Pay Now, Value Later: The Notified Sum Is a Timing Rule

Every commercial director in the industry can recite the rule. If no valid payment notice or pay less notice is served, the notified sum must be paid, and the argument about true value comes afterwards. What is rarely visible is the whole cycle played out on a single application, from the missed notice to the final repayment. Two judgments of the Technology and Construction Court on the same £106,434.88 subcontract application now show exactly that, and they show the rule working in both directions. A payer that tried to value first was ordered to pay in its own adjudication. The same payer, having paid, obtained an award for repayment of 96 per cent of the money in a second adjudication, decided two months after the court enforced the first. Read alongside two 2026 decisions on what a notice must contain, the sequencing cases reduce to a question about records.

Section 111(1) of the Housing Grants, Construction and Regeneration Act 1996 requires the payer to pay the notified sum, to the extent not already paid, on or before the final date for payment. The payer may pay less than the notified sum only by giving a pay less notice in time, and that notice must specify the sum the payer considers due and the basis on which it is calculated, even if the sum is zero.¹

In S&T v Grove the Court of Appeal explained what that obligation is and what it is not. It is a provision concerned with cash flow and immediate payment. It is not, in Sir Rupert Jackson's phrase, the philosopher's stone: it does not transmute the notified sum into a true valuation of the work, and either party may challenge the correctness of the sum by adjudication, with the adjudicator able to order repayment of any overpayment. The court then addressed timing. The adjudication regime is subordinate to the prompt payment regime, so a payer may not embark on an adjudication to revalue the work before it has complied with its immediate payment obligation.²

That passage on timing has been described as technically obiter. It has nonetheless been treated as established since Davenport v Greer in 2019, and in Bexheat O'Farrell J restated it in five propositions, the last being that unless and until the payer has paid, it is not entitled to commence, or rely on, a true value adjudication. Bexheat also closed the side door: a payer that has not paid cannot fold the true value dispute into the payee's notified sum adjudication instead.³

VMA Services Ltd contracted with Project One London Ltd for the design and installation of mechanical works at Munro Terrace and Cheyne Walk in London SW10, under Project One's subcontract order, entered into on or around 16 October 2023 and incorporating the JCT Design and Build Sub-Contract Conditions 2016. The contract sum was £387,696.36. On 21 June 2024 VMA submitted application for payment no. 8, for work to 30 June 2024, in a gross sum of £274,259.81. After retention and previous payments it claimed £106,434.88. Project One served neither a payment notice nor a pay less notice.⁴

Project One did not pay. On 16 December 2024 it served notice of adjudication seeking a determination of the true value of the application. VMA's response raised the unpaid notified sum by way of defence and counterclaim. On 10 February 2025 the adjudicator found that the application was valid and that no valid notice had been served, so that £106,434.88 was the notified sum. He declined to value the work at all, holding that a party that had not complied with its immediate payment obligation was not entitled to adjudicate the true value, and he ordered Project One to pay the notified sum with interest of £5,598.77, forthwith.⁴

Project One resisted enforcement and lost in July 2025. It then paid. On 15 August 2025 it started a second adjudication on the true value of the same application, and a quantity surveyor was nominated. On 18 September 2025 he valued the application, net of retention, at £157,890.16, and directed VMA to repay £102,656.67 by 25 September 2025, with no interest. VMA resisted enforcement of that award and lost in December 2025.⁵

On the figures in the two judgments, the second adjudicator's valuation left about £3,800 due on the application beyond what VMA had been paid before it. VMA had received the full notified sum and was ordered to return the rest.⁵

The question in the July 2025 judgment was narrow and important. An adjudicator may consider every defence a responding party raises, including a cross-claim advanced as a set-off. But the ordinary rule, stated by Lord Briggs in Bresco, is that such a cross-claim may defeat the claim referred but may not found an independent monetary award in favour of the respondent. Project One's adjudication was about true value. How could the adjudicator order Project One to pay VMA?⁶

The court held that he could, in the particular circumstances.⁶ The general power in paragraph 20 of the Scheme to decide that a party is liable to make a payment did not bear the weight VMA placed on it. The court instead followed WRW Construction v Datblygau Davies, where an adjudicator's valuation in the responding party's favour had been enforced by an order for payment, rather than requiring a further adjudication to which there could be no defence. Where an adjudicator determines that a particular sum is immediately due to the responding party, the court said, different considerations apply. Both parties are bound by paragraph 23(2) of the Scheme to comply with that determination, and requiring VMA to adjudicate again to recover a sum already decided to be due would be an arid exercise, contrary to the cash flow policy of the Act. Project One's suggestion that something might turn up in a further adjudication was dismissed as Micawberish: once a sum has been decided to be a notified sum, it must be paid.

A true value adjudication started without paying is not merely premature. It can become the vehicle for the order the payer was trying to avoid.

The limits matter. This is a first instance decision following another first instance decision, and the court was explicit that there will be many cases in which the usual Bresco approach prevails and no monetary award can be made in favour of a respondent. The route it opens is confined to a determination that a specific sum is immediately due. Within that confine, the practical consequence for payers is severe: the premature reference is not simply dismissed, it produces an enforceable order against the party that started it.⁶

Having paid, Project One was entitled to its true value adjudication, and it got a fast one: thirty-four days from notice to award. The adjudicator had thirteen items to value and, on several of them, poor evidence.⁷ He rejected Project One's case that VMA's air conditioning design was defective, but valued the work claimed at around £47,000 at 50 per cent, reflecting his separate finding that some pipework was likely defective. He allowed 25 per cent of the claim for cold water tanks that were on site but uninstalled, as the likely value of an uninstalled tank. He valued testing at nil because nothing had been provided to support it. And he applied percentage reductions of 20 and 50 per cent to three further items, at one point describing a reduction as arbitrary.

VMA resisted enforcement on the ground of natural justice and failed on every point.⁸ The pipework issue had been fully argued, so allowing it to affect the air conditioning valuation was not a frolic of the adjudicator's own. Overlooking or misunderstanding evidence is an error, not a breach of natural justice, and save in an extraordinary case a failure to consider evidence must be deliberate before it can become one. The word arbitrary meant no more than that the adjudicator was producing the best approximate valuation he could in the time available, which the court said is exactly what adjudicators are required to do.

The court added a point on materiality that deserves wider circulation.⁸ An interim application is valued in short order, usually monthly, on a rough and ready footing. An item undervalued one month can be supported with better information the next, and every interim valuation is subject to the far more detailed process of the final account. There was no perfect answer to the thirteen items, and a range of valuations was open to the adjudicator consistent with natural justice. VMA remained free to argue in due course that the valuation was flawed; in the meantime the award had to be complied with.

The notified sum decides when the money moves. It says nothing about who keeps it.

What, then, did VMA's success in the first adjudication achieve? Precisely what S&T v Grove said it would: an immediate payment, retained until a valuation said otherwise. The first adjudication was about timing and the second about value, and the value was decided on the evidence the parties had assembled. A party that treats a notified sum award as a win on the merits has misread the award.

Everything above flowed from one fact: Project One served no notice. Two decisions in 2026 show how finely that fact can turn.

In Laing O'Rourke v Shepperton Studios the contractor applied for £5,627,275.11. The employer's payment notice stated a gross valuation of £367,137,528.39, deducted amounts previously notified, and arrived at £2,420,516.84. The gross valuation was neither broken down nor tied to any document showing how it had been calculated.⁹ The contract required the payment notice to state the basis on which the sum had been calculated, and the court held that this required the notice to identify the amounts making up the gross valuation. It did not help that the contractor already held a breakdown of that figure from earlier payment cycles. Had the spreadsheets been incorporated by express reference, as in S&T v Grove, the answer might have been different; they were not, and the court declined to enquire into what the contractor happened to know. The payment notice was invalid.

The employer's pay less notice fared differently. It deducted liquidated damages, utilities costs and catering costs, each calculated in an appendix, and the contractor accepted that those calculations were sufficiently detailed. Its argument was that the invalid gross figure contaminated the pay less notice built on it. Counsel could point to no authority in which that had happened. The court rejected the argument on the wording of the contract: the contractor's remedy for a payment notice without a build-up is that the sum in its application becomes payable, and that remedy is expressly subject to any pay less notice. The adjudicator's decision was upheld only to the extent of £3,198,660.64 plus VAT. The pay less notice was worth about £2.4m.¹⁰

Two further points in Shepperton are of general use.¹¹ The employer held five other adjudication decisions, finding among other things that the contractor was entitled to no extension of time, and argued that they showed most of the notified sum was not truly due. Without separate proceedings to enforce those decisions, they could be neither set off nor used as a basis for permission to defend. And the employer's application for a stay, on the ground that the contractor was insolvent and trading on group support, got past the contractor's evidence of its finances and its own undertaking to repay, but failed on the security: a continuing parent company guarantee from the ultimate holding company displaced the usual starting point in favour of a stay.

Six weeks later the Court of Appeal gave its first guidance on the content of payment notices and pay less notices since S&T v Grove.¹² In RBH Building Contractors v James the contractor served, without warning, an application for £663,016.16 with a final date for payment seventeen days away, supported by a spreadsheet of 527 invoice lines. The employers replied with a letter withholding the whole sum, stating that they would pay £0, and giving eleven bullet points of reasons, several of which simply said that insufficient evidence had been presented. The contractor said the letter did not state the sum due or its basis. The Court of Appeal held that it was a valid pay less notice.

Coulson LJ drew six principles from the authorities and then summarised them. Payment and pay less notices are to be considered in a common sense way, and should not be allowed to become tick box exercises or traps for the unwary. The question is whether the notice explains, in a tolerably clear way, what is due and why. The reasonable recipient of a pay less notice is taken to know the detail of its own application, and here the application was in truth just a list of invoices which, if it was a valid notice at all, barely limped over the threshold. The court also said, pointedly, that notices must not become a technical battleground for recovering or withholding sums that could not be justified on a detailed analysis. Because the appeal failed on a separate jurisdictional ground, this part of the judgment was strictly academic; the court addressed it expressly because of its wider importance.¹²

Payment notices should not become tick box exercises, or traps for the unwary.

The two decisions sit together without difficulty. The Court of Appeal was clear that a notice which merely identifies a figure, without more, will not do, and that is what the Shepperton payment notice did with a figure of £367m. The difference between the RBH letter and the Shepperton payment notice is not length or formality. It is whether the document explains its own figure: the Shepperton notice did not, and the court refused to look for the explanation elsewhere; the RBH letter tied each disputed item to the claimant's own application.

For both sides, the sequencing cases convert into a short list of controls. Each rests on a document produced inside the payment cycle, often by a quantity surveyor working to a deadline measured in days.

None of this finally determines anything. The court in the second VMA judgment was explicit that interim valuations are rough and ready because the final account follows, and that a party dissatisfied with an adjudicator's valuation remains free to challenge it in due course. The sequence decides who holds the money in the meantime, and where insolvency is a live risk, the meantime can be the whole of the commercial outcome.