Payment application

A payment application, also called an application for payment or a pay app, is a formal claim by a contractor or sub-contractor for the value of work carried out and materials supplied during a defined period under a construction contract. It states the cumulative value earned to date, deducts what has already been paid and what is being held as retention, and arrives at the sum now claimed.

The difference from an invoice is what it sets running. An invoice is an accounting document asking for payment of an agreed sum. An application is a claim of value that the paying party has to answer within dates fixed by the Housing Grants, Construction and Regeneration Act 1996, as amended in 2011. If the payer does not answer in time, the sum in the application is the sum that has to be paid, whatever the works are actually worth. Most sub-contractors serve the application, wait for the notice or a payment certificate, and then raise the VAT invoice to match the figure certified.

The notice timetable

The Act gives a party to a construction contract the right to payment by instalments unless the contract specifies, or the parties agree, that the work will take less than 45 days. Every contract must set a mechanism for when payment becomes due and a final date for payment, and must require a notice, given no later than five days after the payment due date, stating the sum considered due and how it was calculated. Where the contract fails to do any of that, the Scheme for Construction Contracts supplies the missing terms:

1. The relevant period, where the contract does not specify one, is 28 days.
2. Payment becomes due 7 days after the end of that period, or when the payee makes its claim, whichever is later.
3. The final date for payment is 17 days from the date payment becomes due.
4. A payment notice must be given no later than 5 days after the payment due date.
5. A notice of intention to pay less than the notified sum must be given no later than 7 days before the final date for payment.

Applied to an application for a period ending on 30 September, those defaults give a payment due date of 7 October, a payment notice due by 12 October, a pay less notice due by 17 October, and a final date for payment of 24 October. Contracts usually set their own dates, and the JCT and NEC forms both do, but the shape is the same and the Act overrides anything that falls short of it.

What a missed notice costs the payer

Section 111 requires the payer to pay the notified sum, in full, on or before the final date for payment. The only way to pay less is a valid pay-less notice served before the deadline, specifying the sum considered due and the basis on which it is calculated. Where no payment notice and no pay less notice are given, the notified sum is the amount in the contractor's own application, and it becomes payable regardless of what the work is worth. That is the position the industry calls a smash and grab, and it turns on the dates rather than on the valuation.

Zigaflow records applications against the live job alongside the certified figure and the resulting invoice, so the claimed, certified and paid amounts stay on one record. See invoicing.