Subcontractor payment terms in construction

By the time a groundworks package gets paid, the money has been sitting in the ground for weeks. We buy the stone, the pipe and the chambers up front. We pay the gang on Friday, every Friday, whatever anyone upstream is doing. The plant hire invoice does not wait for a valuation. Then we apply, and then we wait, and the waiting is the part nobody puts a line against when they price the job.

In my experience that gap between spending the money and seeing it is one of the most serious insolvency risks for a decent groundworks firm, and it has very little to do with how well they dig. A contractor can be busy, well run and technically sound and still fail, because being owed money is not the same as having it. What has changed is not that payers got kinder. Qualifying large companies and LLPs have had to publish payment performance since 2017. Those using retention clauses in qualifying construction contracts must also report retention information for financial years beginning on or after 1 April 2025. Between the two, there is now more evidence to check before pricing the job instead of afterwards.

The law gives you more than most subbies ever use

The Construction Act is a good deal stronger than the average subcontractor realises. The payment provisions sit in Part II of the Housing Grants, Construction and Regeneration Act 1996, amended in 2009 and in force in their current form since 2011. Most of the firms I talk to know the Act exists and could not tell you what it entitles them to. Worth knowing, because it applies to most commercial groundworks contracts whether anybody drafted it in or not.

The detailed default dates below are for contracts governed by the law of England and Wales. Scotland has its own Scheme for Construction Contracts, and Northern Ireland has separate construction payment legislation, so do not carry the dates across without checking the contract and jurisdiction.

You are entitled to be paid in stages on longer work. Under section 109, a party to a construction contract is entitled to payment by instalments or periodic payments unless the work is specified or agreed to last less than 45 days. On qualifying work expected to last 45 days or more, interim payment is a statutory entitlement, not a favour.

There has to be a notice regime, and it cuts both ways. Section 110A allows different contractual routes for a payment notice saying what is due and how it was calculated. In the circumstances set out in section 110B, the payee can give a notice when the required payment notice has not been issued. Identify who must issue each notice under the contract before relying on that fallback.

The notified sum has to be paid. Section 111 says the payer must pay the notified sum on or before the final date for payment unless a valid pay less notice has been served in time. Miss the pay less notice and the payer will generally have to pay the notified sum for that cycle before pursuing any later argument about the true valuation.

You can suspend performance, lawfully. Section 112 gives a right to suspend performance for non-payment of a sum due, on at least seven days’ notice stating the grounds, with statutory protection for resulting time and reasonable costs. A defective notice or suspension without the statutory entitlement may itself be a serious breach, so this is the point to take contract-specific legal advice before acting.

Pay-when-paid is dead. Section 113 makes a clause conditioning your payment on the payer being paid by someone else ineffective, unless that third party is insolvent. If a main contractor tells you their client has not paid them yet, that is an explanation, not a defence.

And if an England and Wales contract does not contain compliant payment machinery, the Scheme for Construction Contracts supplies the relevant defaults. Its periodic payment cycle uses 28-day valuation periods, a due date seven days after the later trigger, and a final date 17 days after the due date. The contract still needs reading carefully because the application date, notice route and agreed terms control how that timetable works in practice.

What the Act does not do

Here is the honest limit, and it is the reason the problem persists. The Act sets out a mechanism. It does not set the numbers.

The Construction Act does not itself cap the agreed payment period. Separate late-payment rules say an agreed payment date for a business transaction should usually be within 60 days. A longer period can be agreed, but it must be fair to both businesses. The Act polices the construction payment process; it does not remove every commercial argument over valuation or retention.

The law may change again. The Commercial Payments Bill was still before Parliament when this article was updated on 4 August 2026. The government’s published overview says it would introduce a maximum 60-day payment term with limited exemptions, mandatory statutory interest and a prohibition on construction retentions. Those measures are not yet in force and the government says there will be a transition period, so current contracts still have to be managed under the rules that apply now.

So the statutory floor is a floor, not a good commercial standard. The negotiation still happens before the order is signed, when both sides can price the actual cost of the terms.

Retentions are the part that actually hurts

Long terms are a cash flow problem. Retention is money already earned but still held upstream, often long after the subcontractor has left site.

The government’s evidence on construction retentions describes the familiar pattern: typically three to five per cent is withheld, half is commonly released at practical completion under the relevant contract, and the remainder after a defects period that is often 12 to 24 months. For a groundworks contractor the delay can be longer than the time spent on site, because release may be tied to completion of the wider project rather than completion of the subcontract work.

Then it needs chasing. Release can be delayed, disputed or permanently lost through upstream insolvency. Current law does not generally require cash retentions to be ring-fenced, which is one reason the proposed ban matters.

The Reporting on Payment Practices and Performance (Amendment) Regulations 2025 added retention reporting for qualifying construction contracts, applying to financial years beginning on or after 1 April 2025. Qualifying businesses that use retention clauses must publish information including their standard percentage, any contract threshold and the release mechanism. The government guidance on the duty to report sets out the detail.

Disclosure does not release anybody’s money. But it turns retention from a thing you discover in the subcontract order into a thing you can look up before you tender.

Check the payer before you price the job

This is the practical change. You can research a payer’s actual behaviour before you price their job, and it costs nothing.

The payment practices reporting service. Qualifying UK companies and LLPs report at least twice a year. Search the government service for average payment time, late-payment performance and reported terms. The current size test is meeting at least two of: £54m turnover, £27m balance sheet total, and 250 employees.
Build UK’s payment table. Build UK compiles the construction sector’s reported figures into one comparable list of contractors. It is a much faster way to see where a payer sits against its peers than reading filings one at a time.
The Fair Payment Code. Administered by the Office of the Small Business Commissioner, it awards Gold where at least 95% of all invoices are paid within 30 days. Silver requires at least 95% within 60 days and at least 95% of small-business invoices within 30 days. Bronze requires at least 95% within 60 days. The award is voluntary, but it gives you another claim to check against actual behaviour.

Then price accordingly. If a payer’s own filing says they average 58 days, that is your working capital funding their programme, and it belongs in your number or in your terms. Not as a grievance after the event. Pricing a 60 day payer the same as a 30 day payer is not competitive, it is a discount you are giving away without noticing.

What good payment terms look like

A workable groundworks order should make the payment position obvious before work starts. The valuation dates, due dates, final dates, notice deadlines and application format should all be written down. If retention applies, the percentage and release trigger should be visible at tender, not introduced with the order.

The valuation process matters just as much as the wording. Measured quantities, signed dayworks and dated photographs give both sides something objective to assess. Most disputes are easier to prevent when the work is measured as it is completed and the notice timetable is managed rather than reconstructed two months later.

If you are already being squeezed

Get the application in on time, every time, in the format the contract requires. A late or non-compliant application can weaken the payment position before the valuation itself is debated.
Diarise the notice dates the moment you sign. Due date, final date, payment notice deadline, pay less deadline. If a required payment notice does not arrive, check the contract and the sections 110A and 110B route before issuing a payee notice.
Keep contemporaneous records. Dated photographs, measured quantities and signed dayworks give you stronger evidence when a valuation is challenged weeks later. Our dayworks rate calculator helps make the cost behind dayworks visible while records are still current.
Charge the interest where the statutory regime applies. The Late Payment of Commercial Debts (Interest) Act 1998 provides for 8% above the Bank of England base rate and fixed recovery costs. Read the subcontract first because a contractual interest clause can displace the statutory rate.
Treat suspension as a legal step, not a site argument. Section 112 requires at least seven days’ notice stating the grounds and non-payment of a sum due by the final date. Check the payment and notice position with a construction lawyer before suspending.
Use adjudication where proportionate. Section 108 gives a right to refer a dispute at any time, with the adjudicator’s decision due 28 days from referral, extendable by 14 with the referring party’s consent. It is not free, but the statutory timetable can be useful for a disputed or unpaid notified sum.
Keep CIS separate from the application value. Construction Industry Scheme deductions are made from payments, not from an unpaid application. Record the expected deduction in the cash-flow forecast so the amount that eventually lands is not mistaken for the gross valuation.

None of this is clever. It is the discipline that turns a payment dispute into a timetable and an evidence file.

Working with people who pay

If you are a developer or main contractor scoping a groundworks and external works package, the payment terms form part of the price whether or not they appear in the bill of quantities. Longer terms and retention increase the working capital required to deliver the package. Clear dates and release triggers give bidders the same commercial basis and reduce the chance of a valuation dispute becoming a programme problem.

We would rather have the conversation about terms at tender than an argument about valuations in month four. Send us the scheme through work with us or request a proposal, and we can price the groundworks scope against a clear valuation, notice and retention schedule.

Rospower Projects is a specialist groundworks and civil engineering contractor working across the South East and the wider UK, with over 35 years of experience delivering external works packages for industrial, warehouse, and commercial developments. Contact us to discuss your project.