Late Payments in Construction: Your Rights
TL;DR
Late payment is the single biggest cash-flow risk for UK construction SMEs. Build UK's payment performance reporting consistently shows even Tier 1 contractors take 30+ days on average to pay. The Housing Grants, Construction and Regeneration Act 1996 (the "Construction Act") gives most construction contracts statutory rights including: a right to interim payment, a clear payment notice regime, the right to suspend work for non-payment and the right to refer disputes to adjudication. The Late Payment of Commercial Debts (Interest) Act 1998 also lets you charge statutory interest of 8% over the Bank of England base rate, plus fixed compensation.
Table of Contents
1. How Bad Late Payment Really Is
Build UK publishes payment performance data for its main contractor and client members twice a year. Across recent reporting periods, average payment days for Tier 1 contractors have consistently sat in the 30–45 day range, with some companies reporting average days well above 50.
The Federation of Small Businesses and the Small Business Commissioner have repeatedly highlighted that construction is the sector worst affected by late payment in the UK. The Insolvency Service's quarterly statistics show construction has the highest number of company insolvencies of any industry in England and Wales, with cash flow a leading cause.
For a sole trader or micro-business, even a 30-day delay on one significant invoice can mean missed VAT or CIS payments, missed van leases or wages, and serious personal stress. Mates in Mind and the Lighthouse Construction Industry Charity both flag financial worry as a major contributor to poor mental health in the trade.
The good news is that UK law on late payment in construction is unusually strong, thanks to the Housing Grants, Construction and Regeneration Act 1996 (often shortened to the Construction Act or HGCRA). Most contractors don't realise quite how much it gives them.
2. The Construction Act in Plain English
The Construction Act applies to most "construction operations" in the UK, including site preparation, erection of buildings, repairs, decoration, demolition and installation of fittings such as heating, lighting and plumbing. There are some carve-outs (notably for purely residential work where the client lives or intends to live in the property), but most B2B construction contracts are caught.
Where the Act applies, every construction contract must include certain features by law. These include: a right to interim or stage payments where the work lasts more than 45 days, an adequate payment mechanism, the requirement for payment and pay-less notices, the right to suspend work for non-payment, and the right to refer any dispute to adjudication "at any time".
If your written contract is silent on any of these, the Scheme for Construction Contracts (England and Wales) Regulations 1998 — and equivalent regulations in Scotland and Northern Ireland — automatically fill in the gaps. So even an informal contract on a small subbie job inherits these rights by default.
The Local Democracy, Economic Development and Construction Act 2009 strengthened the original Act by, among other things, banning "pay-when-paid" clauses except in narrow cases (insolvency of the ultimate client) and tightening the notice regime. That is why pay-when-paid terms in modern subcontracts are usually unenforceable.
3. Payment Notices and Pay-Less Notices
Under the amended Construction Act, every payment cycle has a "due date" and a "final date for payment". The party making payment (usually the contractor) must issue a "payment notice" within 5 days of the due date setting out the sum it considers due and how it has been calculated.
If the payer fails to issue a payment notice, you (the payee) can issue a "default payment notice" stating the sum you consider due. That sum then becomes the "notified sum" — and unless the payer issues a valid "pay-less notice" before the prescribed deadline, they must pay it in full by the final date for payment.
This is sometimes called the "smash and grab" route to payment. Numerous high-profile Technology and Construction Court (TCC) cases — including ISG v Seevic (2014) and S&T v Grove (2018) — have confirmed that, where the payer fails to issue valid notices, the payee is entitled to be paid the notified sum, and any later argument about true value comes second.
In practical terms: if you keep clear records, send accurate applications/invoices on time and watch the dates, the law gives you very strong cards to play. Your lever is procedural, not just contractual.
4. Statutory Interest and Compensation
Where the Construction Act doesn't already provide a remedy, the Late Payment of Commercial Debts (Interest) Act 1998 lets you charge statutory interest on overdue invoices between businesses. The current statutory rate is 8% above the Bank of England base rate.
You can also claim a fixed compensation amount — £40, £70 or £100 per invoice depending on the size of the debt — to cover the cost of recovering the money. These amounts are set out in the 1998 Act and apply automatically; you do not need to have included them in your contract.
If your contract gives you a contractual interest rate, you can rely on that instead. But you cannot use a token contractual rate to oust the statutory protection — the courts will set aside contract terms that try to give you a "remedy" that is, in reality, no remedy at all.
Charging statutory interest is straightforward: include the calculation and the fixed compensation on your follow-up invoice, with a clear reference to the 1998 Act. Many clients pay quickly once they see you actually know your rights, because it signals you are organised and willing to escalate.
5. Suspending Work and Going to Adjudication
Under section 112 of the Construction Act (as amended), if a notified sum is not paid by the final date for payment, you have the right to suspend performance of any or all of your obligations under the contract. You must give at least 7 days' notice in writing, specifying the grounds for suspension.
If you suspend, you are entitled to a reasonable extension of time and the cost of suspension and remobilisation when the payer eventually pays. Done properly, suspension is a powerful and lawful pressure tool — but you must give the right notice and document everything.
Adjudication is the headline remedy of the Construction Act. Either party can refer a dispute to an adjudicator at any time. The process is fast — the adjudicator must usually issue a decision within 28 days of referral, extendable to 42 days with the referring party's consent — and the decision is binding unless overturned by court or arbitration.
Adjudication isn't free, but it is far cheaper and faster than litigation. For payment disputes in particular, several specialist construction solicitors offer fixed-fee adjudication packages aimed at SMEs. The TCC's high enforcement rate of adjudicator decisions — well over 90% in recent years — is what makes this remedy so effective.
6. How to Protect Yourself Up Front
Always have a written contract or written terms in place before you start. Even a one-page schedule of works with payment dates, prices and the words "the Construction Act 1996 applies" is dramatically better than a verbal agreement. Use industry-standard forms (JCT, NEC, FMB) where you can.
Insist on clear payment dates. Specify when you will issue applications/invoices, the due date, the final date for payment, and the notice deadlines. Where you are subcontracting, look out for unusually long final dates or convoluted notice regimes — they are red flags.
Check the client's payment performance. For Build UK members, you can review their published average payment days. For others, Companies House accounts and the Government's Payment Practices and Performance reports are searchable for free and tell you how long a company really takes to pay.
Finally, don't be shy about using the law. Polite, organised contractors who clearly know their statutory rights — payment notices, statutory interest, suspension, adjudication — get paid faster than those who don't. Set up your accounting software to flag overdue invoices automatically and act on them within days, not weeks.