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Progress payments and finance agreements

August 04, 2019

HIA Workplace Services has recently been receiving questions from members about a side document that the financier for their client has demanded they sign after the client has signed a domestic building contract with the builder.  The document states that the financier will not make progress payments as outlined in the building contract and that the deposit will be released during construction and not as an upfront payment.

Section 40 of the Domestic Building Contracts Act 1995 (“the Act”) clearly states that progress payments must comply with the prescribed stages in the Act (called method 1 in the HIA contract) unless the proper process is used for the builder and client to agree to an alternative.  The alternative is called method 2 in the HIA contracts and requires two forms to be filled out and signed.  A builder is bound by method 1 if the proper process is not used by the builder and owner to agree to method 2.

Arguably the side document makes the builder use method 2 for progress payments as it purports to require the builder to receive progress payments as determined by the financier’s quantity surveyor.  The side document is not in the right format to comply with section 40 of the Act and its legal effect is far from certain.  It is recommended that members do not sign a side document like this without legal advice as the document not only causes confusion about the builders right to be paid the deposit or progress payments as set out in the building contract but also may cause the builder to breach section 40 of the Act.

If you need clarification about this matter do not hesitate to contact HIA Workplace Services on 1300 650 620.