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Progress payments for residential building work

Difficulties may be presented when the owner’s financier is not a party to the building contract and has no direct contractual relationship with you.

Throughout the course of a building project you may have to deal with requests or queries raised by the owner’s bank or lending body in relation to your progress payments and the value of each stage. This may present difficulties as the owner’s financier is not a party to the building contract and has no direct contractual relationship with you.

The Home Building Act requirements

Since 1 March 2015, a progress payment schedule must be included in a contract over $20,000. It is also a requirement that progress claims can only be made either: at the completion of a specified stage; or at intervals (when claiming for costs incurred plus a margin) provided the claim is supported by invoices, receipts or other documentation.  

Payments must be of a specified amount or percentage of the contract price and the stages of work must be described in clear and plain language. While parties are able to negotiate what stages of work will occur and the value of the contract price that will be claimed the general rule is that the amount should reflect the value of works completed.

Dealing with your client and their lending body 

Once you have provided the owner with the proposed progress payments schedule, make sure they run it past their lending body before signing the contract. The lending body has its own valuation of progress stages and works in progress which often differ from the commercial value of those works or even the actual cost of materials and labour. 

Many lending bodies are insisting that the progress payment schedule be in line with the industry standard or the HIA Standard schedule of progress payments. It is important to note currently that this does not exist in NSW. Whilst some States have regulated progress stages this is not the case in NSW.

Who are your obligations to with regard to the progress payments?

While the lending body is not a party to your contract, if they are refusing or delaying finance you could be left in a difficult position. If payment is not made on time due to a refusal by the bank to advance funds this puts the owner at risk of breaching the contract. Sorting out the payment schedule before signing the contract, and ensuring that the bank or lender has that information when finance is agreed to, may save a lot of time, effort and angst.  

Remember, you have an obligation to the owner and what you have agreed to for those stages is what is enforceable.

My rights if the owner does not pay a progress claim? 

At the end of the day, if you have performed your work in accordance with the contract, you are entitled to payment. Your contract is with the owner, and whilst their lending body may be delaying or withholding payment, you should not be afraid of taking the appropriate action to secure your right to payment such as charging interest on late payments. 

Non-payment of a claim is a breach of contract and if you are concerned about the owner failing to make repayments, you may wish to ensure they provide a guarantor. In the event that the owner fails to make a payment you can enforce the contract against the guarantor(s), to recover those funds.  

HIA contracts give the builder a right to request from the owner written advice from the lending body that sufficient funds will be available to cover the costs of works.  If the owner fails to satisfy this condition during the initial period i.e. prior to works commencing, the builder may end the contract.

If the owner is struggling to acquire the require funds to cover the cost of the works, it may be in your interest to weigh up your options and reconsider if taking on this job is right for you.

To find out more, contact HIA's Workplace Services team

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