Contracts
Subcontractor agreements: what must be in writing
The short answer
A subcontract does not have to be in writing for the Construction Act to apply. Since the 2009 amendments, the payment provisions of the Housing Grants, Construction and Regeneration Act 1996 apply to oral construction contracts as well as written ones, and where the contract is silent the Scheme for Construction Contracts supplies the terms. What writing does is settle scope, programme, rates and the things the Scheme does not cover. Two clauses that used to be common are now ineffective: pay-when-paid, outlawed except on upstream insolvency, and any attempt to make the right to adjudicate conditional.
At a glance
- Written form required?
- No, since the 2009 amendments
- Fallback terms
- The Scheme for Construction Contracts
- Pay-when-paid
- Ineffective, except upstream insolvency
- Right to adjudicate
- Cannot be excluded or made conditional
- Payment notice
- Within 5 days of the due date
- Pay less notice
- Before the deadline the contract sets
- Right to suspend
- On 7 days’ written notice for non-payment
- CIS status
- Verify with HMRC before the first payment
What does the law imply even with nothing signed?
Where a construction contract lacks the required provisions, the Scheme for Construction Contracts fills the gap. A subcontractor working on a handshake still has these.
- A right to interim payment, where the work lasts 45 days or more.
- An adequate mechanism for determining what is due and when.
- A final date for payment, with notices required before any deduction.
- A right to suspend performance for non-payment, on seven days’ written notice, with time and costs recoverable.
- A right to adjudicate at any time. This one cannot be contracted out of.
NoteWorking without a written subcontract does not leave a subcontractor without rights. It leaves both parties arguing about scope and rates, which is the part the Scheme does not supply.
Free toolCIS deduction calculatorWork out what will actually be deducted from a payment under the agreement.What should the agreement actually cover?
- 01The parties and the site. Full company names and numbers, not trading names.
- 02The scope. By reference to drawings and specification revisions, with revision numbers. "As per drawings" ages badly.
- 03The price and the rates. Lump sum, measured rates, or a schedule of rates, and what is included.
- 04Payment terms. Due dates, final dates, notice periods, and the application cycle.
- 05Retention. Percentage, release points, and whether it is held at all.
- 06Programme. Start, duration, sequence, and access dates.
- 07Variations. Who may instruct, and how they are valued.
- 08Attendances. Scaffold, power, welfare, waste, unloading. Silence here means an argument on week two.
- 09Insurance. Public liability level, employer’s liability, and evidence before starting.
- 10CIS and VAT. Deduction status, and whether the domestic reverse charge applies.
Which clauses no longer work?
| Clause | Status | Detail |
|---|---|---|
| Pay-when-paid | Ineffective | Only permitted where the party above is insolvent |
| Pay-when-certified | Ineffective | Payment cannot depend on certification under another contract |
| No adjudication | Ineffective | The right applies at any time and cannot be removed |
| Adjudication costs on the referring party | Ineffective | Struck out by the 2009 amendments |
| Set-off with no pay less notice | Ineffective | The notified sum is payable in full |
A pay-when-paid clause in a subcontract in front of you is not a term you have to accept. It has been unenforceable since 1998, other than on upstream insolvency.
What should be checked before the first payment?
For the contractor paying, four things, and the first is a legal duty rather than good practice.
- 01Verify CIS status with HMRC. Gross, 20% or 30%. Paying at the wrong rate is the contractor’s liability, not the subcontractor’s. See CIS gross payment status.
- 02Confirm employment status. CIS is not a substitute for the employment status test, and getting it wrong is expensive.
- 03Check insurance is current. Certificates expire mid-project more often than anybody expects.
- 04Record who is on site. Attendance records support daywork, delay and safety positions later, and matter at a moment nobody plans for.
Questions
Frequently asked
Do I need a written subcontract?
Not for the Construction Act to apply. You need one to settle scope, rates, programme and attendances, and those are what most disputes are actually about. The Act supplies payment machinery, not the deal.
Is pay-when-paid legal in the UK?
No, other than where the party further up the chain is insolvent. It has been ineffective since the Construction Act came into force in 1998, and the 2009 amendments closed the pay-when-certified variant too.
Can a subcontractor stop work for non-payment?
Yes. The Act gives a right to suspend performance for non-payment of a notified sum, on seven days’ written notice. Time and reasonable costs of suspension and remobilisation are recoverable.
Who is responsible for verifying CIS status?
The contractor making the payment. Verify with HMRC before the first payment and deduct at the rate HMRC gives. Deducting at the wrong rate leaves the contractor liable for the shortfall.
Can a main contractor withhold payment for defects?
Only by serving a valid pay less notice before the deadline, stating the sum considered due and the basis of calculation. Without it, the notified sum is payable in full whatever the defects.
Read next
What is a pay less notice?
Section 111, the deadline, and why a late notice means you pay the notified sum in full.
CIS gross payment status
The three tests, the VAT rule added in 2024, and how firms lose it.
What is the VAT domestic reverse charge?
When it applies, when it doesn’t, and the wording your invoice has to carry.
Estimark: CIS compliance
Labour-only deduction, 6th-to-5th tax months, HMRC verification, CIS300 recorded.
CIS deduction calculator
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CIS statement template
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