This month’s contract clinic comes from a vexed contractor whose client failed to issue a payment – on the grounds that the application was not valid. Adam Kitchin looks at the options available
The question
We’re fitting out a new office in the Midlands for a recruitment company. We submitted an application for an interim payment, to cover our costs, payment to be made on account. We made it quite clear this was an application for payment in accordance with the contract. The employer failed to issue a payment or pay less notice and did not pay the sum applied for. They now claim that our application wasn’t a “valid application for payment”. What can we do?
The answer
You could commence adjudication proceedings and argue that in the absence of a payment notice or pay less notice, the application for payment became a payee notice in default, and the amount in the application (the notified sum) was therefore payable by the employer. However, you may need to respond to an argument from the employer that the application for payment was invalid.
There are many ”technical” arguments that have reached both adjudication and the courts over whether or not an application is a valid application on a technicality. This is not an uncommon scenario.
There are several requirements for an application for payment (AFP) that must be followed. If these requirements are not followed, then the AFP could be deemed to be invalid.
Requirements for applications for payment
The Construction Act, and the Scheme for Construction Contracts (if the Scheme applies to your contract) set out the key requirements for valid AFPs and those must be met to ensure any AFP is valid and capable of generating an entitlement to payment. They include:
- The sum that the payee considers is due or was due at the payment due date.
- The basis on which that sum was calculated.
- Notification to be given in accordance with the contract.
- The AFP should be clear and free from ambiguity.
There is also a requirement under paragraph 2 of the scheme to calculate the amount applied for as the value of the works carried out, less any sums paid at the point of issuing the AFP.
Payment on account and a recent case
The more unusual aspect in this scenario is that payment on account is being applied for.
In a recent case, 1st Formations Ltd v Lapp Industries Ltd [2025] EWHC 1526 (TCC), the court looked at whether the AFP for a payment on account was valid. In this case, the contractor stated that the sum due was £341,854.32 (including VAT), but the payment “requested on account” was £100,000 plus VAT. In addition, the sums were stated as provisional “subject to any agreed adjustment following assessment”. The paying party argued that the AFP was ambiguous and not in substance, form and intent an interim application for payment under the scheme.
The court disagreed. The court in that case adopted a “commercial” and “common sense” interpretation of the AFP, concluding that it was obvious that the contractor had made a clear application for payment. Any other approach, in the court’s view, “would be to fall into the trap of nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis”.
In particular, the court said:
- The contractor had complied with the provisions of the scheme, in setting out the difference between the amounts determined in accordance with paragraph 2 of the scheme, but had requested a lesser sum than it was entitled to, “on account”, in the context of negotiations over the final account. The court decided that this did not invalidate the AFP.
- The claim for a lesser sum did not render the AFP ambiguous or not in substance form and intent, a valid application for payment.
- Whilst the court recognised that the due date for payment as stated in the AFP may have been erroneous, this did not invalidate the AFP.
- The reference to the sums claimed being “provisional”, the AFP included a detailed valuation that, given that information was awaited from the electrical subcontractor and in the context of final account negotiations, did not ultimately invalidate the AFP.
While every case will turn on its own facts, this recent decision reinforces the court’s approach in supporting the adjudication process, particularly when dealing with arguments which seek to invalidate applications for payment (or indeed notices) on technical grounds.
Adam Kitchin is an associate at Hill Dickinson LLP.
