Payment regimes under scrutiny: recent guidance from the TCC

Deerns: when the payment mechanism is defective

In Deerns the court considered whether a contractual payment mechanism complied with section 110(1)(b) of the Housing Grants, Construction and Regeneration Act 1996 (the "Construction Act"). Section 110(1)(b) requires every construction contract to specify a final date by which any payment that has become due must be paid.

The dispute arose after Deerns submitted two payment applications totalling £910,501.71 plus VAT and contended that VDC's pay less notices had been served out of time. The applicable contract provided a fixed due date and a final date for payment 30 days later. However, where a payment application was submitted late, the final date for payment was postponed by the same number of days as the delay. Whilst the due date remained unchanged, the interval between the due date and the final date for payment could therefore vary.

Deerns argued that the variable interval rendered the payment provisions non-compliant with the Construction Act, with the consequence that the relevant provisions of the Scheme for Construction Contracts (the "Scheme") were implied into the contract. VDC argued that the contract provided a compliant payment regime when read as a whole. In particular, it contended that a late payment application adjusted the payment timetable in a manner that preserved a fixed 30-day period between the due date and final date for payment, with the result that there was sufficient certainty to satisfy the Construction Act.

The court found in favour of Deerns. Following the reasoning in Rochford Construction Ltd v Kilhan Construction Ltd and Lidl Great Britain Ltd v Closed Circuit Cooling Ltd, the court held that whilst parties are free to adopt a flexible mechanism for determining the due date, there must be a fixed and certain period between the due date and the final date for payment. A mechanism which permits that interval to vary depending on subsequent events does not comply with the requirements of the Construction Act.

As a result, the contractual payment provisions were replaced by the relevant provisions of the Scheme, under which the final date for payment became 17 days after the due date. This meant that VDC's pay less notices had been served late and were therefore ineffective. The court also rejected VDC's estoppel by convention argument, finding that there was insufficient evidence of a shared understanding capable of overriding the statutory payment regime.

Netomnia: when the payment application is defective

In Netomnia, the court considered a different aspect of the payment process, namely whether a payment application complied with the contractual requirements governing its form and content.

MJ Quinn was engaged by Netomnia under a framework agreement for the installation and maintenance of telecommunications infrastructure. In February 2026, MJ Quinn submitted a payment application for £3,770.84 as part of a much larger batch of applications. The application referred to a Work Order but failed to include a Purchase Order number, Polygon ID or Feature ID, all of which were used by Netomnia's systems to identify and verify the works being claimed.

The relevant contract required payment applications to include information reasonably necessary to verify the accuracy of the claim and to reference the corresponding Purchase Order. MJ Quinn subsequently succeeded in a "notified sum" adjudication on the basis that its application was valid and that Netomnia had failed to serve a timely payless notice. Netomnia commenced Part 8 proceedings seeking a final determination from the TCC.

The court found in favour of Netomnia and held that the payment application was invalid reaffirming that, in addition to satisfying any statutory requirements, a payment application must also comply with any contractual requirements governing its content. Whilst MJ Quinn argued that Netomnia understood the nature of the claim and that the missing information was merely administrative, the court considered the omitted identifiers to be commercially important. Given the scale and complexity of the project, the information was reasonably required to enable Netomnia to identify the relevant works and verify the claim within the contractual payment timetable.

Significantly, the court rejected an argument that the contractual requirements themselves rendered the payment mechanism non-compliant with the Construction Act. Unlike in Deerns, there was nothing defective about the payment regime; the issue was simply that MJ Quinn had failed to comply with it. The court also rejected MJ Quinn's estoppel by convention argument, finding that the alleged course of dealing fell well short of establishing a shared assumption capable of overriding the contractual requirements.

Common themes and practical implications

1. Compliance remains paramount

In both Deerns and Netomnia, the court emphasised the importance of compliance with the applicable statutory and contractual requirements. In Deerns, the contractual payment mechanism itself failed to satisfy the requirements of the Construction Act. In Netomnia, the payment mechanism was unobjectionable, but the payment application failed because it did not comply with the applicable contractual requirements. The court was not prepared to overlook non-compliance merely because the intended commercial effect was apparent or understood by the parties. The decisions therefore reinforce the court's continuing insistence on strict compliance throughout the payment process.

2. Certainty as a fundamental principle

Although Deerns and Netomnia concerned different aspects of the payment regime, both decisions were driven by the same underlying objective: certainty. In Deerns, the court was concerned with certainty as to when payment became due and when payment was required to be made. In Netomnia, certainty related to the identification and verification of the sums being claimed. The decisions therefore illustrate that certainty remains a central feature of the statutory payment regime, both in relation to payment timetables and the content of payment applications.

3. Distinguishing between defective drafting and defective administration

In Deerns, the problem arose from the drafting of the contractual payment provisions themselves, which failed to comply with the requirements of the Construction Act. The consequence was that the offending provisions were replaced by the relevant provisions of the Scheme. By contrast, Netomnia concerned an otherwise valid payment regime that had not been properly followed. In those circumstances, the Scheme offered no assistance. The decisions therefore demonstrate that the Scheme may remedy defective drafting, but it will not rescue a party from defective administration of a compliant contractual regime.

4. The limited role of Estoppel in the payment regime

Both decisions also highlight the difficulties parties face when seeking to rely on estoppel by convention in payment disputes. In each case, the court rejected arguments that previous dealings or alleged shared assumptions should override the applicable statutory or contractual requirements. Whilst estoppel remains available in principle, the judgments demonstrate the court's reluctance to permit informal practices to displace the agreed payment regime without compelling evidence of a clear and unequivocal common assumption. Parties should therefore be cautious before assuming that a course of dealing will validate an otherwise defective payment process.

Conclusion

The lesson from Deerns and Netomnia is a simple one. Precision matters. A defective payment mechanism may be replaced by the Scheme, but a defective payment application may not be rescued at all. Whether drafting a contract or issuing an application for payment, parties should assume that the courts will expect precision, certainty and strict compliance. In the modern TCC, payment disputes continue to be won and lost on the effectiveness of the payment process itself.