Housing Grants, Construction and Regeneration Act 1996
Housing Grants, Construction and Regeneration Act 1996 c.53 (as amended by the Local Democracy, Economic Development and Construction Act 2009)
This content was produced with the help of AI and may contain mistakes or be out of date. Check clause numbers, dates and statutory details against the primary source before relying on them. Disclaimer
Why This Matters for Part 3
HGCRA 1996 (often called 'the Construction Act') underpins every payment dispute and every adjudication on a construction contract in the United Kingdom. Part 3 examiners test the statutory payment notice mechanism, the timetable for Pay Less Notices, the contractor's right to suspend for non-payment, the statutory right to adjudication, the scope of the Scheme for Construction Contracts when a written contract is silent, and the limits on what counts as a construction contract. The 2009 amendments (in force 1 October 2011 in England and Wales) are part of the live statute and routinely appear in oral questions on payment notices.
HGCRA 1996 is the statutory floor for construction payment and dispute resolution in the United Kingdom. Part II of the Act applies to construction contracts (defined at section 104) executed after 1 May 1998 and amended by the Local Democracy, Economic Development and Construction Act 2009. The Act gives a contractor or consultant: a statutory right to interim payment; a Payment Notice and Pay Less Notice regime that overrides contract terms which fall short; a right to suspend performance for non-payment on 7 days' notice; and a statutory right to refer any dispute to adjudication at any time, with a 28-day decision (extendable to 42 days with the referring party's agreement). Where a written contract is silent or non-compliant, the Scheme for Construction Contracts (SI 2011/2333 in England) is implied as a statutory default. JCT and NEC standard forms are drafted to comply with the Act, but bespoke contracts and consultant appointments must be checked carefully.
Statutory Payment Provisions
Right to Payment by Instalments
HGCRA 1996 s.109
A party to a construction contract is entitled to payment by instalments, stage payments, or other periodic payments for any work under the contract, unless the contract is for a duration of less than 45 days or the parties agree it will last less than 45 days. The parties are free to agree the amounts and intervals of payments. If they do not, the relevant provisions of the Scheme for Construction Contracts apply.
Section 109 is the gateway: it secures the right to instalment payments. The detail of how those instalments are calculated and when they fall due is in section 110 and the parties' contract (or the Scheme).
Dates for Payment
HGCRA 1996 s.110
Every construction contract must provide an adequate mechanism for determining what payments become due and when, and a Final Date for Payment in relation to any sum becoming due. The parties may agree the period between the due date and the Final Date for Payment. If the contract does not provide an adequate mechanism, the Scheme for Construction Contracts steps in to supply one.
Prohibition on Pay When Paid
HGCRA 1996 s.113
Pay-when-paid clauses are ineffective unless the third party from whom payment is contingent is insolvent. A main contractor cannot use a chain of pay-when-paid clauses to insulate itself from paying sub-contractors when an upstream employer is slow to pay. This is a key statutory protection for sub-contractors and consultants further down the supply chain.
Payment Notice and Pay Less Notice
Payment Notice Required
HGCRA 1996 s.110A
Section 110A (inserted by the 2009 Act) requires a Payment Notice to be served in relation to every payment due under a construction contract. The contract must specify whether the notice is served by the payer (e.g. employer) or by a specified person (e.g. Contract Administrator), or by the payee (e.g. contractor by way of application). The notice must specify the sum considered due at the payment due date and the basis of calculation. Without an effective Payment Notice, the payee's application becomes the notified sum by default.
Know the default position: if the payer was due to serve a Payment Notice and fails to, the payee can issue a Default Payment Notice (or, under JCT DB, the original application becomes the Payment Notice). Either way, the payer cannot escape the consequences of failing to issue a notice on time.
Pay Less Notice Required to Deduct
HGCRA 1996 s.111
Section 111 is the protection: the payer must pay the notified sum on or before the Final Date for Payment, unless it has served a valid Pay Less Notice not later than the prescribed period before the Final Date for Payment. The Pay Less Notice must specify the sum the payer considers due on the date the notice is served and the basis of calculation. The prescribed period defaults to 7 days but may be varied in the contract.
Section 111 is the silver bullet for unpaid contractors and consultants. If no Pay Less Notice has been served, the notified sum is due in full and can be recovered in adjudication on a 'smash and grab' basis without any inquiry into the true valuation. ISG Construction v Seevic College 2014 EWHC 4007 (TCC) is the leading authority.
Calculation of the Notified Sum
HGCRA 1996 s.110A(3) and (4); s.111(2)
The notified sum is the sum stated in the most recent of: the payer's Payment Notice, the specified person's Payment Notice, or the payee's payment application that operates as a default notice. It is this sum, not the 'true' value of the work, that the payer must pay unless a valid Pay Less Notice reduces it. The case of Grove Developments v S&T 2018 EWCA Civ 2448 confirmed that the payer can subsequently bring a 'true value' adjudication, but only after first paying the notified sum.
Right of Suspension for Non-Payment
Statutory Right
HGCRA 1996 s.112
Where a sum payable in pursuance of the contract is not paid in full by the Final Date for Payment and no effective Pay Less Notice has been given, the unpaid party may suspend performance of any or all of its obligations under the contract. The right arises only where the notified sum is unpaid, not merely because the parties dispute valuation.
The right is to suspend 'any or all' obligations. This was widened by the 2009 amendments: previously only the whole contract could be suspended. Selective suspension can now be used as a more proportionate tool.
7 Days' Written Notice
HGCRA 1996 s.112(2)
The unpaid party must give the payer at least 7 days' written notice of its intention to suspend, stating the ground or grounds on which the suspension is to be made. Suspension without notice is a breach. If the notified sum is paid within the 7-day period, the right to suspend ceases for that breach.
Effect of Suspension and Right to Costs
HGCRA 1996 s.112(3) and (3A); s.112(4)
Suspension does not constitute a breach of the suspending party's obligations. The period of suspension is disregarded for the purpose of computing the time taken to complete the works (i.e. the suspending party gets an extension of time). The suspending party is also entitled to a reasonable amount of costs and expenses reasonably incurred as a result of the suspension. The 2009 amendments added the statutory right to costs at section 112(3A).
Right to Adjudication
Statutory Right at Any Time
HGCRA 1996 s.108(1)
A party to a construction contract has the right to refer a dispute arising under the contract to adjudication at any time. The right cannot be ousted by the contract. 'Dispute' is broadly construed (Halki Shipping v Sopex Oils 1998 [2] All ER 23) and includes any matter where one party makes a claim and the other does not unequivocally accept it.
'At any time' really means at any time: before completion, after completion, before practical completion, after the Final Certificate (subject to conclusivity), and even during another adjudication. This makes adjudication an extremely flexible tool for cash flow and dispute resolution.
28-Day Timetable
HGCRA 1996 s.108(2)(c) and (d)
The contract must provide a timetable that secures the appointment of an adjudicator and the referral of the dispute within 7 days of the giving of a notice of intention to adjudicate, and requires the adjudicator to reach a decision within 28 days of referral. The 28-day period may be extended by up to 14 days (to 42 days) with the consent of the referring party. Any longer extension requires the consent of both parties.
Binding Nature of the Decision
HGCRA 1996 s.108(3)
The adjudicator's decision is binding until the dispute is finally determined by litigation, arbitration, or agreement. The parties must comply with the decision (typically a payment direction) and may then pursue 'true value' through later proceedings if they wish. This 'pay now, argue later' principle (Macob Civil Engineering v Morrison Construction 1999 BLR 93) is the engine of cash-flow protection.
Adjudicator's Immunity and Costs
HGCRA 1996 s.108(4) and (5); Late Payment of Commercial Debts Act 1998
The adjudicator is not liable for anything done or omitted in the discharge of their functions unless the act or omission is in bad faith. Each party bears its own legal costs (the adjudicator usually directs which party pays the adjudicator's fees). For payment claims, the unpaid party can also recover interest under the Late Payment of Commercial Debts (Interest) Act 1998 at 8% above the Bank of England base rate, plus a fixed sum and reasonable recovery costs.
The Scheme for Construction Contracts
Statutory Default Regime
Scheme for Construction Contracts (England and Wales) Regulations 1998, as amended by SI 2011/2333
Where a construction contract does not include provisions complying with sections 108 (adjudication), 109, 110, 110A, 110B, 111, 112, or 113 of the Act, the relevant Part of the Scheme for Construction Contracts is implied in. The Scheme operates as a statutory default. The 2011 amendments (in force 1 October 2011 in England and Wales) brought the Scheme into line with the changes introduced by the 2009 Act.
The Scheme rarely applies to JCT or NEC standard forms because they are drafted for compliance. It applies most often to bespoke contracts, simple letters of intent, oral or part-oral construction agreements, and consultant appointments that have not been updated for the 2009 changes.
Adjudication Provisions Implied
Scheme Part I (Adjudication)
Part I of the Scheme provides the statutory adjudication regime: a default mechanism for appointing the adjudicator (typically via a nominating body), the 28-day decision timetable, the adjudicator's powers, and rules on costs. Where a contract has no adjudication clause, the Scheme's adjudication procedure is read in by operation of law.
Payment Provisions Implied
Scheme Part II (Payment)
Part II of the Scheme supplies default payment periods and notice rules. The default due date is 7 days after the relevant period or the making of a claim; the default Final Date for Payment is 17 days after the due date; the default Pay Less Notice period is 7 days before the Final Date for Payment. These defaults apply only where the contract itself lacks compliant provisions.
Construction Contracts in Scope
Definition of a Construction Contract
HGCRA 1996 s.104
A construction contract is an agreement with a person for the carrying out of construction operations, arranging for construction operations to be carried out by others, or providing labour for construction operations. The definition also expressly includes contracts for architectural, design, or surveying work, and contracts for advice on building or engineering operations. This is why the Act applies to architects' appointments such as the RIBA PSC 2020.
Be ready to confirm that an architect's appointment is a construction contract within section 104(2). This is the route by which the payment notice regime and the statutory right to adjudication apply to consultant fee disputes.
Construction Operations
HGCRA 1996 s.105
Section 105(1) lists what counts as construction operations: construction, alteration, repair, maintenance, extension, demolition, or dismantling of buildings or structures; works forming part of land; installation of fittings; site clearance and preparation; and certain external works. Section 105(2) lists exclusions, including drilling for oil and gas, mineral extraction, and the manufacture or delivery of components off-site (unless the contract also provides for installation).
Residential Occupier Exclusion
HGCRA 1996 s.106
The Act does not apply to construction contracts with a residential occupier. A residential occupier is a person who occupies, or intends to occupy, the dwelling as their residence. This carve-out means a homeowner commissioning works to their own home is not subject to the statutory payment regime or the right to adjudication. The architect's appointment for such a project is also outside the Act unless the homeowner agrees otherwise.
If a client is a private homeowner doing works to their own home, do NOT assume the HGCRA 1996 payment notice regime applies. It does not, unless the contract opts in. This affects the architect's fee recovery options and is a common Part 3 oral question on domestic projects.
Written Contract Requirement (Now Removed)
HGCRA 1996 s.107 (repealed); 2009 Act s.139
Originally the Act applied only to construction contracts in writing (former section 107). The 2009 Act repealed this requirement: since 1 October 2011 (in England and Wales) the Act applies to all construction contracts, whether in writing, oral, or partly in writing. The adjudication and payment provisions of the Act now apply even to handshake deals, with the Scheme supplying the missing terms.
Default Payment Notice and threatened suspension while the CA is on leave
Scenario
You are the Contract Administrator on a £4.2m JCT SBC 2024 school extension. The contractor submitted its monthly Interim Application on 1 May for £380,000. The Interim Valuation Date was 30 April. You were due to issue the Interim Certificate by 5 May (5 days after the due date) but you were on annual leave from 30 April to 14 May. No one in your office issued the certificate. The employer also failed to issue a Pay Less Notice. On 30 May (Final Date for Payment), £380,000 was due and unpaid. The contractor wrote on 31 May threatening to refer the matter to adjudication and to serve a 7-day suspension notice under HGCRA 1996 section 112. You return to the office on 15 May to find the situation.
Analysis
The CA's failure to issue an Interim Certificate by the prescribed date means there was no effective Payment Notice from the specified person under HGCRA 1996 section 110A. Under JCT SBC 2024 clause 4.11.2, the contractor's Interim Application then takes effect as the Payment Notice and £380,000 is the notified sum. The employer's failure to serve a Pay Less Notice at least 7 days before the Final Date for Payment (clause 4.12.5; HGCRA 1996 section 111) means the notified sum must be paid in full. There is no inquiry into the 'true' valuation at this stage. ISG v Seevic College 2014 confirmed that the unpaid party can recover the full notified sum by adjudication without any inquiry into valuation: the so-called 'smash and grab' adjudication. The contractor's 7-day suspension right under section 112 is engaged. If the £380,000 is not paid within 7 days of the suspension notice, the contractor may suspend any or all of its obligations without breach. The contractor is also entitled to costs and an extension of time for the suspension period (section 112(3) and (3A)). The CA's professional position: the failure to certify is a breach of the CA's contractual duty to the employer. The employer may have a claim against the CA's practice for the consequences (suspension costs, EoT, adjudication fees). The CA should notify their PII insurer immediately, advise the employer to pay the notified sum without delay, and start work on a Pay Less Notice for the NEXT payment cycle to recover any over-payment under a 'true value' adjudication (per Grove Developments v S&T 2018).
Outcome
On the CA's advice the employer pays the £380,000 in full to avoid suspension and adjudication costs. The CA's practice notifies its PII insurer of a potential claim. The CA issues the next month's Interim Certificate on time at a value reflecting the true work done, with appropriate adjustment for any over-valuation in the May application. The CA's practice introduces a deputy CA cover arrangement so that future leave does not cause a missed certificate. The incident is a textbook example of why HGCRA timetables are non-negotiable.