What is HIA Progress Payment in Construction Contract?
The HIA progress payment clause in the New South Wales standard fixed price construction contract template permits the Builder to make a claim when the Builder achieves completion of a stage of works.
A progress claim under the New South Wales construction contract is to state the claimed amount for the progress payment stage, the contract price adjustment amount, the variation amount, and then the total of these three costs.
The HIA fixed price and cost plus templates, however, do not say that the progress claim may also enliven the Building and Construction Industry Security of Payment Act. For Builders to enliven their rights under the New South Wales Security of Payment law, the Builder simply needs to specify that the progress claim is made pursuant to that Act, they specify the works and services that is the subject of the claim, and the claimed amount. This is an additional right to the requirements under the Home Building Act which is a primary law that governs residential building work in New South Wales.
How Do You Make Progress Payment Claim Under the Housing Industry Association Contract?
The Housing Industry Association construction contract allows Builders to issue their claims by email and post. Commonly, most people communicate information under a Construction contract by email. The progress payment claim must specify the requirements under the contract and if the claim wishes to enliven the Security of Payment law, then the Builder must also satisfy the requirements of that law. The Home Building Act has no strict requirements for the Builder to issue a progress claim.
Homeowners should require builders to provide evidence that the works the subject of these claims are properly completed. It is best practice for the homeowner to engage a building consultant. The building consultant can assist the homeowner with assessing whether or not the works are properly completed.
Often homeowners obtain the funding for the contract price through a bank or lending institution. The Bank or lender may appoint a quantity surveyor. If homeowners are obtaining funding from a third party, then the homeowner should ensure the contract provides a mechanism for the proper inspection, assessment and rectification as required by the lender’s representative.
Otherwise, homeowners face being at risk of breaching the contract.
How Do You Pay a Builder in Stages?
In New South Wales it is a requirement under the Home Building Act that the Builder makes claims by stages. However due to the New South Wales governments change to the application of the security of payment law, Builders are able to make claims progressively despite the stage requirements.
Home owners should be diligent and ensure that the contract payment terms reflect their financial position. Homeowners should also diligently administer their contract. Homeowners should issue builders payment schedules assessing progress claims.
If the homeowners believe the Builder has achieved stage completion of works then the homeowners should pay the stage by the due date pursuant to the contract.
When Must HIA Progress Payment Schedule Be Included as Part of the Contract Documentation?
Under the HIA fixed price contract, typically builders are entitled to be paid within 5 days from the date of receiving the claim. Homeowners should amend their contract to extend the due date to 20 business days from the date of receipt of the claim. This is because under the Security of Payment law, homeowners have 10 days to issue a payment schedule. The payment schedule allows the homeowners to provide their reason for not paying any part of the claim.
The HIA progress payment schedule is important. If the Homeowner fails to issue a progress payment schedule or a dispute notice to the claim then the owner is exposed to the Builder enforcing his rights through adjudication. The Builder will be able to quickly recover his debt even if the value of works on site is less than the debt. The Builder will also be able to recover the money by garnishing the homeowner’s bank account, or garnishing the homeowner’s employer.
Managing Risks with HIA Progress Payment Claim
Homeowners should update their contracts to reflect their financial position. For example, if the homeowner is using their personal funds to pay the contract price, homeowners should delete the clause in the contract requiring joint bank accounts.
Homeowners should be aware that overpaying the Builder exposes them to not recovering the overpayments from the HBCF insurance. The HBCF Insurer generally does not insure overpayments. However, homeowners should familiarise themselves with their insurance policy. The policy may insure deposit payments.
Homeowners should be familiar with the Security of Payment law. Homeowners must also issue payment schedules against each progress claim.
When the Builder makes a claim for payment, the homeowner should attend the site to inspect the works against the claim. Homeowners should not overpay the Builder.
It is best practice for the homeowner to maintain a site diary of all events from first contact with the builder through to completion of the build.
The best way for homeowners to manage their risk is by having their contract reviewed by a construction lawyer. Homeowners should also maintain a relationship with a construction lawyer during their build so that if an issue arises, the homeowner can turn to somebody who may know the answer quickly and avoid a problem.
How we can help
We know it can be daunting to keep up with progress payment claims, and we can help you make sure you’re not overpaying, or missing payments. We help you protect yourself from the risk of payment disputes.
Contracts Specialist is led by principal lawyer John Dela Cruz, who has been in the active practice of Construction Law for over 10 years now. We specialise in reviewing construction contracts, Security of Payment, payment disputes, and other building and construction matters. You can email us for advice or feel free to book a consultation with us so we can take steps to ensure that your home building or renovation project goes smoothly. First consult is free.