What is construction law?

Construction law is the body of legal rules governing how buildings, infrastructure and engineering projects are planned, contracted, built and paid for. It draws on contract law, property law, tort, planning and health and safety, plus specialist statutory regimes built specifically for the construction industry, most importantly the Construction Act 1996.

It matters to anyone who commissions a building project, carries one out, or works on one, from a homeowner extending their kitchen, to a developer building a housing estate, to a subcontractor fitting out an office block.

Which legislation governs construction projects?

The most important statute is the Housing Grants, Construction and Regeneration Act 1996, commonly called the Construction Act or HGCRA, significantly amended by the Local Democracy, Economic Development and Construction Act 2009. Together they set mandatory rules on payment and the right to adjudication for most construction contracts in England and Wales.

Other legislation that frequently comes into play includes:

• Defective Premises Act 1972: imposes duties on those doing work on dwellings
• Limitation Act 1980: sets time limits for bringing claims, 6 years for simple contracts and 12 years for contracts executed as a deed
• Construction (Design and Management) Regulations 2015 (CDM 2015): health and safety duties on all parties
• Late Payment of Commercial Debts (Interest) Act 1998: implies a right to interest on late payments
• Building Safety Act 2022: introduced major new safety requirements for higher-risk buildings following Grenfell

What should a construction contract cover?

A construction contract should set out the scope of works, the price and how it is calculated, the programme and completion date, how interim payments are made, how variations are instructed and valued, extensions of time, defects, and dispute resolution. Most projects use a standard form rather than drafting from scratch.

Standard form contracts

• JCT (Joint Contracts Tribunal): traditional building projects such as housing, commercial and fit-out, ranging from simple Minor Works to complex Design and Build forms
• NEC (New Engineering Contract): engineering and infrastructure projects, public sector work, and projects preferring a collaborative, programme-focused approach
• FIDIC: predominantly used for international projects, but sometimes seen on large UK infrastructure work
• Bespoke contracts: used on major or complex projects, often drafted for a specific employer; higher risk for contractors as terms may be heavily weighted towards the employer

Minimum contents of a well-drafted contract

• The scope of works and any drawings or specifications
• The contract sum and how it is calculated (lump sum, remeasurement, cost-plus)
• The programme and completion date
• How and when interim payments are made
• How variations (changes to scope) are instructed and valued
• The process for extensions of time if delays occur
• What happens in the event of defects
• Dispute resolution, typically adjudication, then arbitration or litigation

Important: if a construction contract does not include compliant payment and adjudication provisions, the statutory provisions in the Scheme for Construction Contracts (England and Wales) Regulations 1998 are automatically implied into it.

How does payment work under the Construction Act?

The Construction Act sets mandatory payment rules that cannot be contracted out of. Most projects use interim payments, typically monthly, driven by a cycle of notices with strict deadlines: the payee's application, the payer's payment notice within 5 days of the due date, and any pay less notice before the final date for payment.

The interim payment cycle

• Application for payment: the payee, for example the contractor, submits a valuation of work done, usually at a set date each month
• Payment notice: the payer, for example the employer, must issue a payment notice specifying the sum it considers due within 5 days of the payment due date; if it does not, the payee's application becomes the notified sum
• Pay less notice: if the payer wants to pay less than the notified sum, it must serve a valid pay less notice before the prescribed period before the final date for payment; no valid notice means it must pay in full
• Final date for payment: the deadline by which the payer must actually transfer the money, typically 14 to 28 days after the payment due date depending on the contract

'Smash and grab' adjudications

If a payer misses the deadline to serve a valid pay less notice, the payee can refer the matter to adjudication and recover the full notified sum, even if the true value of the work is lower. These 'smash and grab' adjudications now account for over 60% of all UK adjudication referrals. The payer can subsequently pursue a 'true value' adjudication to recover any overpayment, but must first pay the notified sum.

Withholding payment and suspension

A party can only withhold payment legitimately if it has served a valid pay less notice in time. If payment is not made by the final date for payment, the payee has a statutory right to suspend work after giving 7 days' notice, and is entitled to recover the costs of doing so.

What is adjudication and how does it work?

Adjudication is the construction industry's fast-track dispute resolution process, introduced by the Construction Act. Any party to a construction contract can refer any dispute to adjudication at any time, and the adjudicator must reach a decision within 28 days, which is immediately binding and enforceable by the courts.

The adjudication process

• Start: one party, the Referring Party, serves a Notice of Adjudication on the other, setting out the dispute
• Adjudicator: an independent third party, usually nominated by a nominating body such as RICS, RIBA or CIArb, within days of the referral
• Timetable: a decision within 28 days of the referral, extendable by 14 days with the Referring Party's consent, or longer if both parties agree
• Decision: binding immediately and enforceable by the courts, even if one party thinks it is wrong
• Cost: each party usually bears its own legal costs; the adjudicator's fees are split or awarded at the adjudicator's discretion
• Finality: adjudication is 'temporarily binding'; either party can go to arbitration or litigation afterwards to have the dispute finally resolved

What can be referred to adjudication?

Almost any dispute arising under a construction contract: payment, variations, extensions of time, defects, termination, and more. The right applies even if the contract does not mention adjudication, and even during an insolvency.

Enforcement

Courts take a robust approach to enforcing adjudicators' decisions. A losing party that refuses to pay can expect a summary judgment within weeks. Only in very limited circumstances, such as a serious breach of natural justice, will a court refuse to enforce.

What are variations and how are they valued?

A variation, sometimes called a 'change' under NEC contracts, is an instruction to alter the scope of work from what was originally contracted. Contractors are generally obliged to carry out an instructed variation even before its value is agreed, but are entitled to be paid a fair rate for it.

Most standard contracts give the employer, or its contract administrator, the right to instruct variations within limits. Contract mechanisms vary, but variations are typically valued by reference to contract rates, fair market rates, or dayworks if no rates apply. Disputes about variation valuation are one of the most common types of construction claim.

Important: carrying out additional work without a formal instruction can jeopardise payment. Contractors should always seek a written instruction before proceeding with a change.

What happens if the works are defective?

Defects found during construction can be ordered to be removed and replaced. After practical completion, most contracts provide a defects liability period, typically 12 months under JCT contracts, during which the contractor must return to repair defects. Latent defects appearing later can still be claimed within the Limitation Act 1980 time limits.

During the works

If defective work is identified during construction, the employer's representative can instruct the contractor to remove and replace it. Failure to do so can be a ground for termination in some contracts.

The defects liability period

After practical completion, the point at which the works are substantially finished and ready for use, the defects liability period begins. At its end, the contract administrator issues a certificate or notice of making good defects, which triggers release of the second half of any retention held.

Latent defects

Defects that only become apparent after the defects liability period, known as latent defects, can still be claimed. The Limitation Act 1980 time limits apply: 6 years from breach for a simple contract, 12 years for a deed. In some cases involving personal injury or damage to other property, the clock may start later under the Latent Damage Act 1986.

How does retention work?

Retention is a percentage of the contract sum, typically 3% to 5%, withheld by the employer from interim payments as security against defects. Half is usually released at practical completion and the other half at the end of the defects liability period, once defects have been made good.

Retention is not a penalty; it is security, and must be released once the conditions are met.

Retention reform

The government has been consulting on whether to ban or restrict retention deductions in construction contracts. Sections 69 and 70 of the Procurement Act 2023, which came into force in early 2026, already require public sector contracting authorities to publish payment compliance information. Further reform is expected.

Risk: retention held by a main contractor sits in its general funds and is not ring-fenced. If the main contractor becomes insolvent, subcontractors may lose their retention entirely. This has been a major driver of calls for reform.

What are extensions of time and liquidated damages?

If works are delayed by a cause that is the employer's risk under the contract, the contractor is entitled to an extension of time, moving the completion date and protecting the contractor from liquidated damages for that period. Liquidated damages are a pre-agreed daily or weekly rate deducted for overrun.

Extensions of time

Common employer-risk events include late issue of information, employer-instructed variations, exceptionally adverse weather in some contracts, and force majeure events.

Liquidated damages

Liquidated damages (LDs) are enforceable provided they are a genuine pre-estimate of loss, not a penalty. If no valid completion date is set, for example because the employer prevented completion without granting an extension of time, the liquidated damages clause may fall away, leaving the employer to claim only unliquidated (general) damages.

Loss and expense

Where delay or disruption causes the contractor to incur additional costs beyond the contract sum, such as prolongation costs, increased preliminaries or idle plant, the contractor may be entitled to claim loss and expense, provided notice is given in time and the cause is an employer-risk event.

What does construction law mean for you?

Your priorities depend on your role. Employers must issue payment and pay less notices on time or risk paying disputed sums in full. Main contractors owe the statutory payment regime to subcontractors regardless of upstream terms. Subcontractors should keep meticulous records and use adjudication. Consultants carry duties in contract, tort and under CDM 2015.

If you are an employer (client)

• Make sure your contract is in writing and includes proper payment provisions
• Issue payment and pay less notices on time, every time; failure can mean paying sums you dispute with no immediate way to withhold them

If you are a main contractor

• Understand your contract before you sign it
• Pay your subcontractors on time and issue notices correctly; you are liable to subcontractors for the Construction Act payment regime regardless of what your own contract with the employer says

If you are a subcontractor

• Keep records of everything: applications, instructions, site diaries, correspondence
• If you are not paid, adjudication is quick and cheap relative to litigation
• Do not assume 'pay when paid' clauses are enforceable; under the Construction Act they are only valid in very limited circumstances

If you are a consultant (architect, engineer, project manager)

• You have duties in contract and in tort
• CDM 2015 places specific health and safety obligations on designers and principal designers
• Check your professional indemnity insurance covers all the services you provide