Progress Claims for Domestic Building Work and Cost-plus Contracts
Progress Claims: Challenges and Solutions
Progress claims for domestic building work and costplus contracts in Victoria are governed by legislation that dates back to the last century.
Unfortunately, this legislation often fails to adequately protect consumers or promote fairness for builders. Two specific areas where the legislation creates unnecessary complications are progress payments and cost-plus contracts.
Progress payments:
Many individuals, including banks, mistakenly believe that the progress payments outlined in HIA domestic building contracts are HIA recommended. However, this is not the case.
“Many individuals, including banks, mistakenly believe that the progress payments outlined in HIA domestic building contracts are HIA recommended. However, this is not the case.”
Instead, they are government imposed and come from the 1980s. Like many other things from that decade, such as the fashion, they have not aged well.
The legislation takes a simplistic approach by providing standard definitions and percentages for progress payments. These prescribed progress payments are applicable to domestic building work, including renovations, where the contract price exceeds $10,000, unless the builder and client mutually agree on an alternative approach. To utilise this alternative method, the client needs to sign two forms and the builder one form within the contract, clearly defining alternative progress stages and percentages.
“These (the legislation) prescribed progress payments are applicable to domestic building work, including renovations, where the contract price exceeds $10,000, unless the builder and client mutually agree on an alternative approach.”
Due to the antiquated nature of these progress stage definitions, it has become common practice for builders to implement alternative progress payments that align better with the actual progress of the building work. Changing the percentages for each progress stage is less frequent, as banks tend to focus more on numerical values than on stage definitions.
Builders employing alternative progress payments should ensure that their clients understand the reasons behind this choice. Although it can be frustrating to comply with additional form-signing requirements imposed by the law, builders can use this process as an opportunity to help clients comprehend how they will be billed for the building work.
“Builders employing alternative progress payments should ensure that their clients understand the reasons behind this choice.”
Cost-plus contracts:
In Victoria, cost-plus contracts should typically only be used for domestic building work if the estimated contract price exceeds $1 million. However, there is an exception to this rule. If the project involves renovating, restoring, or refurbishing an existing building, and it is not feasible to calculate the cost without carrying out some buidling work, then a cost-plus contract may be utilised. In such cases, it is up to the builder and client to determine if this exception applies.
“In Victoria, cost-plus contracts should typically only be used for domestic building work if the estimated contract price exceeds $1 million.”
Many clients and builders involved in significant projects prefer using cost-plus contracts, as they allow for a fairer distribution of risk between the parties involved. Builders who choose this pricing method should possess experience and skills in effectively managing client expectations and maintaining open lines of communication. Inexperienced builders should exercise caution when dealing with such projects and contracts.
“Inexperienced builders should exercise caution when dealing with such projects and contracts.”
HIA members seeking further guidance on these issues can reach out to our Workplace Services team. Additionally, updates on these matters will be available on our website and through regular emails sent to our members.