Pay Less Notices – The Importance of Following the Pay Less Regime

7 December, 2017
by: Cripps Pemberton Greenish

In a recent case1 a firm of architects claimed an entitlement to recover fees following termination of its appointment. The case turned on whether the pay less regime applies to payments due following termination of the contract.

The Facts

The facts of this case were that a property developer wanted to build homes on land at Loddon in Norfolk. It appointed an architect firm to complete the design work with a fee agreed of £156,275. The architect firm’s appointment was based on the standard conditions of appointment published by RIBA (“the Appointment”).

The developer later decided to proceed with another architect’s design and work ceased. An invoice was sent to the developer claiming £46,239 for work done up to that stage. The developer did not serve a Pay Less Notice or pay the architect any money.

The Legal Dispute

An adjudication was commenced by the architect and it was awarded the money that it claimed based on the non-provision of a Pay Less Notice. The developer issued a court claim for a declaration that the pay less regime did not apply to the invoice submitted, as it was submitted post termination of the Appointment.

The developer argued that the Appointment had come to an end and alternatively, if it was still in existence, the Appointment did not require the service of a Pay Less Notice in respect of the architect’s invoice because that was a final account in accordance with the RIBA terms of the Appointment, which took it outside of the pay less regime. The TCC found in favour of the developer.

The architect took the matter to the Court of Appeal, which looked at the wording of the Construction Act 1996 and the adjudication provisions. Those provisions, and in particular Sections 110 and 111 of the Construction Act 1996, were summarised as giving the contractor the right to refer issues concerning interim payments or the final account to adjudication, with the employer having to pay whatever the adjudicator orders and then having to claw back any overpayment later. Accordingly, the pay less provisions should apply to both interim and final applications for payment and so, if the developer in this case wished to resist paying the architect’s final account or termination account, then it should have served a pay less notice.

The provision of Pay Less Notices is clearly a key part of the project management of a construction project and employers and their advisers are generally getting better at avoiding the situation where contractors’ payment applications become due in full due to the failure to provide a Pay Less Notice. This case provides helpful guidance that shows that considering whether the pay less regime applies is key irrespective of whether interim payments or the final account are concerned.

1 Adam Architecture Limited v Halsbury Homes Limited [2017] EWCA Civ 1735