No room for uncertainty: final date for payment must be tied to the due date

In Deerns UK Limited v VDC LHR11 Limited [2026] EWHC 1509 (TCC), a consultancy agreement that allowed for the final date for payment to be postponed if the consultant issued an invoice later than the application for payment was found to be non-compliant. As a result, the contractual 30 days payment timetable was replaced by the Scheme for Construction Contract (“Scheme”), shortening the payment period to 17 days and making the Employer’s pay less notices ineffective. 

The decision does not mean that parties are prevented from requiring invoices or supporting documents as part of the payment process. The issue was that the contractual mechanism allowed the interval between the due date and final date for payment to vary, contrary to section 110(1)(b).

Key lessons for employers, contractors and consultants

This case highlights the need to review payment provisions carefully, particularly where they have remained unchanged for many years to ensure that they remain compliant with the Construction Act. Clauses that make the final date for payment dependent on submission of an invoice or another separate event may be vulnerable to challenge if they result in the period between the due date and final date for payment changing. Where the relevant provisions of the Scheme replace contractual payment provisions, this may result in shorter payment periods and changed deadlines for the issue of pay less notices.

The dispute

VDC engaged Deerns to provide engineering consultancy services on a London development project.

The contract provided for:

• fixed application dates and due dates for payment as set out in a schedule;
• submission of invoices on or before the application date;
• a final date for payment 30 days after the due date; but
• where an invoice was submitted late, the final date for payment would be postponed by the same number of days.

Deerns submitted two payment applications and subsequently argued that:

• the payment provisions did not comply with section 110(1)(b) of the Construction Act;
• the relevant provisions should therefore be replaced by the Scheme; and
• the Employer’s pay less notices were served late.

VDC maintained that the contract complied with the Act and, in any event, argued that the parties had operated the payment provisions on a mutually understood basis.

What did the court decide?

The contractual payment mechanism was non-compliant

Section 110(1)(b) of the Construction Act requires every construction contract to provide a final date for payment.

The court confirmed that, while parties are free to choose the length of time between the due date and the final date for payment, that period must be fixed and ascertainable. However in this case, while the due date for payment remained fixed, the final date for payment could move depending on when an invoice was submitted. As a result, the interval between the due date and final date for payment was not fixed and this fell foul of section 110(1)(b).

In reaching its decision, the court followed the reasoning in earlier TCC authorities. In Rochford Construction Ltd v Kilhan Construction Ltd (2020) Cockerill J considered (obiter) that the final date for payment had to be “pegged to the due date, and be a set period of time, and not an event or a mechanism.”

In Lidl Great Britain Ltd v Closed Circuit Cooling Ltd (2023) HHJ Stephen Davies considered that the wording and plain intent of section 110 (1)(b) was for the parties to be able to agree the time period between the due date for payment and the final date for payment but could not link the final date for payment to the contractor’s submission of a valid VAT invoice:

The Deerns case reaffirmed the position established in Rochford and Lidl – while it would have been possible for the parties to vary the due date for payment – any payment mechanism which does not provide for a fixed period between the due date for payment and the final date for payment will be non-compliant with the Construction Act, the court noting:

The estoppel argument failed

VDC also argued that the parties had operated the contract on the common understanding that both the due date and final date for payment would move whenever a payment application was served late, and so the payment terms were compliant with the Construction Act.

The court rejected this argument as there was no clear evidence of any shared understanding between the parties, nor were there contemporaneous documents supporting the alleged arrangement. The court viewed the evidence of the arrangement as too vague to establish an estoppel by convention.

The Scheme stepped in

Because the contract failed to provide a compliant final date for payment, the relevant provisions of the Scheme applied.

That meant:

• the final date for payment became 17 days after the due date; and
• any pay less notice had to be served at least five days before that final date.

On that basis, VDC’s pay less notices were served late and were ineffective.

The court rejected VDC’s suggestion that the Scheme should preserve the parties’ intended 30-day payment period. While courts will generally seek to do the minimum necessary to correct a defective contractual regime, the judge held that where the Scheme applies it provides for a 17-day period and the court has no discretion to impose a different solution.

Looking ahead

The decision arrives against the backdrop of proposed reforms under the Commercial Payments Bill. If enacted in its current form, the Bill would make further changes to the construction payment regime, including prescribing a seven-day period before the final date for payment for service of pay less notices.  While these changes are not yet certain, the Deerns judgment serves as a reminder that payment clauses should be reviewed to ensure compliance with the existing statutory regime.

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

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