Setting off against a subcontractor

Set-off is the reduction of a sum otherwise due, to account for a cross-claim: damage caused, work not done, attendance not provided, a programme obligation missed. It is a normal part of running subcontract packages and there is nothing improper about it.

What makes it fail is almost never the merits. It is the mechanism.

The deduction has to go through a notice

Under the Construction Act, once the notified sum is fixed, the payer must pay it unless a valid pay less notice has been given by the prescribed deadline. Set-off is not an exception to that. It is precisely the thing a pay less notice exists to do.

A deduction made by paying less than the notified sum, without a pay less notice, is ineffective regardless of how good the underlying cross-claim is. The subcontractor is entitled to the full notified sum, and the cross-claim survives as a separate claim to be pursued separately.

What the notice must contain

The sum the payer considers due, and the basis on which it is calculated. Both, specified.

The basis is where notices fail. Contra charges, damage, backcharges as a single line with a round number does not state a basis. It states an outcome. A notice that cannot be checked is vulnerable, and the deduction it supports goes with it.

What is needed is each item identified, quantified, and traceable to something: an invoice for the remedial work, a timesheet for the labour, a photograph and a date for the damage.

Estimates and genuine belief

The sum must be one the payer genuinely considers due. That does not require the figure to be proved to the standard of litigation, but it does require an honest and rational basis.

Rounding an estimate up because the subcontractor will negotiate is not a genuine consideration of what is due. It is a bargaining position, and it undermines the whole notice if it is exposed.

Timing

The pay less deadline is short and is counted the same way as every other period under the Act: the period begins the day after the trigger date, and Christmas Day, Good Friday and bank holidays are excluded, but weekends are not.

A notice that is right in substance and one day late is worth nothing. This is worth building a routine around rather than relying on someone noticing.

The practical sequence

Identify the cross-claim when it arises, not when the payment is due. Quantify it with evidence. Tell the subcontractor at the time, in writing, so the deduction is not the first they hear of it. Then put it in the pay less notice, itemised, before the deadline.

Done in that order, set-off is straightforward and rarely disputed. Done as a last-minute reduction to a payment, it is one of the most reliably lost arguments in the industry.