Progress payments

Are there any restrictions regarding payment terms? 

Builders cannot demand or receive money from an owner that is not directly related to the progress of a residential build, except for a deposit. This is regardless of whether the parties reach an agreement regarding different payment stages. 

Additionally, the amount of deposit that can be requested must comply with the Residential Building Work Contracts and Dispute Resolution Act 2016 (the Act), which states that the deposit must not exceed:

• 5% if the contract price is $50,000 or more 
• 10% if the contract price is between $20,000 and $50,000
• 20% for contracts of any price, where the value of the works being performed includes off-site work that is more than half of the total contract price. 

What do HIA Contracts say about progress payments?

Builders and homeowners can agree on the number of progress payments and the timing of the payments if they are clearly stated in the contract and proportionate to the work performed.

The HIA Tasmanian Plain Language Residential Building Contract (the Contract) deals with progress payments under Schedule 2. Builders can insert the agreed construction stages and relevant percentages into the progress payment schedule, as required to meet their project needs. 

Payment of progress claims

Clauses 28 and 29 of the Contract sets out the requirements for both the builder and homeowner regarding claiming and payment of progress claims. This includes ensuring that: 

• the builder has provided a written payment claim in accordance with clause 28.0
• the owner pays the progress claim within 5 working days after the relevant stage has been completed and the builder giving the claim to the owner (clause 29.0).

Final Payment 

Under clause 37.0 of the Contract, final payment is linked to when the builder believes that the building works have reached practical completion. The builder must provide the owner with written notice regarding practical completion along with the claim for final payment. Find out more about practical completion.

The owner must pay the final payment claim within 5 working days of receiving the notice of practical completion and defects document (if required).

Disputes over progress payments

There are several types of disputes that may arise regarding progress payments. To avoid a payment dispute, it is important for builders to properly administer their contracts and be aware of the following scenarios:

The Progress Payment Schedule in the contract has not been completed

 An owner may dispute as to whether a progress payment is payable because it is unclear whether the relevant construction stage has been completed. 

For these disputes, builders should ensure that they are referring to the construction stages as set out in Schedule 2 of the Contract. Before claiming payment, it is important that all relevant work for the relevant stage has been completed. 

If a dispute arises, builders should communicate with their client to try and resolve the dispute. Builders can try explaining what works fall into each category, or completing further works as requested by the owner and resending the progress claim. If the client continues to refuse to make payment, the builder should refer to the suspension of work clause 35.0 for further options. 

Lending body is withholding payment 

Banks are becoming more involved in domestic building projects. They can sometimes hold up payment until certain items of a build have been completed. 

The owner has obligations under the Contract to ensure their lending body has sufficient notice to inspect the building works to enable payment to occur on time (clause 28.1) and to allow the lending body to pay the builder directly (clause 29.1). 

Late and non-payment

Sometimes an owner is consistently late on payments. The Contract allows builders to claim default interest on any unpaid amount at the rate stated in the contract until payment is made (clause 30.0). Additionally, failure to make payment is a breach of contract and builders may elect to take further steps including suspension and ending the contract. It is important to speak to a solicitor before taking any steps to end a contract. 

If you are having difficulties in getting paid by your client, contact HIA to speak with a Workplace Advisor about your options.

To find out more, contact HIA's Contracts and Compliance team

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