Fail to Comply, the Scheme will Apply: Deerns UK Ltd v VDC LHR11 Ltd [2026] EWHC 1509 (TCC)

The TCC has once again highlighted the importance of ensuring that payment provisions within construction contracts comply with the requirements of the Housing Grants, Construction and Regeneration Act 1996 (“the Act”), otherwise the Scheme for Construction Contracts (“the Scheme”) will apply which may cause unintended consequences.

The Facts

The Claimant, Deerns UK Ltd, was engaged by the Defendant under a consultancy agreement (“the Contract”) to provide engineering consultancy services. A dispute arose between the parties in relation to whether two pay less notices served by the Defendant had been served on time in response to the Claimants applications for payment 7 and 8.

Under the Contract, the due dates for each interim payment were fixed in accordance with a Schedule of Valuations Dates. The final date for payment was then 30 days from the relevant due date, save that if the consultant issued its invoice late, the final date for payment would be postponed by the same number of days by which the Consultant’s invoice was late. This essentially meant that the final date for payment could shift depending on when the consultant submitted its application for payment.

The issue for the court was to determine whether the payment provisions within the Contract were compliant with the Act.

The Law  

Secion 110(1) of the Act provides that every construction contract must:

• provide an adequate mechanism for determining what payments become due under the contract, and when, and
• provide for a final date for payment in relation to any sum which becomes due.

The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.

The Act also provides that, where a construction contract fails to include a provision required by the Act, the Scheme will apply so far as is necessary.

Paragraph 8 of the Scheme provides that where the parties to a construction contract fail to provide a final date for payment in relation to any sum which becomes due under a construction contract, the final date for payment shall be 17 days from the date that payment becomes due.

The Judgment

The courts have held on a number of occasions that the wording of s110(1) means that the final date for payment must be determined solely by the reference to the due date for payment i.e. a certain number of days from the due date. The only autonomy the parties have been granted by the legislation in this regard is the number of days between the due date and final date for payment.

The judge followed that same principle and held that the payment terms in the Contract were not compliant with the Act, as the final date for payment was not determined solely by reference to the due date. The issue being that, whilst the due date was fixed by the Schedule of Valuation Dates, the final date for payment varied depending on when the consultant issued its invoice. The judge therefore found that the Contract did not adequately provide for a final date for payment and the Scheme was to be implied.

This meant that the final date for payment was 17 days from the due date (rather than the 30+ days from the due date as stated in the Contract) and both of the pay less notices served by the Defendant were out of time. The Defendant was therefore required to pay the Claimant the total sum claimed of just over £900k.

Our Takeaway

It goes without saying that certainty of payment terms is vital for both parties to a construction contract. This case serves as a useful reminder to any party entering into a construction contract to ensure that when drafting and/or amending payment terms, these must comply with the Act, otherwise the Scheme will apply and may, as a result, provide payment terms which neither party had anticipated.

It is worth noting, and was also pointed out by the judge, that the payment terms the parties were attempting to achieve could have been done effectively if they had been drafted differently i.e. making the due date dependant upon the date of the consultant’s application rather than the final date (which is essentially the position in standard form building contracts such as the JCT DB 2024).

As ever, parties should exercise caution when making amendments to the payment provisions of industry standard forms of contract and/or drafting bespoke terms and conditions and we would recommend legal advice is sought in this regard, as there can be severe financial consequences