They're Deducting Money From My Invoice: Set-Off and Abatement Explained

‍‌‌‌​​​​‌​​‌‌‌‌​​‌‌​‌​​‌​‍In construction, set-off is when the payer says, "Yes we owe you £X, but we're deducting £Y for defects/delay/damage, so we'll only pay the difference." Abatement is them saying, "The work was worth less in the first place, so we never owed you that much." Section 111 of the Construction Act doesn't kill those rights, but it does say: if they want to pay less than the notified sum, they have to serve a valid pay less notice in time explaining what they're doing.

This is general guidance only and is not legal advice. Always get specialist advice before you start a fight over set-off in adjudication or court.

1. HOW THE ACT CONTROLS "WE'RE PAYING LESS"

The basic rule now is:

• If there's a notified sum (from a payment notice, default notice or sometimes your application), the payer must pay that amount by the final date for payment unless they serve a valid pay less notice.
• A valid pay less notice must:
  • Be served within the contract/Act deadline (often no later than 7 days before the final date for payment).
  • State the amount they intend to pay.
  • Show the basis of calculation – how they got there, including any set-off/abatement.
• If they don't serve a proper pay less notice in time:
  • They can't lawfully pay less at that point – section 111 says they have to pay the full notified sum, even if they think your valuation is wrong.
  • You can adjudicate on that and treat any "we're setting off £Y" line as irrelevant if it wasn't in a compliant notice.

So the Act doesn't stop them ever arguing value or set-off; it just locks in what must be paid this cycle unless they follow the rules.

2. SET-OFF vs ABATEMENT IN PLAIN TERMS

You don't need to sound like a barrister, but it helps to know what's what.

Set-off

• They accept a certain sum is due under your subcontract, but say they have a separate claim against you (e.g. damage, delay costs, re-work) and want to deduct it from what they pay.
• Often used to cover cross-claims across different parts of the project or even different contracts, if the contract allows it.

Abatement

• They say the work or goods you supplied were never worth the full price, so the price itself should be reduced.
• Classic example: defective work that hasn't been remedied – they pay less to reflect reduced value.
• The abatement can't exceed what would otherwise have been due – it's a haircut on the price, not a free-standing claim.

The Construction Act hasn't changed the underlying law on set-off/abatement – it's just bolted a notice procedure on top. If there's no proper ground in contract/common law to withhold, serving a notice doesn't suddenly invent one – the adjudicator can still say, "No, that deduction isn't valid."

3. WHAT THEY'RE ALLOWED TO KNOCK OFF – AND HOW

If they do serve a valid pay less notice, they can try to knock off:

Defects and re-work (set-off or abatement)

• Cost of putting right your defective work, or a lower price to reflect sub-standard work.
• They'll need evidence: inspection reports, photos, re-work quotes, not just "site manager says it's rubbish".

Delay/disruption costs (set-off)

• Extra prelims, supervision, or disruption they say you caused.
• Needs a contractual basis (e.g. liquidated damages, or a general damages claim) and some sort of calculation, not plucking a number from the air.

Damage to other property (set-off)

• E.g. you clipped a gate with the telehandler, they paid to fix it; that goes in as a deduction if the contract/set-off clause allows cross-claims.

Retention and agreed contractual deductions

• Legitimate retention, agreed discounts, or sums clearly due back to them.

But even for abatement, most commentators say "play safe" – if they want to pay less than the notified sum for any reason, they should set it out in a pay less notice.

4. HOW TO FIGHT A DODGY SET-OFF OR ABATEMENT

You've got two angles: process and substance.

Process (easy wins):

Did they serve a pay less notice on time? If not, under section 111 they must pay the full notified sum for that payment cycle, whatever they say about defects.

Is the pay less notice specific enough? It must state the amount to be paid and the basis of calculation. If it just says "various contra-charges to follow" with no breakdown, you've got an argument it isn't compliant.

If they fail on process, you go smash-and-grab: adjudicate for the notified sum and ignore set-off until they've paid.

Substance (harder work):

Even if the notice is valid procedurally, you can still challenge:

• Whether their alleged defects/delays are actually your fault.
• Whether they've priced them properly.
• Whether the contract even allows that kind of cross-set-off.

That's a true value fight – more evidence, more QS time, but still doable via adjudication.

5. PRACTICAL HABITS TO PROTECT YOURSELF

Things you can do on every job to blunt set-off and abatement:

Make your applications crystal clear Break down work by area/trade so it's obvious what you're claiming. This helps show where they're chopping and makes your "notified sum" argument stronger.

Log instructions, snags and fixes Keep a record of what was agreed as defective, when you fixed it, and any sign-off. When they try to deduct for defects already put right, you've got proof.

Push back on vague contra-charges in writing If a certificate or pay less notice just has lump sums, ask for a breakdown and state you do not accept the set-off as things stand. That sets the scene for adjudication and shows you didn't just roll over.

Know your rights on notices and adjudication Watch the payment/pay-less timetable like a hawk; missed or sloppy notices are often your best leverage. Don't be afraid to use adjudication on a clean notice failure instead of arguing forever by email.

This page is guidance only and does not constitute legal advice. Using it does not make us your legal adviser. Always get advice from a qualified construction lawyer or claims specialist before you start formal action over set-off or abatement.

What to do next

• Check whether they served a valid pay less notice on time · if not, under section 111 they must pay the full notified sum for that cycle regardless of any set-off claims.
• If they did serve a pay less notice, check whether it states the amount and basis of calculation clearly enough to be compliant.
• Push back on vague contra-charges in writing · ask for a full breakdown and state you do not accept the set-off as things stand.
• Log every instruction, snag, and fix so you have proof when they try to deduct for defects you've already put right.
• If the amounts are significant, get a construction lawyer or claims consultant to advise on both the process angle (notice failures) and the substance (whether their deductions hold up).

Sources

• Housing Grants, Construction and Regeneration Act 1996 · section 111 (requirement for pay less notice before reducing the notified sum)
• Scheme for Construction Contracts (England and Wales) Regulations 1998 · fills in pay less notice deadlines where the contract is silent
• Local Democracy, Economic Development and Construction Act 2009 · strengthened the pay less notice requirements

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