Contra charges are one of the most effective tools main contractors have for reducing what they pay subcontractors — and one of the least understood by the subcontractors on the receiving end. The term itself sounds technical and procedural, which is part of the problem. By the time a charge appears on a payment notice, it's often presented as a settled matter rather than an opening position.
Many contra charges are poorly substantiated, commercially inflated, or applied without the proper notice that the law requires. Understanding what they are, how they work, and what your rights are is essential for any subcontractor in UK construction. LazyQS contract review helps subcontractors identify contra-charge risks in their contracts before work begins — but knowing how to respond when a charge arrives is equally important.
What a Contra Charge Actually Is
A contra charge is a deduction made by a main contractor from money owed to a subcontractor, typically to recover costs the contractor claims to have incurred because of the subcontractor's failure to perform. Common examples include:
- Costs of making good defects after the subcontractor failed to do so
- Costs of clearing materials or waste left on site
- Additional supervision costs due to alleged poor performance
- Hire of equipment or labour to complete work the subcontractor allegedly left undone
- Administrative costs arising from alleged delays caused by the subcontractor
The term "contra charge" is not a defined legal category — it's industry shorthand for a set-off or cross-claim. What matters legally is whether the right to make such a deduction exists in the contract, whether proper notice was given, and whether the amount claimed is substantiated.
Want to know what contra charge provisions are hiding in your subcontract before you sign? LazyQS flags contra charge clauses that lack proper notice requirements, are uncapped, or don't require substantiation.
When Contra Charges Are Legitimate
Not every contra charge is improper. There are circumstances where a main contractor has a genuine and enforceable right to recover costs from a subcontractor, and understanding the legitimate version is important precisely because it helps you identify when the charge falls outside it.
A legitimate contra charge typically involves:
A clear contractual basis. The contract should specify when and how the contractor can recover costs from the subcontractor. This usually appears in clauses dealing with defects, set-off, or the contractor's remedial rights. If a clause allows the contractor to engage others to remedy defects after giving the subcontractor the opportunity to do so, and the subcontractor failed to act, the resulting costs have a proper contractual foundation.
Prior notice and an opportunity to remedy. A well-drafted contract requires the contractor to notify the subcontractor of the alleged default and give a defined period — often seven to fourteen days — in which the subcontractor can rectify the issue themselves. Contra charges applied without this step are procedurally defective even if the underlying complaint is legitimate.
A valid pay less notice. Under the Housing Grants, Construction and Regeneration Act 1996, any deduction from a payment that would otherwise fall due must be communicated through a pay less notice issued before the final date for payment. See our pay less notice guide for a full explanation of how this mechanism works. A contra charge that isn't supported by a compliant pay less notice cannot lawfully reduce what you're owed for that payment cycle.
Substantiation of the amount. The contractor must be able to demonstrate that the costs claimed are real, reasonable, and causally connected to the subcontractor's default. An invoice from another subcontractor who made good the defect is substantiation. A round-figure estimate with no supporting documents is not.
Common Abuses of Contra Charges
The gap between a legitimate contra charge and a commercially motivated deduction is wide, and it's frequently exploited. Patterns that appear regularly in subcontract disputes include:
Charges applied without any notice. The first a subcontractor hears about a cost recovery is when it appears as a deduction in a payment notice or at final account — no warning, no opportunity to remedy, no prior discussion.
Charges not supported by a pay less notice. A contractor who wants to reduce a payment must issue a pay less notice by the prescribed deadline. Where no valid notice was issued, the deduction is not lawfully made and the full amount falls due.
Vague or unsubstantiated amounts. Charges described as "additional management costs" or "general on-site losses" with no supporting invoices, timesheets, or site records are not properly substantiated. The contractor is obliged to quantify the loss — not just assert it.
Inflated or duplicated charges. The actual cost of remedying a defect may be modest, but a contra charge for the same issue can include overhead, supervision, equipment hire, and "administrative handling" — inflating the amount well beyond what was actually spent.
Charges for events outside your control. Costs arising from design changes, employer variations, or concurrent delay caused by others are sometimes charged to the subcontractor whose works happened to be on the critical path at the relevant time.
Charges applied without giving you the chance to remedy. If the contract requires the contractor to give you the opportunity to fix a defect, and they bypassed that step and engaged another contractor directly, the resulting cost may not be recoverable from you — regardless of whether the underlying defect existed.
The subcontractor contract review checklist covers the specific clauses to scrutinise before signing, including the set-off and contra-charge provisions that create these risks.
How to Challenge a Contra Charge
Receiving a contra charge is not the end of the process — it's the beginning of a dispute that you have every right to contest. The approach to challenging one should be methodical.
Step One: Check Whether a Valid Pay Less Notice Was Issued
This is the first and most important question. Was a pay less notice issued before the final date for payment? Did it specify the sum the contractor considers to be due and the basis for any deduction? If the answer to either of these is no, the deduction is not lawfully applied and the full notified sum falls due.
A pay less notice that is late, vague, or fails to identify the specific basis for the contra charge may not be compliant. This is a procedural point with a hard legal consequence — the sum you invoiced becomes immediately payable in full. Our pay less notice guide explains how to assess whether a notice is valid.
Step Two: Review the Contractual Basis
Go back to the contract and find the clause that the contractor is relying on. Does it actually permit the deduction being made? Was the correct procedure followed — notice of default, opportunity to remedy, time allowed? If the contractor skipped steps that the contract requires, the charge may be contractually invalid even if the underlying complaint has some merit.
Step Three: Assess the Substantiation
Request full supporting documentation for the charge. This should include invoices, timesheets, records of the work carried out, and details of how the amount was calculated. In a dispute, the burden is on the contractor to demonstrate that the costs were actually incurred and that they were caused by your default.
A contractor who cannot produce substantiation — or who provides only internal estimates with no third-party documentation — has a weak evidential position.
Step Four: Identify What Is Disputed
Not every contra charge is wrong in its entirety. Separate the elements you accept, the elements you contest, and the elements that are simply unsubstantiated. This gives you a clearer basis for a formal response and makes it harder for the contractor to run the argument that you're challenging everything indiscriminately.
Step Five: Issue a Formal Written Response
Respond in writing, specifically and promptly. Set out which charges you dispute, why each is disputed, and what evidence you are relying on. Keep the response factual and avoid language that escalates the situation beyond what the dispute requires. This written record matters if the dispute proceeds to adjudication.
Notice Requirements and Time Limits
Timing is critical in payment disputes. Under the Construction Act, the payment notification timetable is strict — and if you intend to refer a dispute about a deduction to adjudication, being clear on the applicable deadlines matters.
If a pay less notice was not issued by the final date for payment, you can seek to recover the withheld sum immediately by referring the payment dispute to adjudication. You do not need to wait for the final account to challenge a specific deduction in a specific payment cycle.
If you are contesting a deduction at final account, the approach is different — you are claiming a sum in a dispute about the final account balance rather than enforcing a notified amount. The distinction affects both the strategy and the urgency.
Pay-when-paid considerations can also complicate matters. If your contract conditions payment on upstream receipt, that clause may interact with how and when contra charges can be applied. The pay when paid versus pay if paid guide covers this dynamic in more detail.
Record-Keeping That Protects You
The best time to build your contra charge defence is before any charge is issued. Robust site records are the foundation of any successful challenge.
Keep contemporaneous records of all work completed — daily diaries, photographs, sign-off sheets, and delivery notes. If a defect is alleged, your records should allow you to reconstruct what was done, when, by whom, and in what condition the work was left.
When you receive a notice of alleged default from the main contractor, respond to it in writing immediately — even if only to acknowledge receipt and note that you dispute the allegation. This prevents the contractor later claiming the default was accepted without objection.
Retain all correspondence about contra charges, including emails and site instructions. In adjudication, the paper trail is often the deciding factor — not the underlying merits of the complaint.
Contra Charge Challenge Checklist
When a contra charge lands in your payment notice, work through these questions:
- Valid pay less notice? — Was a pay less notice issued before the final date for payment? Did it specify the sum due and the basis for each deduction?
- Contractual basis? — Does the contract actually permit this type of deduction? Was the correct procedure (notice, opportunity to remedy) followed?
- Prior notice of default? — Were you notified of the alleged default before the contractor incurred costs? Were you given the chance to remedy it yourself?
- Substantiation? — Has the contractor provided invoices, timesheets, or other documents showing the costs were actually incurred?
- Causal link? — Is the cost directly caused by your default, or does it relate to events outside your control?
- Inflation or duplication? — Do the amounts look disproportionate? Are costs appearing more than once under different headings?
- Written response issued? — Have you responded in writing, specifically identifying which charges you dispute and why?
- Adjudication time limit? — If a pay less notice was not issued, are you within the window to refer the payment dispute to adjudication?
What Happens If You Do Nothing
Silence is interpreted as acceptance. A contra charge that is not challenged in the payment cycle in which it appears, and not formally disputed at final account, becomes harder to contest over time. The contractor can point to the passage of time, the absence of a response, and the continued relationship as evidence that the charge was not seriously contested.
This does not mean every charge needs to be escalated to adjudication — many are resolved through direct negotiation once you establish that you've reviewed the paperwork and identified the weaknesses in the contractor's position. But the precondition for any successful challenge is that you actually challenge it, in writing, promptly.
Contra charges are a fact of life in subcontracting. They are not, however, an immovable fact. A properly noticed, substantiated, and contractually grounded charge is one thing. An unsubstantiated deduction applied without notice, based on inflated figures, is another — and one you have every right to push back on.