Many readers will find information in this article to be basic and familiar regarding progress payments to which builders are entitled at various stages of the build under domestic building contracts.
However, basic concepts are often forgotten, glossed over or ignored over time. Being reminded of these can be important.
Firstly, – and many of these requirements apply across all states in Australia – builders are not legally allowed to take any payments (deposit and/or progress payment) in connection with a build until the owner has been provided with a copy of the domestic building insurance policy. Work cannot commence until this has been done.
The schedule of progress payments which will apply throughout the build is set out in the contract.
Often, these payments occur at the base, frame, lock up and fixing stages. There is either a standard progress payment schedule or the parties can agree to an altered schedule. The contract also sets out the process through which claims will be made. That is, upon each stage being reached, the builder provides the owner with a written progress payment claim which then needs to be paid – usually within 7 days.
Where claims are paid late (or not at all), builders may under the contract:
- charge interest for the time the claim remains unpaid – the applicable rate is often specified in the contract.
- suspend works whilst the claim remains unpaid
- terminate the contract where claims remain unpaid (with proper notice to owners).
With owners typically needing to send claims to the bank for processing, the seven-day timeframe is often tight. Where there is a possibility of delay, owners should communicate with their builder.
At the end of the build, there is a defined process regarding the final payment claim. A final inspection is undertaken by the owner, the building surveyor and/or the owner’s own building inspector. So long as the property is relatively defect free and the works accord with plans and specifications, either an Occupancy Certificate and/or a Certificate of Final Inspection is issued. With each stage, the owner (or their inspector) needs to confirm not only that the works to date have in fact been completed but also that they accord with the contract and comply with building laws and regulations.
Anecdotally, my experience has been that variations are a more likely cause of dispute than progress payments. This is not to say that progress payment disputes don’t arise but rather that the contract for the build must be followed. Arguably the most common area for progress payments disputes relates to disagreements about whether the works which relate to the claim have in fact been done. This is notwithstanding the fact that at least in Victoria, each stage is defined in legislation. Unfortunately, many owners and some builders are either unaware of these definitions or forget that they exist. Penalties apply for breaches or non-compliance with legislated progress payment provisions.
If you have been in the industry for a long time and have not read a building contract for awhile, having a quick read is a good idea to see if there is anything in the standard contract (HIA and Master Builders contracts) which has changed as well as to refresh your memory regarding the content.
In the end, the contract is king.
If in doubt, read the contract.