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In the residential building industry, the right to claim a progress payment generally arises when the work as defined in the contract, has been completed.
The Victorian HIA Contracts provide builders with two options for progress payments:
Method 1 uses the prescribed progress stages required by section 40 of the Domestic Building Contracts Act 1995 (the Act). The stages are described as:
1. Base Stage
2. Frame Stage
When a home’s frame is completed and approved by a building surveyor.
3. Lock-up Stage
When a home’s external wall cladding and roof covering is fixed, the flooring is laid, and external doors and external windows are fixed (even if those doors or windows are only temporary).
4. Fixing Stage
When a home’s internal cladding, architraves, skirting, doors, built in shelves, baths, basins, troughs, sinks, cabinets, and cupboards are fitted and fixed in position.
When the building works under the contract have been completed.
The percentage of the contract price able to be claimed by a builder for each stage of works will depend upon what the builder is being contracted to perform. The below table prescribes the different stages and percentages which may apply under Method 1.
|Type of Contract||Percentage of Contract||Stages Included
(as described above)
|Contract to build to lock-up stage||20%
|Contract to build to fixing stage||12%
|Contract to build all stages||10%
Note: The progress stages should add up to 100% once the builder adds:
Method 2 allows the builder and the client to agree to different progress payment stages and percentages. This option offers parties flexibility as progress stages may be customised to suit business and cashflow needs. The amount claimed in each stage must reflect the value of the works being completed.
When using Method 2 it is important to be very clear in the description of the works to be completed in each stage.
If Method 2 is selected, the owner must sign a separate form acknowledging that their legal rights are changing and agreeing to the different progress stages being used. This is included in the HIA Contracts.
A claim for payment can only be made once all the work under a relevant progress payment stage has been completed.
Section 11 of the Act also sets out limits on the amount of a deposit that can be taken.
The builder cannot take a deposit of more than:
These limits cannot be changed, even if you are using Method 2.
Failure to comply with this requirement may result in the owner being able to terminate the contract and the builder may also face penalties.
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No matter the size of the job, a watertight building contract is critical to protect your business, and the current climate presents a great opportunity to go digital with your contracts.