WHEN IS YOUR BUILDER ENTITLED TO BE PAID
When is your builder entitled to be paid?
In the residential building industry, the builder has a right to claim a progress payment when the work as defined in the building contract, has been completed.
The Victorian HIA Contracts provide builders with two options for progress payments:
Method 1 – Which are the prescribed progress stages and percentages; or
Method 2 – Which allows builders to fill in their own customised progress stages and percentages.
Method 1 – Prescribed progress payment stages.
- 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 follows:
Base Stage
- In the case of a home with a timber floor, the stage when the concrete footings for the floor are poured and the base brickwork is built to floor level.
- In the case of a home with a timber floor with no base brickwork, the stage when the stumps, piers or columns are completed.
- In the case of a home with a suspended concrete slab floor, the stage when the concrete footings are poured.
- In the case of a home with a concrete floor, the stage when the floor is completed.
- In the case of a home for which the exterior walls and roof are constructed before the floor is constructed, then stage when the concrete footings are poured.
Frame Stage
- When a home’s frame is completed and approved by a building surveyor.
Lock-up Stage
- When a home’s external wall cladding and roof covering is fixed, the flooring is laid, and the external doors and external windows are fixed (even if those doors or windows are only temporary).
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.
Completion
- When the building works under the contract have been completed.
The prescribed progress payments required by Section 40 of the Domestic Building Contracts Act 1995 are clearly set out in the attached document – https://www.legislation.vic.gov.au/in-force/acts/domestic-building-contracts-act-1995/088
Method 2 – Customised progress payment stages.
Method 2 allows the builder and the client 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 very 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.
It is very important to note that some builders are using method 2 to get their customers to pay for construction stages before they are fully completed.
For example, some builders are requesting the frame stage payment when the frame is either substantially complete or a percentage of the next stage has commenced.
The term substantially complete is a vague term and it is not easy to quantify. For example – How do you determine when a frame is substantially complete!? Is a frame substantially complete when it is 75 % complete, 79% complete, 85% complete, 90% complete or 95% complete? What parts of a frame account for the largest percentage of the overall frame and what parts of a frame account for the smallest percentage of the overall frame? What percentage of the overall frame do the roof trusses account for?
Builder’s should not be requesting payment for the frame stage if it is only 80% completed or only 2% of the next stage (i.e. the lock-up stage) has been completed.
Equally, builders should not be able to request payment for the lock up stage when the external wall cladding, eaves lining and roof covering is only substantially installed.
Builders should not be requesting payment for the fixing stage when all internal cladding, plaster, architraves, cabinets built-in shelves, doors and cupboards are substantially installed.
If the terms used to describe completion of the various stages of construction are vague and cannot be easily quantified, it is much easier for builders to prematurely request progress payments when the relevant stage has not been completed.
In light of the above, Finalinspect strongly recommends that only Method 1 is used. For example, under Method 1, the builder is not allowed to request payment for the frame stage until after the surveyor has approved the frame. The date on the tax invoice for the frame stage must not precede the date on the surveyor’s frame approval certificate. Customer’s are legally entitled to receive a copy of the surveyor’s approval of the frame before they hand over their frame stage payment to the builder.
When is your builder entitled to be paid is a very important question.
If you need to answer the question – when is my builder entitled to be paid, please contact Mr. Peter Limburg, Principal at Finalinspect on 0408 132 152.
May08