commencing an adjudication, we will consider whether a dispute has crystallised, whether the other party has raised a valid jurisdictional objection and whether the proposed claim accurately reflects the relevant payment cycle.
Where the claim is properly established, we can prepare the Notice of Adjudication and Referral Notice, deal with the appointment of the adjudicator and conduct the adjudication through to the decision.
We will also consider the wider commercial position. This includes whether the paying party is solvent, whether payment is likely to be made voluntarily and whether adjudication may create an opportunity to resolve the wider account or commercial relationship.
If you have received a Notice of Adjudication, obtain advice immediately. The timetable will be short and the Referring Party may have spent considerable time preparing its case.
The fact that no payment was made does not automatically mean that the Referring Party is entitled to the amount claimed.
A detailed review may establish that the application was invalid, premature or served incorrectly. It may not have complied with the contractual payment mechanism or made sufficiently clear what sum was sought and when it became due.
There may also have been an effective payment notice or pay less notice which the Referring Party has failed to acknowledge.
We will examine the contractual and statutory payment requirements, the parties’ previous course of dealing and the complete notice history before preparing the Response.
Where there is a proper defence, it must be presented clearly and supported by the contemporaneous documents. A general assertion that the application overvalues the work will not ordinarily answer a valid claim for payment of the notified sum.
A payment notice should state the sum considered due at the relevant due date and the basis on which that sum has been calculated.
A pay less notice allows the paying party to state that it intends to pay less than the notified sum. It must provide the required information and be served within the applicable contractual or statutory period.
The deadline for a pay less notice is not necessarily the same under every contract. The contractual terms, amendments and any applicable provisions of the Scheme for Construction Contracts must be checked carefully.
Parties should not rely solely on the title given to a document. Calling something a “pay less notice” will not make it valid if its content, timing or service does not satisfy the relevant requirements.
Conversely, a document may potentially operate as an effective notice even if it has not been given the expected title. Its substance and effect must be considered in the context of the contract and payment cycle.
An adjudication concerning non-payment of a notified sum is principally concerned with what must be paid under the applicable payment procedure.
A true value adjudication considers the correct valuation of the work.
The two issues are related but legally distinct.
A paying party that failed to serve a valid notice may still be able to challenge the true value of the account. However, it will ordinarily be required to comply with its immediate obligation to pay the notified sum before asking an adjudicator to determine the true value of the same payment cycle.
The correct strategy will depend on the sequence of applications and notices, whether the notified sum has been paid and whether the contract remains ongoing.
Holmes & Hills advises on both notified sum and true value adjudications. Where appropriate, we can assess the immediate payment position alongside the wider valuation, defects, delay or final account dispute.
Not every notified sum dispute needs to proceed to an adjudicator’s decision.
A properly prepared Notice of Adjudication can bring immediate focus to an unpaid account and create an opportunity for commercial negotiations. In other cases, obtaining and enforcing a decision will be necessary.
Our advice is directed towards the result the client needs. That may be payment of a particular application, a negotiated settlement of the wider account or resolution of the parties’ continuing contractual relationship.
We will also consider whether delay could place recovery at risk. A successful decision has limited commercial value if the paying party becomes insolvent before the money is recovered.
Holmes & Hills has a dedicated Construction Team advising contractors, subcontractors, employers and developers across the UK.
We understand the importance of payment procedures and cash flow within the construction supply chain. Our experience includes notified sum claims, payment and pay less notices, interim valuations, final accounts, variations, defects, set-offs and true value adjudications.
Where an adjudicator’s decision is not honoured, we can also act in enforcement proceedings in the Technology and Construction Court.
The Construction Team is independently recognised by Chambers and Partners and The Legal 500. We provide direct, practical advice focused on the contractual position and the client’s commercial objective.
“Smash and grab” is an informal expression coined and used within the construction industry. It commonly describes an adjudication seeking payment where the payer has failed to pay the notified sum.
The expression does not appear in the statutory payment regime and is not the formal legal description of the claim.
Potentially, yes. If the payment application was valid and its amount became the notified sum, the paying party may be required to pay it.
The contract, application, notice requirements and relevant deadlines must all be checked before that conclusion can be reached.
Not ordinarily. The application must comply with the relevant contractual or statutory requirements. Its wording, timing and method of service can all be important.
Potentially. The adjudicator or court will consider the document’s substance, timing and service rather than its title alone. Whether an email is sufficient will depend on the contract and what the email communicated.
Potentially, but where there is an existing obligation to pay the notified sum, the payer will ordinarily need to discharge that obligation before commencing a true value adjudication concerning the same payment cycle.
They may form part of an effective payment notice or pay less notice, or a subsequent true value dispute. However, they will not necessarily provide a defence if the notified sum became payable and the correct notice was not issued.
The adjudicator will normally reach a decision within 28 days of receiving the Referral Notice. This period can be extended in certain circumstances.
If your payment application has not been paid and no effective notice was issued, speak to our Construction Team about whether the notified sum can be recovered through adjudication.
If you have received a Notice seeking payment of a notified sum, obtain advice immediately so that the application, payment mechanism and complete notice history can be reviewed before your response is due.
Call us on 01206 593933 and get expert advice from a specialist Construction Law solicitor. Or complete the form below.
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