Usually used in contracts, and required to be used under the SOP Act, progress claims in construction are made by a claimant for works performed up to a reference date. The contract usually allows you to claim for payment either on the completion of specific stages in the construction works or at certain time periods such as bi-monthly or 15th of the month. The Act calls for specific guidelines with how a reference date is calculated.
Using a payment application, a subcontractor or a contractor can place a request for progress payment, provided this is defined in the contract agreement. Payment applications are basically a type of construction document that subcontractors or contractors can use to request payment from the other party. A precise schedule of values (SOV) is required to be filled out in a payment application. Things like the list of all the work you will complete on the job and values of each item should be included in the SOV. All the parties in the construction payment chain are benefitted by progress payments as it allows the contractors to review the subcontractor’s work before it is complete, and eliminates the chances of any disputes before aa project is over. The progress payments application gives an opportunity to both the parties to bring issues related to work or quality come forward before they become a major issue.
What Is A Progress Claim?
Progress claims in construction are a necessary component of any arrangement where by a contractor submits monthly progress claims as set out with in the Act and inline with the requirements of any contract. These progress claims are required to allow for cash flow to contractors to get paid for works as they are completed. In many instances these progress claims are negotiated monthly between a client and the contractor. Ensuring you have completed a correct and accurate progress claim is the first important step in ensuring your entitled to payment of that payment claim under the Security of Payment Act.
A progress claim is submitted on a mutually agreed payment schedule. It provides evidence of the completion of work being claimed. Once a progress claim is completed and approved, you can then send an invoice form to the customer over the email, and see the progress claim summary. You can also see the cost centres and the latest sections claimed, paid off amount, and the remaining claim payment balance. Simply put, a progress claim includes a partial payment that covers the amount of completed work up to the point of invoicing. The various ways to structure the payments in the construction contract are billing by stage and invoicing by the percentage of completion. An example of invoicing by the percentage of completion of work would be sending an invoice when 40%, 70%, and 100% of the construction project is completed.
The Most Common Progress Payment Method
Ensuring familiarity with progress payments and their calculation is a good practice for the homeowners. Although possibilities are there that the calculations vary from one builder to another, there are some similarities across the process. Most of the builders invoice the homeowners with the total cost of completion of the building to date deducting the previous progress payments.
The homeowners must consider the fact that the progress claim can slightly vary depending on the builder chosen, the signed building contract, and the Building Act. Still, you may require to pay a 5% to 6.5% as a deposit. Homebuilding contracts in Western Australia range between $7,500 and $500,000. Although The Home Building Contract Act 1991 limits the deposit to 6.5%, different states follow different building acts. For instance, in Victoria and Queensland, the majority of a new home contract follows the Domestic Building Act 1995. The features of the Domestic Building Contract Act include:
- A maximum of 5% deposit with a value of $20,000 for contracts
- A maximum of 10% deposit with a value totalling over $3,300 and under $20,000 for contracts
- The amount of work finished and the progress payment must relate when the claimant requests for payment
The progress payment amount is calculated in accordance with the construction contract; however, if the amount is not specified in the contract, it will be assessed in terms of the value of the work carried out.
The Alternative Payment Progress Claim
An instance may arise when a builder asks the homeowner to agree to another payment schedule as compared to the one already mentioned in the relevant act. They can charge using the progress claim method based on the percentage of construction work completed. Such a system defines that the homeowner will make a payment at a specif time mentioned in the contract. The payable amount depends on the percentage of work that has been completed.
In general, the builder provides a breakdown of costs completed to date. Various bigger tasks like plumbing, roofing, earthworks, and concrete are grouped with several small tasks by the builder. Following this, the builder designates a particular amount of these tasks that