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In the residential building industry, a right to a progress payment generally arises with the completion of a stage of work as defined in a building contract. The following information sheet provides some guidance on the legal and commercial issues which should be considered when taking payments under a residential building contract.
The legal requirements in relation to progress payments are set out in the Home Building Contracts Act 1991 (HBCA). The HBCA sets out minimum requirements for certain contracts, and prohibits certain arrangements, including how much can be charged by way of deposits and how progress payments can be charged.
The HBCA applies if you are entering into a ‘home building work contract’. This means a contract for the performance of ‘home building work’ or ‘associated work’, where the value of the contract is between $7,500 and $500,000 (excluding cost plus contracts).
Home building work includes:
‘Associated work’ includes installing swimming pools, spas, pergolas, carports, garages, sheds, fencing, retaining walls, paving, driveways, landscaping and other similar types of work.
For lump sum building contracts between $7,500 and $500,000, the HBCA provides that:
As such, a claim for a progress payment cannot be made before the works for the relevant stage have been completed, and the amount of such progress payments must relate to the works completed for that stage.
Beyond these requirements, builders and contractors should be guided by commercial and business factors in determining how to structure their progress payments.
In HIA’s lump sum residential contracts for home building works between $7,500 and $500,000, the Schedule to the Contract which is to be filled out stipulates that a deposit not exceeding 6.5% can be claimed and enables specific stages to be nominated depending on the requirements of the project.
Numerous factors must be taken into consideration when determining the appropriate progress payment schedule including the:
Banks and financial institutions may attempt to prescribe ‘standard’ progress payment schedules, however there are no standardised progress claims stages or percentages/values which must be adhered to in Western Australia. Over time, certain progress payment stages have become ‘understood’ and widely used, through custom and practice in the residential building industry.
Some example stages for progress payments for a single storey residence are set out below. These stages are not prescribed by law and serve only as a general guide as they may not be suitable for all building works. Further each contract should clearly define what is meant by the provided for stage definitions, the below definitions are provided as an example only.
Payment received before the commencement of the home building work. The amount must not exceed 6.5% of the total costs of the work.
Footings poured. Stumps, piers or columns complete. Internal and external drainage complete. Electrical gas and plumbing, rough in below the floor complete. Floor slab poured.
Completion of the walls of the structure that provide a platform for the construction of roof frame. All window and door frames have been built into the walls and internal walls have been constructed.
Roof cover of the building has been installed, along with all valley flashings or gutters, fascia and down pipes. Depending on the type of roof material being used, flashings and linings have been installed and ridge capping placed but not necessarily grouted so that the roof is water tight. In some cases down pipes may be incomplete to facilitate painting or rendering at a later time.
The structure is now able to be secured. All external doors and windows have been installed. In some cases external door openings are secured temporarily to prevent damage to specialist timber frames and doors, but generally all glazing and glass sliding doors have been fitted. Surfaces of external walls have usually been installed, but painting or texturing often comes later. Utilities are in place and internal wall surfaces have been applied.
Completion of work to a final finish stage such as tiling, plumbing fit-off, cabinet work and carpentry and electrical fit-off.
As outlined in HIA’s lump sum residential contracts from home building works between $7,500 and $500,000:
When the building works are complete except for minor omissions and defects that do not prevent the building works from being reasonably capable of being used for their usual purpose.
House cleaned internally and externally. Site cleaned and all excess items removed from site.
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