Key Takeaways
- Deerns UK v VDC LHR11 confirms that an event-based final payment date can fail Construction Act payment compliance.
- Section 110 requires the final date for payment to remain a fixed period after the due date.
- A non-compliant clause triggers the Scheme. Payment then falls 17 days after the due date, and pay less notices must be served at least five days before that final date.
- Late pay less notices can leave a payer liable for the full notified sum, despite underlying disputes or cross-claims.
- A course of dealing rarely saves defective terms without clear evidence that both parties shared and communicated the same assumption.
- Audit construction contract payment terms and notice systems promptly, and take advice before serving or challenging any payment notice.
- Go Legal is rated Excellent with over 300 five-star reviews and 5/5 on Trustpilot and Google, placing our solicitors among the best-reviewed litigation lawyers in England and Wales.
What Does Deerns UK v VDC LHR11 Mean for Construction Act Payment Compliance?
A £910,501.71 consultancy payment dispute has exposed a serious risk in construction contracts. In Deerns UK Limited v VDC LHR11 Limited [2026] EWHC 1509 (TCC), the Technology and Construction Court held that a final date for payment could not lawfully move because the payee’s application was late. The clause failed Construction Act payment compliance, even though the parties plainly intended a 30-day payment period.
The consequence for the paying party was severe. The Scheme for Construction Contracts replaced the 30-day period with a 17-day one. The employer’s pay less notices became out of time, and judgment was entered for the full sums claimed. Any employer, main contractor or consultant whose contract adjusts the final date for late invoices, applications or certificates faces the same exposure.
If you are reviewing construction contract payment terms or facing a payment dispute in England and Wales, our solicitors can assess the clause, the notice deadlines and the enforcement risk. Call 0207 459 4037 or book a free consultation.
What Does Construction Act Payment Compliance Require for a Final Date for Payment?
Construction Act payment compliance requires a construction contract to set a final date for payment that is a fixed period after the due date.
Under section 110(1)(b) of the Housing Grants, Construction and Regeneration Act 1996, every construction contract must provide a final date for payment for any sum that becomes due. The parties are free to agree how long the period is between the due date and the final date. They cannot use a separate event or mechanism to make that period longer or shorter.
The provisions that work together are:
- Section 109: an entitlement to instalment, stage or periodic payments, subject to stated exceptions.
- Section 110(1)(a): an adequate mechanism for determining what payments become due and when.
- Section 110(1)(b): a final date for payment for every sum due, with the parties choosing only the length of the period after the due date.
- Section 110(3): the relevant Scheme provisions apply where, or to the extent that, the contract lacks the required provisions.
- Section 111: the notified sum must be paid by the final date unless a valid pay less notice is served within the prescribed period.
Where the Scheme applies, the final date for payment is 17 days after the due date. A pay less notice must be served not less than five days before that final date.
This applies to building contracts and professional appointments alike. A clause can use a mechanism to calculate the due date. It cannot leave the due date unchanged while extending the final date because an invoice, application, certificate or other document arrives late.
A payment timetable usually involves several separate dates and documents:
- Valuation date: the date on which work or services are assessed.
- Application date: the date by which the payee submits its payment application.
- Due date: the date on which payment becomes due.
- Final date for payment: the last date for paying the notified sum.
- Payment notice: a notice stating the sum the payer considers due.
- Pay less notice: a notice explaining why the payer intends to pay less than the notified sum.
What Happened in the Construction Payment Dispute Behind This Decision?
The dispute arose from an engineering consultancy appointment for a development at Chandos Park Estate, London NW10.
By a consultancy agreement dated 23 April 2025, VDC LHR11 Limited engaged Deerns UK Limited to provide engineering consultancy services. The fee was charged on a time basis and invoiced monthly under Schedule 1.
Clause 7.2 stated that the application date and due date for each instalment were the specified dates in Schedule 1. The final date for payment was 30 days after the due date. The clause then added a postponement mechanism: if Deerns’ invoice was late, the final date moved back by the same number of days. The parties agreed that “invoice” in clause 7.2 meant Deerns’ payment application, not the later invoice issued after the payment notice.
Clause 7.3 required any pay less notice to be served no later than five days before the final date.
Two payment cycles were in dispute:
- Application 7 was submitted on 28 January 2026 for £943,587.77, with a due date of 4 February 2026. VDC issued a payment notice on 9 February 2026 for £555,855.60 and a pay less notice on 27 February 2026.
- Application 8 was submitted on 27 February 2026 for £873,080.45, with a due date of 6 March 2026. VDC issued a payment notice on 11 March 2026 for £354,616.11 and a pay less notice on 25 March 2026.
Deerns claimed £910,501.71 plus VAT, the balance it said remained due under Applications 7 and 8. Its case was that:
- the postponement clause made the final date variable and failed the statutory requirement;
- the Scheme for Construction Contracts applied;
- the final dates fell 17 days after the due dates;
- VDC’s pay less notices were out of time; and
- Deerns was entitled to the notified sums in full.
VDC argued that late applications moved both the due date and the final date, keeping a constant 30-day interval. It also relied on estoppel by convention, argued that the Scheme should preserve the 30-day payment period and sought a stay of execution. The claim proceeded under CPR Part 8 as a notified-sum, or “smash and grab”, claim.
What Questions Did the Court Have to Decide About the Payment Timetable?
The court had to decide whether the written payment mechanism complied with the Housing Grants, Construction and Regeneration Act 1996 and, if not, whether VDC could avoid the consequences.
Did a Late Payment Application Move the Due Date or Only the Final Date for Payment?
VDC argued that the formulae in the Schedule of Valuation Dates had priority and made the due date seven days after the actual application. Deerns argued that the contract had to be read as a whole, the due date stayed fixed and only the final date moved when an application was late.
The distinction was decisive. If the due date stayed fixed while the final date moved, the gap between them could vary.
Can a Final Date for Payment Depend on an Event?
VDC argued that an event occurring before the due date should be treated differently from one occurring afterwards. Deerns argued that the only question was whether the interval between the due date and final date remained fixed.
Can a Course of Dealing Save a Non-Compliant Payment Clause?
VDC alleged a shared understanding that a late application replaced the scheduled valuation date and caused every later date to be recalculated, producing a revised due date and a final date 30 days later. The court also had to decide whether that issue needed pleadings, disclosure and cross-examination rather than determination under CPR Part 8.
Can the Scheme Be Altered to Preserve the Parties’ Intended Payment Period?
VDC argued that, if the Scheme applied, it should be incorporated with the least possible change to the contract, leaving an unextendable 30-day period after the due date. Deerns argued that paragraph 8 of the Scheme applied as written, giving 17 days.
Can a Payer Delay Enforcement Because It Has a Cross-Claim or Solvency Concerns?
VDC sought a stay of execution. It alleged that Deerns was insolvent or unable to repay and relied on its own claims relating to the true value of the services and design issues.
How Did the Court Decide the Event-Based Final Payment Date Dispute?
The court held that the payment clause did not provide a Construction Act-compliant final date for payment. Subject to submissions on the form of the order, judgment was entered for Deerns in the amounts claimed.
Why Did the Court Find That Only the Final Date Could Move?
The court held that the contract fixed the interim valuation dates and due dates, while allowing only the final date to move when an application was late.
The Schedule of Valuation Dates did not have priority over clause 7.2. Its formulae explained how the listed dates had been calculated. They did not require a fresh calculation each month based on when Deerns actually applied.
The wording also required an application to state the sum due “as at the due date”. That assumed the due date existed independently of the application. The reference to an application being “issued late” also assumed a fixed deadline by which it should have arrived.
VDC’s reading would have replaced the agreed valuation date with whatever date Deerns happened to apply, amounting to a wholesale rewriting of the contract. The statutory requirement was relevant context, but it could not justify a strained reading. As the court put it:
“This is not a case where there are two equally legitimate interpretations where it is open to the court to adopt that which avoids any failure to comply with the HGCRA.”
A late application could therefore push the final date more than 30 days after the due date, causing the interval to vary.
Why Must the Period Between Due Date and Final Date Be Fixed?
Section 110(1)(a) gives parties flexibility over how the due date is established. Section 110(1)(b) is narrower. The parties can choose the length of the period between the due date and the final date, but not a mechanism that changes that length by reference to an event.
“It is open to parties to have a mechanism which varies the due date for payment but they must provide for a fixed period (the length of which is open to the parties) between the due date for payment, whenever and however that date is established, and the final date for payment.”
The court rejected VDC’s argument that a pre-due-date event should be treated differently:
“It matters not whether the event having that effect is before or after the due date for payment.”
Clause 7.2 made the final date depend on the date of the application rather than solely on the due date. It therefore failed section 110(1). The statutory purpose is certainty and regular cash flow, and a variable interval undermines both.
Why Did the Estoppel by Convention Defence Fail?
An estoppel by convention requires a shared assumption communicated between the parties, reliance on it and circumstances making it unjust for one party to depart from it.
The court first held that raising estoppel does not automatically make Part 8 unsuitable. The question is whether a genuine factual dispute needs resolving:
“A party asserting an estoppel and contending that the determination of that question should await further particularisation and evidence has to provide sufficient material to enable the court to be satisfied that it has a good enough prospect of establishing the asserted estoppel to justify that course.”
VDC did not meet that test, and the defence failed on its merits:
- The alleged understanding would have radically restructured the payment provisions, so some acknowledgement would have been expected. None was identified.
- No relevant oral discussions or correspondence were identified, and the history was documentary.
- A witness’s general belief that Deerns shared the same understanding was not enough.
- Deerns’ failure to object to earlier late notices could simply reflect an acceptance that its own late application had prevented a timely response.
- Deerns’ post-valuation invoice of 4 December 2025 fitted a recalculated timetable, but said nothing to show it was issued on that basis.
- The documents did not show that VDC itself consistently acted on the alleged understanding, still less that Deerns shared it.
Why Did the Scheme Apply Without Preserving the Contractual Payment Period?
Once the clause failed, section 110(3) applied the relevant provisions of the Scheme. Under paragraph 8 of the Scheme for Construction Contracts (England and Wales) Regulations 1998, the final date for payment was 17 days after the date payment became due.
The court accepted that the parties had plainly contemplated 30 days, and that 17 days arguably gave Deerns a windfall. It nevertheless held that it had no power to create a third regime that was neither the parties’ agreement nor the Scheme.
“Where they fail to provide a final date then Parliament has imposed a solution. The court has no power to impose a different solution.”
The effect on the two payment cycles was:
| Application | Due date | Scheme pay less deadline | Scheme final date | VDC’s contractual final date | Pay less notice served |
|---|---|---|---|---|---|
| Application 7 | 4 February 2026 | 16 February 2026 | 21 February 2026 | 6 March 2026 | 27 February 2026 |
| Application 8 | 6 March 2026 | 18 March 2026 | 23 March 2026 | 5 April 2026 | 25 March 2026 |
On VDC’s reading, both notices were in time. Under the Scheme, both were late, leaving Deerns entitled to the notified sums.
Why Was a Stay of Execution Refused?
The court applied the principles governing stays of adjudication enforcement to this smash and grab claim. Probable inability to repay can justify a stay, but usually not where the claimant’s financial condition is materially the same as when the contract was made, or was caused wholly or significantly by the defendant’s failure to pay.
Deerns’ solicitors had described it as “starved of cash flow since December 2025”, facing subcontractor demands and one issued money claim. The court accepted that Deerns genuinely needed the money, that its net equity was modest and that VDC’s claims might exceed its apparent £10m insurance cover. However:
“The Claimant is nonetheless a going concern and the Defendant’s cross-claims are a very long way off being established.”
Deerns’ financial condition was not materially worse than when it contracted, and VDC’s non-payment had played a significant part in its difficulties. The stay was refused.
What Is the Impact of This Decision for Construction and Consultancy Businesses?
Deerns turns event-based final payment clauses into a live enforcement risk, and each party in the payment chain should respond differently.
What Should Employers and Other Paying Parties Do Now?
Employers and main contractors should review live contracts and standard terms for clauses that extend the payment period following late applications, invoices, certificates, approvals or supporting documents. Even clauses designed to protect the payer can trigger the Scheme.
A notice timed against a contractual 30-day period may already be late if the Scheme applies. That leaves the payer liable for the full notified sum, whatever the merits of its valuation.
What Should Contractors, Subcontractors and Consultants Do Now?
Payees should check whether the payer has assumed, without contractual support, that a late application moved the due date. Identify the valuation date, application date, due date, final date and pay less deadline for each cycle.
Keep applications, valuation records, notices, correspondence and proof of service. The underlying valuation dispute may continue, but it does not necessarily stop immediate recovery. Prompt payment upstream also protects cash flow down the chain, as Deerns’ subcontractor demands showed.
What Should In-House Legal Teams and Contract Drafters Do Now?
In-house teams should audit standard forms, bespoke agreements and professional appointments, including JCT, NEC, FIDIC or other standard forms carrying manuscript amendments.
Each contract should state clearly whether a late application changes the application date, the due date or the final date. If the parties agree to operate a different timetable from the written contract, they should record the revised basis in writing at the time. A coincidence between actual dates and a timetable reconstructed later is unlikely to establish an estoppel.
What Should Parties in a Smash and Grab Claim Do Now?
Claimants should establish the contract wording and notice sequence before issuing. A defendant’s estoppel argument will not automatically take the claim out of Part 8.
Defendants should calculate the statutory timetable immediately. Anyone seeking delay must particularise the alleged convention, show how it was communicated, explain reliance and identify the further evidence that would emerge. A stay application needs strong evidence of probable non-repayment and a developed cross-claim. Modest net assets and financial pressure may not be enough where the applicant’s own non-payment caused that pressure.
How Do You Audit Construction Contract Payment Terms and Pay Less Notice Timing?
A reliable audit maps every contractual date before a party serves or challenges a notice.
How to Map the Payment Timetable
- Confirm whether the agreement is a construction contract or professional appointment within the statutory payment regime.
- Collect the signed agreement, amendments, schedules, applications, payment notices, pay less notices and evidence of service.
- Record the valuation date, application date, due date, final date and pay less deadline separately for each payment cycle.
- Identify the clause that sets the due date and check whether it is fixed or moves under an express mechanism.
- Identify the clause that sets the final date and check that it is always a fixed period after the due date.
- Flag any wording that changes the final date because of late applications, invoices, certificates, approvals or documents.
- Where compliance is in doubt, run the Scheme timetable alongside the contractual timetable and work to the earlier deadline.
- Check that each notice states the sum and the basis of calculation required by the agreement.
What Drafting Risks Should In-House Teams Flag?
In-house teams should flag any clause that postpones, extends or shortens the final date by reference to an event while leaving the due date unchanged.
Deerns also shows the cost of loose terminology. The contract used “invoice” for both the payment application and the later post-valuation invoice. Operative clauses, schedules and notice provisions should describe the same sequence using consistent defined terms.
If the commercial aim is to protect the payer when an application is late, the compliant route is a mechanism that moves the due date itself, with the final date always a fixed number of days afterwards.
Internal systems should allocate responsibility for monitoring application dates, calculating both timetables, drafting notices and keeping proof of service.
For support with a live notice dispute or a wider payment-clause audit, speak to our commercial disputes team or book a free consultation.
Frequently Asked Questions
Get Expert Help With Construction Act Payment Compliance
A payment clause that lets the final date drift with late invoices or applications can hand control of your timetable to the Scheme, shorten your payment window to 17 days and leave a pay less notice worthless. Once a notice deadline has passed, the payer may have to pay the full notified sum first and argue about value later. Early review of the contract and each payment cycle is the most effective protection, whether you are seeking payment, defending a smash and grab claim or updating standard terms.
Our solicitors can assess your contract, payment notices and timetable, identify where the Scheme may apply and advise on enforcement or defence. Call us on 0207 459 4037 or book a free consultation.
