Issues with Progress Payments in the Construction Industry
Progress payments are instalments paid for construction work while a project is ongoing. As a contractor for construction work, you are usually entitled to intermittently bill your customer not only at the completion of the project, but also while the project is ongoing.
You can request a progress payment from your customer by issuing them with a payment claim. In most cases, these claims must be settled within a specified period, otherwise penalties and interest may apply.
What are the issues?
Unfortunately, unavoidable disputes may sometimes arise over progress payments. Some common issues that may arise include:
- Disputes over calculating the percentage of work completed,
- Delays in work leading to breaches of contractual deadlines, and
- Issues with the quality of work made at different stages
Disputes can arise over how much work has actually been completed, as there can be a degree of subjectivity between contractors, builders and clients.
For example a contractor may believe he/she is 50% completed on task and issue a progress payment claim which gets rejected by the builder.
It is vital to understand that the main contractor can in some cases claim liquidated damages or set off payments. This is possible if work is not keeping up with the agreed schedule slowing the whole project. However, for this to be valid it must expressly outlined under your construction contract.
This is why it is important to understand the terms of your construction contract and discuss them clearly with the other party.
Progress Payments in your Construction Contract
The industry standard for progress payments dictates they arise at the base, frame, lock-up and fixing phases of a building project. However, it is also important to familairise yourself with the contract you have. Your construction contract will usually set out the terms of your progress payment.
This would include:
- The methods for calculating progress payments
- Deadlines on when work needs to be completed
- The penalties for late or negligible work
Keep in mind, it is always advisable to have a lawyer look over your construction contracts for larger projects. This is so you can initially understand what your contract expects from you and avoid any future disputes. It will allow you as well to legally propose amendments to the other side if you are unhappy with a particular clause.
It is worth noting that, if a dispute over a progress payment arises the contract may state a process for dispute resolution. Your dispute resolution clause usually states the process on how to resolve a dispute.
The use of progress payments can be beneficial for your construction business. Progress payments have benefits in the sense that as a builder you can ensure your business retains cash flow and avoid going into debt on a job. Also it essentially allows you to stop work if you are not receiving payment.
Building and Construction Industry Security of Payment Act 1999
The Building and Construction Industry Security of Payment of Act, allows for the use of progress payments. The Security of Payment Act also ensures provisions are in place in order to minimise the above issues. Here some main points to keep in mind when undertaking in progress payments.
- Section 8 ensures that a construction contract may fix a reference date or provide a method for fixing a reference date
- Section 9, which allows for a construction contract to set out a method in which parties can calculate progress payments
- While Section 34, which renders void any provisions of a construction contract that restrict or modifies the SOP Act
To Sum Up
- Set out clear terms in your construction contract about your progress payments
- Outline the stages of the construction process for part payments
- Discuss the method of calculation with the other party
- Assert deadlines and make the penalties clear to the party
It always advisable to get help from a lawyer when you draft your construction contract and terms for progress payments. If you are having some issues with progress payments or any dispute generally, our construction lawyers are here to help. Just call us at 1300 337 997, or complete the form on this page.