A substantial reduction in an interim valuation can give rise to two quite different disputes. One concerns the true value of the works. The other concerns the amount that is payable under the statutory payment regime at that particular stage.
The distinction is central to the operation of the Housing Grants, Construction and Regeneration Act 1996.
Sections 110A and 111 establish the notice regime governing payment. Where the payer intends to pay less than the notified sum, a valid Pay Less Notice must ordinarily be served within the required period. The statutory framework therefore places considerable importance on both the content and timing of payment notices.
Valuation and payment entitlement should be considered separately
A reduced valuation may reflect disputed variations, incomplete work, deductions for alleged defects, retention or disagreement over the percentage of completion. Those are substantive valuation issues.
The notice position raises a different question. If the correct notices have not been served, the amount presently payable may not correspond with the payer's assessment of the underlying value.
That is why the first review should usually include the payment application, due date, Payment Notice, Pay Less Notice and final date for payment, together with the relevant contractual provisions.
Where a dispute has crystallised, section 108 of the 1996 Act provides a statutory right to adjudication. The adjudicator's decision is binding unless and until the dispute is finally determined by litigation, arbitration or agreement.
The scope of that right was clarified in S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448. The Court of Appeal held that an employer which has failed to serve a valid Payment Notice or Pay Less Notice must first pay the notified sum, but is then entitled to commence a separate adjudication to determine the true value of the interim payment. The practical consequence is that a successful "smash and grab" claim secures cash flow rather than a final determination of value, and a payer facing one should be advised on both limbs at the same time.
For contractors, this means that a reduced valuation should not be treated simply as a disagreement over a single figure. The legal and commercial position will often become clearer once the statutory payment issue has been separated from the underlying valuation dispute.
Accurate at the time of writing. This information is provided for general information purposes only and should not be relied upon as legal advice.
