Current at: 24 February 2010
How to determine default interest for HIA contracts
Applicable for QC1 /QC2/QC3 and Small Works Contract
HIA’s QC1, QC2, QC3 and Small Works contract entitles the builder to charge Default Interest on outstanding monies owed.
Default Interest is currently defined in these contracts as “the annual rate equal to the Commonwealth Bank (CBA) overdraft interest rate: quarterly charging cycle plus 5%”.
The overdraft rates periodically vary, so it’s important to get the most up to date rate. All Commonwealth Bank interest rates, including the CBA overdraft index rate: quarterly charging cycle, are published every Monday in The Australian (Business section) or are available online at:
http://www.commbank.com.au/business/rates-fees/#overdraftindex
How do you work it out?
Interest owing can be calculated using this simple formula:
Interest Payable = Debt Outstanding x Interest Rate x Time Overdue
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Example:
Bob the Builder has a QC1 2000 Contract with Jenny the Owner. Bob submitted a progress claim at the completion of the Frame Stage for $40,000 on the 12th March 2008. The QC1 Contract requires Jenny to pay the progress payment within 5 working days. Jenny pays the claim on 28 March 2008, which is 10 days late.
Bob decides to charge Jenny default interest.
Bob checks the CBA overdraft index rate: quarterly charging cycle and it is 11.35%. Accordingly the default rate is 16.35% per anum (the CBA rate plus 5%).
Bob would calculate the Default Interest using the following formula:
Interest = Debt outstanding x Interest Rate x Time Overdue
Interest Payable = $40,000 x (16.35%/ 366 days) x 10 days
Interest Payable (per day) = $17.87
Total interest payable = $178.70
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For further information contact HIA Workplace Services on 1300 650 620
DISCLAIMER – the above is intended to provide general information in summary form. The contents do not constitute specific adive and should not be relied upon as such. Formal specific advice should be sought by members with respect to particular matters before taking action.