Payment notices, pay less notices and the risk of contamination: Lessons from Laing O’Rourke v Shepperton Studios 

Construction payment disputes are governed by strict statutory notice requirements. Under the Housing Grants, Construction and Regeneration Act 1996 (as amended), both employers and contractors must serve notices within defined timeframes and with prescribed content if they wish to preserve their position on payment. 

A question that had not been authoritatively resolved, until now, is what happens when a payment notice is defective. Does that deficiency carry forward and invalidate a subsequent pay less notice?

In Laing O’Rourke Delivery Ltd v Shepperton Studios Ltd [2026], the Technology and Construction Court (TCC) has provided a clear answer. The short answer is that a defective payment notice does not automatically contaminate a pay less notice. However, the ruling carries important lessons for employers and contractors about what each notice must contain in order to be effective.

The question the adjudicator got wrong

The dispute arose under a building contract between Laing O’Rourke Delivery Limited (LOR), the contractor, and Shepperton Studios Limited (SSL), the employer. LOR applied for an interim payment of £5,627,275 (Application for Payment 45). In response, SSL issued a payment notice in the sum of £2,420,516 but gave no breakdown of how this was calculated. SSL subsequently issued a Pay Less Notice which detailed various deductions totalling £2,428,615, bringing the balance due in respect of Application for Payment 45 down to zero.

When LOR commenced adjudication seeking payment of £5,627,275 under Application for Payment 45, the adjudicator found that the employer’s payment notice was defective. It stated a gross valuation figure without explaining how it had been reached. The adjudicator took matters one step further, concluding that this deficiency also rendered the employer’s subsequent pay less notice invalid, and awarded the contractor the full applied-for sum.

SSL resisted enforcement of the adjudicator’s decision on the basis that the pay less notice stood on its own merits: it clearly identified the deductions being made and explained the basis for each of them. The court agreed. The invalidity of a payment notice does not, as a matter of contractual logic or commercial sense, drag down a pay less notice that is otherwise properly valid.

A payment notice exists to communicate what the employer considers to be due and how that figure has been calculated. A pay less notice tells the contractor what deductions are being made, and why. These are separate questions. Failure to answer the first does not prevent a party from properly answering the second. The contract also provides that if a payment notice is defective, the contractor’s applied-for sum becomes the notified sum, but that outcome is expressly subject to any valid pay less notice. The two mechanisms operate in sequence, not as an indivisible package.

The result was commercially coherent. LOR was awarded £3,198,660, being the total of Application for Payment 45 less the deductions detailed in the Pay Less Notice. LOR received the benefit of the default payment mechanism triggered by the invalid payment notice, but SSL retained the right to make deductions it had properly notified. The employer was not penalised twice for the earlier failing.

What the findings mean for employers

The court’s treatment of the payment notice itself is a reminder that a lump sum figure, however accurately calculated, is not sufficient on its own. Clause 4.7.5 of the building contract required SSL to state the sum it considered due and to explain the basis on which that sum had been calculated by reference to the relevant contractual provisions. The notice failed that test. An unexplained reference to earlier spreadsheets was not enough to fill the gap.

This is consistent with the approach taken in S&T (UK) Ltd v Grove Developments Ltd [2018], which established that the necessary detail must appear in the notice itself, or in documents expressly incorporated by reference within it. Employers who assume that a recipient will piece together the required information from prior payment cycles, or from documents that exist but are not referenced in the notice, are taking a risk that this line of case law continues to punish.

Although the discipline required is not complicated, it demands deliberate attention each time. Before issuing a payment notice, employers should confirm that it shows its working. In other words, it identifies the gross valuation figure and explains how that figure has been reached by reference to the contractual valuation provisions. Where the calculation relies on external documents, those documents need to be clearly named and incorporated. Assuming the other side already has the information, or will know where to find it, is not a substitute.

Why pay less notices must stand alone

There is a strong message about pay less notices to take away from this decision, and it cuts both ways. On one hand, the ruling offers employers reassurance that a valid pay less notice can survive even where the preceding payment notice was defective. The contamination argument, which had succeeded before the adjudicator, did not survive scrutiny in the TCC.

On the other hand, that protection only applies where the pay less notice is itself properly constructed. LOR accepted that each of the three deductions in SSL’s notice was sufficiently detailed. Had any of them been vague or inadequately explained, the outcome might have been different. A pay less notice that relies on its predecessor to fill in the gaps, or that sets out deductions without adequately explaining their basis, will not be rescued by this decision.

For contractors, the implication runs in the other direction. The temptation when a payment notice is found to be defective is to assume that everything which followed it is tainted. This case makes clear that assumption is wrong. Before disputing the employer’s right to deduct, contractors need to assess the pay less notice on its own terms. Was it served on time? Does it identify the sums being withheld? Does it explain why? If the answers are yes, the deficiency in the payment notice may not assist.

Getting the notices right

Notices are not administrative formalities. They carry real legal consequences, and the courts assess them carefully. The principle that incorporated detail must be explicitly referenced rather than assumed continues to be applied rigorously, and parties who take a loose approach to notice preparation often find themselves on the wrong side of these decisions.

The decision will be welcomed by employers who were concerned that a single error in a payment notice might bring down the entire payment cycle. But it is not a licence for complacency. Both notices still need to do their jobs properly, and the safest approach remains unchanged. Check the contractual requirements before issuing any notice, ensure the content is self-contained and accurate, and do not rely on the recipient to fill in what is missing.

Lessons learned

Cases like Laing O’Rourke v Shepperton Studios are a useful reminder that the construction payment regime is designed to be navigated carefully, not improvised. Each notice in the payment cycle has a defined role, and the courts will hold parties to that. The decision resolves uncertainty in favour of common sense, but it does not soften the underlying discipline that the regime demands.

At Newmanor Law, we advise developers, employers, and contractors on construction payment obligations, notice compliance, and dispute resolution. Whether you are looking to ensure your payment procedures are robust before a dispute arises, or need support once one has, our team would be glad to help.