Contra charge in construction: what it is & how to use it

A subcontractor has left you with defective work. You’re facing remedial costs. Yet their invoice still sits on your desk demanding payment. Contra charges let you deduct what they owe you from what you owe them, but only if you follow strict procedures. Miss a step, and you risk legal action while losing your right to recover costs. This guide explains contra charge definition, when you can use it, and how to protect yourself from disputes. For complex contra charging situations, seeking advice from a solicitor specialising in commercial business law ensures you’re protected legally and financially.

Learn how to legally deduct subcontractor losses before they drain your project budget.

Do you need a solicitor?

We will connect you with the right solicitor, near you.

Find a solicitor near me Request a call

What is a contra charge in construction?

A contra charge lets you deduct losses caused by a contractor or subcontractor from payments you owe them, rather than chasing separate compensation.

The fundamentals you need to grasp:

• The core concept: Contra charge meaning refers to offsetting mutual debts between parties in a construction contract.
• Legal foundation: Rooted in set-off principles from contract and equity law, allowing contra actions to reduce payment obligations.
• Accounting perspective: In contra meaning accounting, it represents a reduction entry that balances opposing financial obligations.
• Alternative terminology: Also known as set-off, deduction rights, or contra payment arrangements depending on contract wording.
• Two-way street: Both main contractors and subcontractors can potentially use contra charges, though contracts often limit this.
• Not a penalty: Contra charges in construction meaning recover actual losses, not punitive damages or arbitrary deductions.

How contra charges work: Practical examples and real scenarios

Contra charges turn theory into action when subcontractors fail to deliver, and you need immediate financial protection without lengthy disputes.

Real-world scenarios where contra charging applies:

• Defective workmanship: Plumber installs faulty pipework causing water damage; you contra charge £12,000 repair costs against their £15,000 invoice, paying £3,000.
• Delay damages: Electrician runs three weeks late, triggering liquidated damages clause; your contra charge construction deduction reflects contractual penalty rates.
• Incomplete work: Roofer abandons site with 30% work outstanding; you hire replacement contractor and offset the additional £8,000 cost as a contra payment.
• Rectification expenses: Plasterer’s work fails inspection; you deduct £3,500 for remedial specialists to meet building regulations.
• Material cost differences: Subcontractor substitutes cheaper materials without approval; contra charge example covers price difference plus testing costs.
• Third-party claims: Subcontractor’s negligence causes injury to site visitor; you offset legal defence costs and settlement payments through contra charges construction.

Using contra charges against subcontractors

Contra charging subcontractors demands precision; one procedural mistake can invalidate your claim and expose you to breach of contract liability.

Your action plan for implementing contra charges:

1. Verify contract rights: Check your subcontract specifically permits set-off and identify any notice period requirements before deducting.
2. Document the breach: Photograph defects, gather inspection reports, obtain quotes for remedial work, and preserve all correspondence as evidence.
3. Quantify your losses: Calculate exact costs including labour, materials, professional fees, and any consequential losses with supporting invoices.
4. Issue formal notice: Send a contra charge notice stating the breach, the amount, the contractual basis, and your intention to deduct.
5. Allow response time: Give the subcontractor opportunity to dispute or rectify before making deductions, as your contract may require.
6. Adjust payment: Deduct the contra charge amount from the next payment certificate or invoice, clearly showing the calculation breakdown.
7. Maintain records: Keep copies of all notices, calculations, and correspondence in case of adjudication or litigation.

Contra charge requirements under JCT and NEC3 contracts

Contra charges under JCT and contra charge NEC3 provisions differ significantly; using the wrong procedure for your contract type can destroy your claim.

Contract-specific rules you must follow:

• JCT Standard Form: Clause 4.13.5 permits set-off but requires written notice at least 5 days before payment due date, specifying grounds and amounts.
• JCT payment notice requirement: Your contra charge must appear in the payment notice or pay less notice, not introduced later as an afterthought.
• NEC3/NEC4 compensation events: Contra charge NEC3 operates through the compensation event procedure under Clause 61, requiring formal notification within 8 weeks.
• NEC assessment process: You cannot simply deduct; the Project Manager must assess the contra charge construction claim and issue instructions before offsetting.
• JCT withholding vs NEC offsetting: JCT allows direct withholding with notice; NEC requires mutual agreement or dispute resolution before deduction becomes valid.
• Subcontract variations: Many bespoke subcontracts modify standard contra charges provisions, so always check your specific agreement wording.
• Adjudication rights: Both contract families preserve the subcontractor’s right to challenge your contra payment through statutory adjudication regardless of notice compliance.

How to issue a contra charge notice: Templates and best practices

A poorly drafted contra charge notice gives subcontractors ammunition to challenge your deduction and potentially win payment in full through adjudication.

Essential elements your notice must contain:

• Contract reference: State the specific subcontract number, date, and parties to establish the legal relationship governing your contra charge.
• Breach identification: Describe exactly what the subcontractor failed to do, citing relevant contract clauses and specification requirements they’ve violated.
• Calculation breakdown: Itemise every cost component, labour hours, material prices, equipment hire, professional fees, with supporting evidence attached.
• Contractual authority: Reference the exact clause permitting set-off to demonstrate your contra charging right exists within the agreement.
• Payment adjustment: Show original invoice amount, deduction sum, and net payment due so the subcontractor sees transparent calculation.
• Delivery method: Send via email with read receipt and recorded delivery post to prove compliance with notice timing requirements.
• Professional tone: Avoid emotional language or threats; your contra charge letter is a legal document that may be scrutinised in adjudication.

Template structure for your contra charge letter:

Subject line, contract details, breach description, cost schedule, contractual clause reference, adjusted payment calculation, payment date, dispute rights notification.

Avoiding disputes: Common contra charging mistakes and how to protect yourself

Most contra charge disputes arise from procedural failures rather than substantive disagreements; subcontractors win adjudications because contractors breach their own contract terms.

Fatal errors that destroy your contra charge claim:

• Missing notice deadlines: Issuing your contra charge notice one day late makes the deduction invalid, regardless of how justified your losses are.
• Inadequate evidence: Vague descriptions like “poor workmanship” without photographs, expert reports, or remedial quotes leave your contra charges vulnerable to challenge.
• Incorrect calculations: Inflating costs or including unrelated expenses transforms legitimate contra charging into breach of contract against you.
• Wrong contractual clause: Citing general contract terms instead of specific set-off provisions weakens your legal foundation for contra payment deductions.
• Deducting disputed amounts: Making contra charges construction deductions while the subcontractor actively disputes liability invites immediate adjudication proceedings.
• Ignoring payment act requirements: Failing to follow statutory payment notice procedures under construction legislation invalidates your entire contra charge.
• No opportunity to remedy: Deducting before allowing contractual rectification periods denies subcontractors their right to fix defects themselves.

FAQs

• What is a contra charge? A contra charge is a legal mechanism allowing one party to deduct money owed to them from payments they owe another party. It operates as a set-off where mutual debts cancel each other out, avoiding separate legal proceedings to recover losses.
• What is a contra charge in construction? A contra charge in construction allows contractors to deduct costs caused by subcontractor failures, defective work, delays, or breaches, directly from invoices. Rather than paying in full then chasing compensation, you adjust payment to reflect actual losses incurred on site.
• Can a subcontractor issue a contra charge against the main contractor? Yes, contra charging works both ways if the contract permits. Subcontractors can offset losses caused by main contractor breaches, late information, restricted access, or missing materials, against amounts owed. However, most subcontracts limit subcontractor set-off rights more heavily than main contractor rights.

Contra charges protect your cash flow when subcontractors fail, but only when executed correctly. Missing notice deadlines, inadequate documentation, or wrong procedures transform legitimate deductions into contract breaches. Follow your contract terms precisely, maintain evidence, and seek legal advice before making significant contra charge deductions.

Don’t risk getting your contra charge wrong!

Qredible’s network of specialist construction solicitors ensures your deductions are legally sound and procedurally correct.

KEY TAKEAWAYS:

• Contra charges allow contractors to deduct losses caused by subcontractor failures directly from payments owed, providing immediate cash flow protection without pursuing separate legal claims for compensation.
• The process requires strict adherence to contractual procedures, including timely written notices, detailed cost evidence, and specific reference to set-off clauses within JCT or NEC3 contracts.
• Common mistakes such as missing notice deadlines, inadequate documentation, or incorrect calculations frequently result in adjudication losses, making professional legal advice essential for high-value claims or complex disputes.