Payment notices and pay less notices: a commercial manager’s checklist

Start with the contract and payment schedule

The statutory regime does not replace every contractual detail. The contract normally determines the due date, final date for payment, who gives the payment notice and the period before the final date by which a pay less notice must be served. If the contract fails to make adequate provision, the Scheme may supply terms.

Create a one-page payment calendar for the disputed cycle. Put every date next to the clause or statutory provision that generates it.

What should a payment notice contain?

Section 110A requires the relevant notice to state the sum that the payer or payee, as applicable, considers to be due at the payment due date and the basis on which that sum is calculated. The notice generally has to be given no later than five days after the payment due date.

Labels can mislead. A document called a “valuation” or “certificate” may potentially perform a notice function if the contract and content support that conclusion; conversely, a document called a “payment notice” may still be defective. Content, timing, contractual function and service all need checking.

What if the payer does not serve the required notice?

Section 110B provides a default-notice mechanism where the contract requires a payer or specified person to give the payment notice but that notice is not given. Depending on the contract, an earlier payment application may also be treated as the relevant notice. The effect on the final date for payment can be important, so the sequence has to be reconstructed carefully.

What must a pay less notice do?

A pay less notice states that the payer intends to pay less than the notified sum. It must state the sum the payer considers due at the date of the notice and the basis on which that sum is calculated. It must also be served within the required period before the final date for payment.

That period may be stated in the contract. If not, the Scheme may determine it. Service provisions — for example, whether notices may be emailed and when they are deemed received — can be as important as the document itself.

Commercial manager’s checklist

1. Executed contract and amendments.
2. Payment schedule and relevant clause numbers.
3. Due date for the disputed payment.
4. Payment application and evidence of service.
5. Payment notice and evidence of service, if any.
6. Default notice position if the required payer notice was absent.
7. Final date for payment.
8. Pay less notice deadline.
9. Pay less notice and evidence of service.
10. Calculation showing the notified sum.
11. Separate valuation/“true value” issues that may remain in dispute.
12. Correspondence showing what the parties have accepted or rejected.

Common mistakes

• Calculating the notice deadline from the wrong date.
• Ignoring amendments to a standard-form payment mechanism.
• Assuming an email was validly served without checking the service clause.
• Failing to state the basis of the sum in enough detail to perform the statutory function.
• Treating the immediate notified-sum question and the underlying valuation dispute as if they were always the same issue.