Pay Less Notices: Lessons from Placefirst Construction Ltd v CAR Construction

The  process of managing payments and notices in the construction industry plays a vital role in ensuring the smooth progress of construction operations and financial stability between the parties to a construction contract. However, as the recent case of Placefirst Construction Ltd v CAR Construction [2025] EWHC 100 (TCC) demonstrates, missteps around the payment process can lead to protracted disputes and costly outcomes. This  judgment provides invaluable guidance on interpreting Pay Less Notices, Payment Notices, and Notified Sums under the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”).

Here, we consider the legal nuances of Payment Notices and Pay Less Notices, and their significance in avoiding “smash and grab” adjudications, explore the specifics of the Placefirst case and its implications, and offer contracting parties to mitigate risks in the future.

Understanding Payment Notices, Pay Less Notices, and Notified Sums

Before analysing the lessons from the Placefirst case, we must first look at the core terminology within the Construction Act regarding payments and notices:

• Payment Notices: Issued by the paying party (typically the employer or contractor), a Payment Notice must clearly set out the amount due under the contract to the payee (usually a contractor or subcontractor) by the agreed payment date and the basis on which that sum has been calculated. If the paying party fails to serve a valid Payment Notice, the payee’s application for payment will take effect as the default Payment Notice. The Payment Notice establishes the “Notified Sum” that must be paid unless challenged by the paying party.
• Pay Less Notices: This is the paying party’s opportunity to dispute the Notified Sum. It must be served within specific time limits prescribed by the Construction Act or the relevant contract. The notice must state the revised amount considered due (if any) and justify any reductions from the Notified Sum.
• Notified Sums: This represents the amount specified in a Payment Notice (or the default Payment Notice) and serves as the minimum amount the payee can expect to receive unless a valid Pay Less Notice is served within the stipulated timeframe.

Together, these notices form a structured payment mechanism designed to reduce uncertainty and ensure timely payments in construction projects. However, strict compliance with contractual and statutory notice periods is critical to upholding their validity, as highlighted in this recent case.

Case overview: Placefirst Construction Ltd v CAR Construction

The Placefirst case concerned a contract between Placefirst Construction Ltd (the  contractor) and CAR Construction (the subcontractor) on amended  JCT Design and Build 2016 sub-contract terms. The dispute arose after CAR submitted an interim payment application on 24 July 2024, claiming a sum of £867,031.36 plus VAT.

On 31 July 2024, Placefirst responded by email, attaching a Pay Less Notice and a spreadsheet titled “Valuation 30”. CAR contended that the Pay Less Notice was invalid because it was issued too early, arguing that the payment application had not yet become the default Payment Notice. Consequently, CAR initiated a “smash and grab” adjudication to recover the full amount, which the adjudicator awarded in its favour.

Placefirst contested this outcome through Part 8 proceedings, seeking declarations that its Pay Less Notice was valid and enforceable, and also argued that the spreadsheet titled “Valuation 30” was a valid Payment Notice. The case thus presented two central issues:

1. Was the Pay Less Notice issued prematurely, thus invalidating it under sections 111(2)(b) and (c) of the Construction Act?
2. Did the accompanying spreadsheet (Valuation 30) constitute a valid Payment Notice?

Timing of the Pay Less Notice

CAR argued that a valid Pay Less Notice cannot be served until the payer’s opportunity to issue a Payment Notice has passed, effectively making the payment application the default Payment Notice. This interpretation, CAR claimed, invalidated Placefirst’s Pay Less Notice for being issued “too early”.

The court firmly rejected this argument. It held that as long as a payment application has been submitted, the payer may immediately issue a valid Pay Less Notice, provided it satisfies the Act’s requirements as to content. This judgment underscores the importance of understanding the interplay between contractual due dates and statutory timelines. Strategy and precision are essential.

Substance over form in payment notices

The second issue was whether the spreadsheet titled “Valuation 30” constituted a valid Payment Notice. CAR maintained that Placefirst’s intention to issue a Pay Less Notice precluded any simultaneous intention to issue a Payment Notice.

The court adopted a pragmatic “substance over form” approach, determining that the spreadsheet clearly functioned as a valid Payment Notice. The document fulfilled its statutory purpose by specifying the sum Placefirst considered payable and the basis for the calculation of that sum. Importantly, the judge remarked that a Payment Notice does not need to be formally labelled as such, provided its intent and content are sufficiently clear.

The outcome reinforces flexibility in how Payment Notices can be presented, provided they meet the Act’s criteria. It also highlights the value of robust documentation practices to facilitate transparency and avoid ambiguity.

Financial and strategic implications

For CAR Construction, the invalidation of the adjudicator’s “smash and grab” decision resulted in a substantial financial setback, denying it the immediate payment of over £867,000. For Placefirst, the court’s decision safeguarded its cash flow and clarified that issuing both a Payment Notice and a Pay Less Notice at the same time was acceptable.

Industry lessons

The Placefirst decision underlines the importance of the following points:

• Adhere rigorously to timelines: Strict compliance with statutory and contractual deadlines is essential. Parties must ensure compliance with key dates for payment applications, Payment Notices, and Pay Less Notices to avoid unnecessary disputes.
• Prioritise clarity and completeness: Whether issuing Payment Notices or Pay Less Notices, clear communication is essential. Ensure notices explicitly outline the sum considered due, the basis for the calculation, and any supporting rationale for reductions.
• Maintain comprehensive records: Maintain detailed documentation of payment applications, notices, and related correspondence. This is vital for substantiating claims or defences in potential disputes.
• Seek legal advice before challenges escalate: The case demonstrates how minor procedural oversights can escalate into prolonged and expensive disputes. Proactively seek legal advice to ensure compliance with the Construction Act and contract terms, particularly where the contract is subject to bespoke amendments.
• Leverage experienced advisors: Legal and commercial expertise is critical to navigating complex construction payment systems. Engaging professionals who specialise in construction law can help mitigate risks, safeguard cash flow, and protect project relationships.

Secure your position in payment disputes

The Placefirst Construction Ltd v CAR Construction case has delivered welcome clarity on the timing and validity of Pay Less Notices within the Construction Act framework. However, with the continued prevalence of payment disputes and the prolific use of adjudications in the construction industry, the need for precise adherence to legal requirements has never been greater.

At Newmanor Law, we specialise in guiding contractors, subcontractors, and project owners through the complexities of construction law. Whether you need advice on payment disputes, compliance with the Construction Act, or bespoke contractual provisions, our team is here to help.