UK Construction Law Guide: Contracts, Payment & Disputes

At a glance

• Core payment and adjudication rules: set out in Part II of the Housing Grants, Construction and Regeneration Act 1996 (commonly called "the Construction Act"), substantially amended by the Local Democracy, Economic Development and Construction Act 2009, with most of the amendments in force in England and Wales from 1 October 2011.
• Right to adjudicate: under section 108, either party can refer almost any construction dispute to adjudication at any time; the adjudicator must reach a decision within 28 days of referral.
• Payment notices: a notice specifying the sum considered due must be given not later than 5 days after the payment due date, under section 110A.
• Pay less notices: to pay less than the "notified sum," the paying party must serve a valid pay less notice before the final date for payment, under section 111 — get this wrong and the full notified sum becomes payable, often called a "smash and grab" claim.
• Right to suspend: an unpaid party can suspend performance after giving at least 7 days' written notice, under section 112.
• Fallback rules: where a contract doesn't comply with the Construction Act's requirements, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649, as amended by SI 2011/2333) supplies default terms automatically.
• Health and safety: the Construction (Design and Management) Regulations 2015 set duties for clients, principal designers and principal contractors, enforced by the HSE.
• Building Safety Act 2022: introduced a new "Gateway" building control regime (in force from 1 October 2023) for higher-risk buildings (18 metres or more, or 7+ storeys, with at least two residential units), and extended Defective Premises Act 1972 limitation periods to 30 years retrospective / 15 years prospective from 28 June 2022.

What counts as "construction law" in England and Wales

Construction law isn't one statute you can read cover to cover — it's contract law and common law layered with a handful of specific Acts and regulations that apply because the work in question is construction work. The core pieces are:

• Part II of the Housing Grants, Construction and Regeneration Act 1996 — known informally as "the Construction Act" — which gives statutory rights to interim payment, payment notices, and adjudication on "construction contracts." It was substantially amended by the Local Democracy, Economic Development and Construction Act 2009, with most of the payment and adjudication changes in force in England and Wales from 1 October 2011.
• The Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649), as amended by SI 2011/2333, which supplies default payment and adjudication terms whenever a contract doesn't meet the Construction Act's requirements.
• The Construction (Design and Management) Regulations 2015 ("CDM 2015"), which impose health and safety duties on everyone from the client through to individual workers.
• The Building Safety Act 2022, which introduced a new building control regime for higher-risk buildings and extended the time limits for certain defect claims.
• The Defective Premises Act 1972, which imposes a duty on anyone doing work on a dwelling to leave it fit for habitation.

On top of that statutory layer sit standard form contracts. Most projects in England and Wales use a form from the JCT (Joint Contracts Tribunal) suite or the NEC suite, or occasionally a bespoke agreement. These govern how price, programme, variations and risk are actually allocated between the parties, within the boundaries the statutes above set — a standard form contract cannot lawfully remove the statutory rights to payment notices, pay less notices, suspension or adjudication described below. One increasingly common variant worth understanding on its own terms is the turnkey (design-build/EPC) contract, where a single contractor takes on both design and build risk.

This guide covers England and Wales. Scotland has its own Scheme for Construction Contracts and some procedural differences apply there.

Contracts: getting the paperwork right

The written contract is the single most important document on any build. Before anyone lifts a tool, decide whether you're using a standard form — JCT for more traditionally procured building work, NEC for a more collaborative, project-management-led approach often seen on infrastructure and public sector work — or a bespoke agreement, and make sure the following are captured clearly in writing:

• Scope of works — precisely what is and isn't included.
• Price and payment mechanism — lump sum, remeasurement, or cost-reimbursable, and how interim valuations are calculated.
• Programme — start date, key milestones, and the date for practical completion.
• Payment terms — the payment due dates, the notice mechanism, and the final date for payment (see below).
• Variations mechanism — how instructed changes are priced and agreed.
• Defects and retention terms — the length of the defects rectification period and any retention arrangement.

A verbal agreement can still be a binding "construction contract" for the purposes of the statutory payment and adjudication rules below, but proving what was actually agreed on scope, price and timing becomes very difficult once a dispute starts. Informal instructions given on site are one of the most common sources of later disputes — get changes agreed and recorded in writing as you go, not reconstructed from memory afterwards.

Payment: your statutory rights under the Construction Act

Unless the contract is expected to last less than 45 days, section 109 of the Construction Act gives you the right to be paid by instalments, stage payments, or other periodic payments as the work progresses, rather than waiting for a single payment at the end. The parties are free to agree the amounts and the intervals at which payments become due — but if they don't, the Scheme for Construction Contracts supplies default terms.

Payment notices

For every payment due under the contract, either the payer (or a person specified in the contract) must give the payee a notice stating the sum considered due and how it's calculated, not later than 5 days after the payment due date — or, if that notice isn't given, the payee itself can give a default notice instead. This is set out in section 110A. If the contract doesn't include a compliant payment notice mechanism, the relevant provisions of the Scheme for Construction Contracts apply automatically.

Pay less notices and "smash and grab" claims

The sum identified in the payment notice becomes the "notified sum," and section 111 requires the payer to pay it in full by the final date for payment — unless it serves a valid pay less notice first. A pay less notice must specify the sum the payer actually considers due and the basis of that calculation, and it must be served within the period set by the contract (or, failing that, the period set by the Scheme). If no valid pay less notice is served in time, the full notified sum becomes payable regardless of whether the work is actually worth that much — a claim often referred to in the industry as a "smash and grab." Getting the timing and content of a pay less notice right is one of the most litigated points under the Construction Act.

The right to suspend work for non-payment

If a sum due under section 111 isn't paid by the final date for payment, section 112 gives the unpaid party the right to suspend performance of some or all of its obligations under the contract — but only after giving the paying party at least 7 days' written notice of the intention to suspend and the grounds relied on. The unpaid party isn't liable for the knock-on consequences of a lawful suspension, including any resulting delay, but suspending without following the notice requirement correctly can itself expose the suspending party to a breach of contract claim.

Pay-when-paid clauses are banned (with one exception)

Section 113 makes it unlawful for a contract to make payment conditional on the payer itself first being paid by someone further up the chain — the so-called "pay when paid" clause — except where that upstream party has become insolvent. A clause that tries to impose a wider pay-when-paid condition is simply ineffective, and the underlying payment obligation applies as if the clause weren't there.

Retention

Retention — a percentage of each payment, commonly around 3 to 5 per cent in current market practice — held back by the paying party as informal security against defects, is a matter of contractual custom, not a statutory entitlement. It's usually released in two tranches: roughly half at practical completion, with the remainder released at the end of the defects rectification period. Because retention isn't itself created or protected by statute, it can only be withheld strictly in line with what the specific contract provides, and disputes over its release are common, particularly where the party holding it becomes insolvent.

Statutory adjudication: fast dispute resolution

Section 108 gives either party to a construction contract the right to refer "any dispute" — including any difference — to adjudication at any time, and this right cannot be excluded or restricted by the contract. A compliant contract must:

1. Allow a party to give notice at any time of its intention to refer a dispute to adjudication.
2. Provide a timetable designed to secure the appointment of an adjudicator and referral of the dispute within 7 days of that notice.
3. Require the adjudicator to reach a decision within 28 days of referral (or a longer period agreed by the parties after the referral).
4. Allow the adjudicator to extend that 28-day period by up to 14 days, but only with the consent of the referring party.
5. Impose a duty on the adjudicator to act impartially and allow them to take the initiative in ascertaining the facts and the law.
6. Include provision for the adjudicator to correct a clerical or typographical error in the decision (added by the 2009 amendments).

If a contract doesn't comply with these requirements, the adjudication provisions of the Scheme for Construction Contracts step in and apply instead. The adjudicator's decision is binding on an interim basis — the parties must comply with it immediately — until the dispute is finally resolved by litigation, arbitration, or agreement. This "pay now, argue later" design is what makes adjudication so widely used: it keeps cash flowing and projects moving rather than stalling for months or years while a full dispute is litigated.

Health and safety: the Construction (Design and Management) Regulations 2015

CDM 2015 sets out duties for everyone involved in a construction project, enforced by the Health and Safety Executive. The key duty-holders are:

• The client — who must make suitable arrangements for managing the project, including appointing a principal designer and principal contractor in writing where more than one contractor is, or is likely to be, involved.
• The principal designer — responsible for planning, managing, monitoring and coordinating health and safety during the pre-construction (design) phase.
• The principal contractor — responsible for planning, managing, monitoring and coordinating health and safety during the construction phase, and for liaising with the principal designer throughout.
• Designers and contractors generally — who each carry duties to eliminate, reduce or control foreseeable risks so far as is reasonably practicable.

CDM 2015 compliance isn't optional and failures can lead to HSE enforcement action, criminal liability, and civil claims where a failure causes injury. The Building Safety Act 2022 has layered further competence and record-keeping duties on top of CDM 2015 for higher-risk projects specifically, described below. For a practical starting point on managing site risk day to day, see our construction site inspection checklist.

The Building Safety Act 2022: what's changed

The Building Safety Act 2022 was introduced following the Grenfell Tower fire and made two major changes that matter for construction projects generally, not just tall residential towers.

Higher-risk buildings and the Gateway regime

For the new building control regime, a higher-risk building is generally one in England that is at least 18 metres in height, or has at least 7 storeys, and contains at least two residential units. These buildings are now subject to a three-stage "Gateway" approval process, overseen by the new Building Safety Regulator, which came into force from 1 October 2023. Before construction of a higher-risk building can start, and again before it's occupied, the design and the completed building must be approved by the regulator, and a "golden thread" of building safety information must be created and kept up to date throughout the building's life. Projects that fall outside the higher-risk definition aren't directly caught by the Gateway regime, but the wider push on competence and documentation has had knock-on effects across the industry generally.

Defects and the extended Defective Premises Act 1972 limitation periods

The Defective Premises Act 1972 imposes a duty, under section 1, on anyone taking on work for or in connection with the provision of a dwelling to do that work in a workmanlike or professional manner, with proper materials, so the dwelling is fit for habitation when completed. That duty is owed both to the person who ordered the work and to anyone who later acquires an interest in the dwelling — so a subsequent buyer can potentially claim, not just the original client. The Building Safety Act 2022 inserted a new section 2A into the 1972 Act, extending the same "fit for habitation" duty to work carried out on an existing dwelling — for example a refurbishment, an extension, or remedial cladding work — where previously the duty only applied to the original provision of a new dwelling.

Section 135 of the Building Safety Act 2022 then dramatically extended how long claimants have to bring a claim, by inserting a new section 4B into the Limitation Act 1980:

• Retrospective claims (the cause of action accrued before the relevant provisions commenced on 28 June 2022): a 30-year limitation period running from when the cause of action arose — meaning some claims that would previously have been time-barred under the old 6-year period have been revived.
• Prospective claims (the cause of action accrues on or after 28 June 2022): a 15-year limitation period.

This is a major shift from the previous 6-year limitation period under general contract and tort principles, and it applies to defects that make a dwelling unfit for habitation generally — not only fire-safety defects, and not only in high-rise buildings. Limitation law in this area is genuinely complex and fact-specific (including questions about exactly when a "cause of action accrued"), so treat any figure above as a starting point and check the current position on GOV.UK, legislation.gov.uk, or with a legal adviser before relying on it for a specific claim.

Defects after practical completion

Separately from the Defective Premises Act, most standard form contracts (JCT and NEC alike) include their own defects rectification period — commonly around 12 months from practical completion — during which the contractor is contractually obliged to return and fix defects notified during that window, typically at no extra cost. This is a matter of contract, not statute, so the exact length and mechanism depend on what the specific contract says. Once that period ends, a claim for a defect may still be possible in ordinary contract (subject to the contract's own limitation terms, generally 6 years for a simple contract or 12 years for a contract executed as a deed) or, for dwellings, under the Defective Premises Act 1972 discussed above.

Ending a construction contract: termination risk

Termination is one of the highest-risk steps available in a construction dispute, because getting it wrong can turn the tables entirely. Most standard forms set out specific contractual grounds for termination — for example persistent failure to proceed regularly and diligently with the works, or the other party's insolvency — together with a notice procedure (often involving a warning notice followed by a further notice if the default continues) that must be followed precisely.

If a party terminates without a valid ground, or without correctly following the contract's notice requirements, that termination can itself amount to a repudiatory breach — meaning the "innocent" party accepting the situation and walking away can end up being the one exposed to a damages claim. Before serving any termination notice, it's worth taking advice on the specific grounds available, exactly what the notice provisions require, and the likely financial consequences for both sides if the termination is later challenged. If the dispute is heading towards a wider commercial claim rather than adjudication, our guide on business and commercial disputes covers the general routes available. Where the underlying issue involves the site or property itself rather than the works, see also our guide to commercial property law.

Common mistakes that create disputes

• Starting work before the contract terms are agreed and signed, leaving scope, price and payment terms to be reconstructed from emails and memory later.
• Missing a payment notice or pay less notice deadline — under the Construction Act, missing the deadline can mean paying the full notified sum regardless of the underlying value of the work.
• Agreeing verbal variations on site without following up in writing, then disputing the value or existence of the change later.
• Serving a termination notice without checking the contractual grounds and procedure first, risking a repudiatory breach claim.
• Assuming retention will simply be paid back automatically rather than tracking the release dates and confirming compliance with the contract's own terms.
• Treating the CDM 2015 duties as paperwork rather than genuine risk management, which is both a safety and enforcement risk.

What to do if you're facing a construction problem

1. Find and read the actual contract, not just the quote or the order. Identify the payment mechanism, the notice requirements, and any dispute resolution clause.
2. Check the notice trail. Work out what payment notices and pay less notices (if any) have been served, and on what dates, against the deadlines described above.
3. Don't miss a suspension or adjudication window. Both are powerful, fast tools under the Construction Act, but they depend on getting the procedural steps right.
4. Keep a written record going forward. Confirm instructions, variations and site discussions in writing as they happen, not after a dispute has started.
5. Take advice early if money or safety is at stake. Construction disputes tend to turn on precise dates, notices and contract wording — a short conversation early on is usually far cheaper than untangling the position later.

This guide provides general information about construction law in England and Wales. It is not legal advice and is not a substitute for advice tailored to your specific project or dispute. The law described was accurate as at August 2026 and is subject to change — always check GOV.UK and legislation.gov.uk for the most current position.

Last reviewed: August 2026 · Next review due: August 2027 or on legislative change.