Construction Contracts in 2026: Why Getting Paid Is Becoming a Legal Battleground

For contractors, subcontractors and developers, the most important clause in a construction contract may be the one that says when you get paid.

Construction projects rarely fail because the parties did not have a contract. More often, problems arise because the contract does not work as the parties expected it to when something goes wrong.

Delays, variations, defective work, disputed valuations and, increasingly, cash-flow pressures can quickly turn a successful project into a dispute.

For smaller contractors in particular, getting paid on time can be just as important as winning the contract in the first place.

Late payment: a growing concern

The Government introduced the Commercial Payments Bill in May 2026 with proposals aimed at tackling late payments between businesses.

The proposed measures include maximum payment terms of 60 days in many business-to-business contracts, mandatory interest on late payments and measures addressing disputes raised late or without sufficient information. The proposals also include measures concerning retention payments in construction contracts.

The significance for the construction industry is obvious.

A contractor may complete work perfectly, issue a valid application for payment and still find that payment is delayed because the employer or main contractor disputes part of the account.

That can create a dangerous chain reaction:

Employer → Main Contractor → Subcontractor → Supplier → Workforce

If money stops at one point in the chain, the financial consequences can travel rapidly down the project.

Your payment provisions matter

A construction contract should answer some basic questions clearly:

• When can an application for payment be made?

• What must the application contain?

• When does payment become due?

• What is the final date for payment?

• What notices must be given if payment is to be withheld?

• What happens if part of the account is disputed?

• How are variations valued?

• What happens to retention?

• What rights does the contractor have if payment is not made?

  
  

These are not merely administrative details.

They can determine whether a contractor has a contractual right to pursue payment, suspend performance or commence adjudication.

The importance of the Construction Act

The Housing Grants, Construction and Regeneration Act 1996, commonly known as the Construction Act, provides an important statutory framework for construction payment and adjudication.

One of the practical lessons for businesses is that the wording of the contract cannot simply be treated as boilerplate.

A poorly drafted payment mechanism can create uncertainty at precisely the point when certainty is most needed.

For a contractor, this means the contract should be reviewed before work starts — not after the first disputed invoice.

Retention: a particular pressure point

Retention has long been a feature of construction contracts.

The commercial rationale is understandable: an employer or main contractor may wish to retain part of the payment as security against defects or incomplete work.

But retention can also place significant pressure on smaller businesses, particularly where a project is large relative to the contractor's turnover.

The Government's proposed reforms specifically address the use of retention payments in construction contracts. The proposed legislation would prohibit deductions and withholding of retention payments, with further consultation on implementation.

The precise legal position will depend on the legislation as enacted and its commencement provisions. Businesses should therefore distinguish between current contractual rights and proposed future reforms.

What should contractors do now?

There are some relatively simple steps that can make a significant difference:

1. Review your standard contract

Do not assume that a standard form or precedent is suitable for every project.

2. Understand the payment timetable

Make sure your commercial team knows exactly when applications, payment notices and pay-less notices have to be issued.

3. Keep contemporaneous records

Keep records of:

• applications for payment;

• payment notices;

• variations;

• instructions;

• extensions of time;

• delays;

• site records;

• photographs;

• correspondence; and

• evidence supporting additional costs.

  
  

4. Deal with disputes early

A relatively small payment dispute can become a major cash-flow problem if it remains unresolved for months.

5. Take advice before signing

The best time to identify a problematic clause is before the contract is signed.

Construction law is ultimately about managing risk

Construction contracts allocate risk.

Who carries the risk of delay? Who pays for unforeseen conditions? Who bears the cost of a variation? Who carries design responsibility? Who pays when something changes?

The answers should be found in the contract rather than being discovered during a dispute.

At Pure Business Law, we advise businesses involved in construction projects on contracts, payment provisions, variations, delays, disputes and adjudication.

If you are about to enter a significant construction contract, obtaining legal advice at the outset can be considerably less expensive than trying to resolve a dispute once the project is underway.

This article is for general information only and does not constitute legal advice. The Commercial Payments Bill remains subject to the legislative process and businesses should check the law applicable at the time of entering into a contract.