Beware the “late invoice” clause: TCC confirms the final date for payment must be fixed to the due date

The Technology and Construction Court in Deerns UK Limited v VDC LHR11 Limited [2026] EWHC 1509 (TCC) held that a consultancy agreement that allowed the final date for payment to be postponed if the consultant's payment application was issued late did not comply with section 110(1)(b) of the Housing Grants, Construction and Regeneration Act 1996 (the Act). You can read the judgment here.

Because the final date for payment was not determined solely by a fixed period after the due date, the Scheme for Construction Contracts (the Scheme) applied, imposing a 17-day payment period in place of the contractual 30 days. The defendant's two pay less notices in issue were therefore served out of time, and judgment was entered for the claimant.

Background

VDC LHR11 Limited (VDC) engaged Deerns UK Limited (Deerns) to provide engineering consultancy services for a development at Chandos Park Estate, London. Clause 7.2 of the contract provided that:

“The Fee shall … be payable in the instalments stated in Schedule 1 (the ‘specified dates’). The application date for payment of each instalment shall be the specified date in Schedule 1 and the Consultant shall submit an invoice on or before the relevant application date. The due date for payment of each instalment shall be the specified date in Schedule 1 … The final date for payment shall be 30 days after the relevant due date save that if the Consultant invoice is issued late, the final date for payment shall be postponed by the same number of days by which the Consultant's invoice is late.”

Deerns submitted payment applications 7 and 8. It argued that:

• the contract failed to provide a compliant final date for payment as required by section 110(1)(b) of the Act;
• the Scheme applied to the deficient areas of the contract:
  • imposing a final date for payment of 17 days after the relevant due date, and
  • requiring pay less notices to be served not less than 5 days before the final date for payment; and
• the sums applied for in those payment applications were due as VDC's pay less notices were served late.

VDC argued that the contract’s payment provisions complied with the Act, so its pay less notices were issued within time, or, alternatively, that Deerns was estopped from contending that there was non-compliance.

Did the contract comply with the Act?

The Court held that the contract failed to provide a final date for payment as required by section 110(1)(b) of the Act. Section 110(1) provides:

110 Dates for payment

• (1) Every construction contract shall— 
• (a) provide an adequate mechanism for determining what payments become due under the contract, and when, and
• (b) 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 principle that section 110(1)(b) requires a contract to provide for a fixed period between the due date for payment and the final date for payment was the subject of two notable earlier cases: Lidl Great Britain Ltd v Closed Circuit Cooling Ltd [2023] EWHC 2243 (TCC) and Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 (TCC) (in that case, the comments were obiter and therefore not binding). Before these cases, it had become common practice for construction contracts to include drafting similar to that seen in this case to ensure the paying party would receive a VAT invoice before having to make a payment.

Clause 7.2’s effect was that the interim valuation dates and due dates for payment were fixed and could not be affected by the timing of payment applications. However, the final date for payment would be postponed if the consultant’s payment application was issued after the date specified in a schedule of valuation dates. This meant that the interval between the due date and the final date could vary, rendering the clause non-compliant with section 110(1)(b) following Rochford and Lidl.

Was an estoppel by convention established?

The Court dismissed VDC's alternative estoppel by convention argument.

Both parties accepted that the Act’s operation could not be excluded by an estoppel. VDC argued instead that the parties operated the contract’s payment provisions in a way that complied with the Act: that there was a common understanding that both the due date and the final date would be recalculated whenever Deerns served a late payment application.

The Court considered that VDC's evidence fell short. VDC advanced the alleged understanding in “vague and unparticularised terms” and did not identify any express communications nor discussions of it.  The contemporaneous documents also did not support such a common understanding. The Court declined to adjourn the issue for determination after further pleadings and evidence, noting that the Act’s purpose is to promote cashflow under construction contracts.

What did the Scheme require?

Paragraph 8 of Part II of the Scheme applied, meaning the final date for payment was 17 days after the due date and VDC’s pay less notices were out of time.

VDC argued that the Scheme should be applied to fix the final date for payment at 30 days after the due date for payment, relying on Court of Appeal authority that the Scheme should do the least violence to the parties’ agreement. The Court acknowledged the attraction of this approach but held that it was not available as a matter of law. Where a contract fails to provide a final date for payment, the Scheme imposes a period of 17 days, and the Court has “no power to impose a different solution”.

Takeaways

The final date for payment in a construction contract must be expressed as a fixed period after the due date. A clause that allows the final date to shift by reference to any other event (such as a late payment application) will not comply with section 110(1)(b). The consequence may be a significantly shorter payment window (17 days under the Scheme) and a tighter deadline for pay less notices. Paying parties who miss that deadline will be obliged to pay the full notified sum.

Changes to the payment provisions under the Act are anticipated if the Commercial Payments Bill is passed in its current form. Alongside the much-publicised prohibition on cash retentions, the Bill would fix the prescribed period for giving a pay less notice at seven days before the final date for payment. It would also provide that Christmas Day, Good Friday and bank holidays in England, Wales and Scotland will no longer be excluded when calculating periods under the Act’s payment provisions (though the exclusion would continue to apply to the adjudication provisions).