Pay Less Notices (PLNs) and subcontractors
We have come across a growing trend of subcontractors who are facing financial difficulty, and in some cases becoming insolvent, because of unexpected and at times unwarranted or invalid Pay Less Notices (PLNs) issued by main contractors. Subcontractors are often on the back foot when it comes to cashflow as they may run multiple projects with substantial outlay and upfront costs. Pay Less Notices can be the final straw.
What is a Pay Less Notice?
A Pay Less Notice is a notice a payer under a construction contract can issue very close to the expected cash payment date in order to pay less than the previously notified payment that the payee expected. This has the effect of amending any previous Payment Notice and should set out the “notified sum” for payment even if it is zero or negative and the basis on which it has been calculated. In many cases Contractors will include contra charges, damages, losses for delays or abatement for quality in a Pay Less Notice.
What are the legalities?
In order to be legally binding, the issuer of the PLN must make sure that the party receives the notice before the “prescribed period” and after the expiry of 5 days from the payment due date. The “prescribed period” may be stated in the contract and is open to agreement between the contracting parties, but any contract provision must satisfy the provisions of The Scheme for Construction Contracts (England and Wales) Regulations. The PLN must be in writing, intentional, unambiguous – ie. clear that it is a PLN. It must include a statement of the sum due and state how that sum is calculated including the value of the works at the date of serving the PLN. Whilst there is no set level of evidence required to back up the calculation, the basis on which the sum due is calculated must be included.
What can you do if you receive a PLN?
The first thing you need to do if you receive a PLN is seek professional advice to check that it is legally binding – as noted above, the timing of the notice and the information it needs to contain are both key to determining validity. It may well be that you can come to an agreement on the value of works undertaken with the contractor directly. If initial negotiations are not successful, however, then an adjudicator can be appointed in order to sort out the dispute and ascertain a fair payment level. Whilst adjudication is a relatively cheap and quick process as opposed to litigation, the right to adjudication may not help subcontractors experiencing a tight cash-flow.
What else should subcontractors do?
Subcontractors often fall foul of PLNs as they impact cash-flow and consequently, the ability of subcontractors to continue trading. Adhering to the contract payment process, invoicing at timely and regular intervals and managing cash-flow and credit agreements are key to mitigating some of the impact of a PLN.
For advice on how you can effectively manage your cash-flow arrangements see here.
For information and options for your business if you have received a PLN, or if are worried about the financial future of your business, contact us here to book a free consultation.