Disputes over interim payments often hinge on the technical validity of the parties’ notices, and one argument in particular has recently attracted attention: whether a defective payment notice can “contaminate” a later pay less notice, preventing the payer from making deductions. In Laing O’Rourke Delivery Ltd v Shepperton Studios Ltd, the Technology and Construction Court (TCC) has now addressed this issue directly.
Construction Act Provisions for Payment and Pay Less Notices
Payment processes in construction contracts are governed by the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009 (the Construction Act). A payment notice must state both the sum due and the basis of calculation, and if a valid payment notice is not issued, the contractor’s application becomes the notified sum. A payer can still reduce that sum by serving a compliant pay less notice before the final date for payment.
Case Summary: Laing O’Rourke v Shepperton Studios Ltd [2026]
In Laing O’Rourke Delivery Ltd v Shepperton Studios Ltd [2026] EWHC 612 (TCC), a dispute between the parties arose during an interim payment cycle under the construction contract. Laing O’Rourke (the Contractor) submitted an interim application for payment for more than £5.6 million, and Shepperton (the Employer) responded with a payment notice that certified a substantially lower sum of £2.4 million, without an explanation of how the figure was calculated.
As part of the same payment cycle, the Employer issued a pay less notice but with detailed deductions for liquidated damages and other project costs. Laing O’Rourke did not challenge the deductions, and instead advanced the argument that, as the pay less notice adopted a figure from an invalid payment notice, this invalidated the pay less notice. The adjudicator accepted this argument and awarded the full value of the interim application to the Contractor.
The dispute came before the TCC, where the key issue for the court to consider was whether the invalidity of the payment notice automatically rendered the pay less notice invalid.
Are Pay Less Notices Affected by Invalid Payment Notices?
The court firstly considered compliance of the Contractor’s payment notice with the Construction Act, which requires the payment notice to show how the valuation was reached. This explanation was missing from the claimant’s payment notice, and the notice was therefore invalid.
The court then considered whether the pay less notice was invalidated as a result of the defect. Although the payment notice and pay less notice arise within the same payment cycle, they serve different statutory purposes and must stand or fall on their own terms. As a result, there is no requirement for the validity of one notice to depend on the other, and the statutory scheme does not require a pay less notice to adopt or rely on the valuation in the payment notice, correct or otherwise.
The key issue is whether the pay less notice itself complied with the statutory requirements, which in the Employer’s case, was apparent. The pay less notice clearly identified the sum it intended to pay at the end of the payment cycle and explained the deductions, so it was therefore valid in its own right.
The court described the contamination argument as misconceived, as each notice is a self‑contained statutory step. The fact that the deductions had been applied to an incorrect starting figure did not affect the notice’s validity, and the Employer is not prevented from issuing a compliant pay less notice later in the cycle. After applying the valid deductions, the Court enforced the adjudicator’s decision but reduced the payable sum to reflect valid deductions in the Pay Less Notice, awarding the Contractor a reduced amount of £3.2 million.
Significance of the Judgment
Impact on Employers and Developers
The judgment provides important clarity for employers and developers administering interim payments. A pay less notice that is timely and clearly reasoned remains effective, even when a previous payment notice failed to comply with the Construction Act. This reduces the risk that administrative mistakes within payment notices will result in an obligation to pay the full amount of a contractor’s application.
The decision also reinforces good project management practice. Employers and developers should ensure that notices are complete, especially when instructing third-party consultants. The pay less notice serves as a final protective mechanism, provided it is self‑contained and the payment position is set out clearly.
Implications for Contractors
Contractors should be aware that they cannot rely on a defective payment notice to challenge a pay less notice. The pivotal issue is whether the pay less notice sets out the calculation and explains deductions clearly. Contractors are encouraged to scrutinise the content of the pay less notice, including whether the employer has properly identified and explained the basis of each deduction. If the pay less notice is sufficiently reasoned and complete, arguments based solely on defects in the payment notice will not be sufficient, and contractors must engage with the substance of the employer’s valuation.
Key Lessons
The judgment confirms that a defective payment notice does not invalidate a pay less notice if the pay less notice satisfies the requirements of the Construction Act regime. This reinforces the Construction Act’s focus on clarity and predictability and ensures that the payment process remains fair and workable, even if one stage of the notice sequence contains a defect.
If you have questions about interim payment disputes or require advice in navigating the Construction Act, contact Jed Temple in our Dispute Resolution team for expert guidance.
