Contra Charges: How Subcontractors Can Challenge Unfair Deductions

A contra charge is a deduction a main contractor makes from a subcontractor's payment to recover costs it says the subcontractor caused: remedial work, cleaning, attendance, damage or delay. It is only properly made if three things are true: the subcontract or the general law gives the contractor a right to make it, the contractor can prove the breach, the loss and the amount, and, where the deduction takes the payment below the notified sum, a valid pay less notice has been served in time. A charge that fails any one of those can be challenged, and often recovered in full.

Contra charges are the payment problem subcontractors raise with us more than any other. Some are fair. Many are not, and the ones that are not tend to survive simply because nobody pushed back before the final account closed.

The three things a contra charge needs

A right to deduct. Most subcontracts contain an express set-off or deduction clause. Even without one, the general law of set-off allows a contractor to set genuine, closely connected cross-claims against what it owes, and the House of Lords held in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 that this right is only excluded by clear words. So the existence of a right is rarely the battleground. How it has been exercised usually is.

The contractual procedure. A well-drafted subcontract does not let the contractor fix a problem itself and send you the bill. It requires notice of the alleged default and a defined period in which you can rectify it. If the contractor brought in another firm without giving you that chance, the charge is procedurally defective even if your work was faulty, and the most it can usually recover is what it would have cost you to put right.

A valid pay less notice. Under section 111 of the Housing Grants, Construction and Regeneration Act 1996, anything withheld from the notified sum needs a pay less notice served no later than the prescribed period before the final date for payment, stating the sum considered due and the basis on which it was calculated. Contra charges are no exception. A deduction that appears for the first time on a remittance advice, with no notice in time, cannot lawfully be withheld from that payment. Our guide to pay less notices sets out the timetable.

Who has to prove what

This is the point that changes the conversation. The party making a deduction has to justify it. A main contractor applying a contra charge has to show that you were in breach of the subcontract, that it suffered a loss, that the loss was caused by your breach and not by something else, and that it has measured the loss properly. You do not have to prove a negative. Asking for that substantiation, in writing, is not being difficult. It is putting the burden where it belongs.

The usual charges, and how to test them

• Defects and remedial work. Were you told about the defect and given the opportunity to return? Is it actually your work, or an interface with another trade? Is the cost what it would reasonably have cost to put right, or the price of a firm brought in at short notice on day rates?
• Cleaning and waste. On a shared site, a blanket charge spread across subcontractors needs some basis for the apportionment. Ask what was removed, from where, and why it was attributed to you.
• Attendance, plant and scaffold. Check what the subcontract says the contractor provides as part of its own price. Deductions for things the contractor agreed to supply are a regular feature of final accounts that nobody read closely.
• Delay and liquidated damages passed down. These are the largest charges and the hardest to sustain. The contractor needs to show that your delay was on the critical path, that it caused the loss claimed, and that the loss was actually suffered. Pointing at the employer's liquidated damages and dividing them between subcontractors is not analysis. A properly prepared delay analysis answers this, and the absence of one is itself telling.
• Administration fees and percentage uplifts. These exist only if the subcontract provides for them. Without a clause, the contractor recovers its actual and reasonable loss.

What to do when a contra charge lands

Respond quickly and in writing. Silence is read as acceptance, and contra charges that go unchallenged through three valuations have a way of being treated as agreed by the time the final account is negotiated.

Ask for the particulars: the clause relied on, the date and form of any notice of default, the evidence of the defect or the cost, and how the figure was calculated. Then gather your own record: photographs, site diaries, signed handover sheets, daywork records, emails from the site team. The records that win these arguments are the ones made at the time, which is why we bang on about keeping contemporaneous records.

Check the payment notices. If the charge was not in a valid pay less notice served in time, you may be entitled to the notified sum now, leaving the contractor to pursue the cross-claim separately. That is often the quickest lever available.

If it still cannot be resolved, adjudication is available and does not take long. Where a charge is unsupported, an adjudicator may value it at nil. We act for subcontractors in exactly these referrals; see our adjudication support.

When the charge is fair

Some contra charges are justified, and fighting those costs you more than the charge and damages your standing for the arguments you should win. If the defect is yours, you were given the chance to fix it and did not, and the cost is reasonable, accept it, check the arithmetic and move on. Credibility on the charges you concede is what makes an adjudicator listen on the ones you do not.

Contra charge questions

Can a main contractor deduct contra charges without telling the subcontractor first?

Usually not. Most subcontracts require the contractor to notify the alleged default and give the subcontractor a chance to put it right before bringing in others at the subcontractor's cost. Separately, if the deduction takes the payment below the notified sum, the Construction Act requires a valid pay less notice served in time. A contra charge that skips either step is open to challenge even if the complaint behind it is genuine.

Who has to prove a contra charge?

The party making it. A main contractor deducting money has to show that the subcontractor was in breach, that the breach caused the cost, and that the amount claimed is a fair measure of it. The subcontractor does not have to disprove a charge that has not been substantiated.

Can a main contractor deduct contra charges relating to a different project?

Only if the subcontract clearly allows it. Equitable set-off generally requires the cross-claim to be closely connected with the payment it is set against, so deductions for a different job usually depend on an express clause. Check the payment and set-off provisions carefully.

Can I take contra charges to adjudication?

Yes. A dispute about whether a contra charge is justified, or what it should be, is a dispute under the subcontract and can be referred to adjudication under the Construction Act. Where the charge is unsupported, the adjudicator may well value it at nil.

Are administration fees or percentage uplifts on contra charges allowed?

Only if the subcontract provides for them. A flat percentage added to the cost of remedial work is a contractual entitlement or it is nothing. Without a clause, the contractor can recover its actual, reasonable loss and no more.