Guide to Progress Claims in the Building & Construction Industry
Today, the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) ensures those in the building and construction industry get paid in full. It also helps eliminate delays that can be costly and stops contractors and principals from holding up or reducing payments owed.
Depending on the time, size, and complexity of a construction project, a progress claim is necessary. However, it can be tricky.
There are various systems used for construction progress claims, and it can be challenging to track where a claim is.
Progress Payment Claim in a Construction Contract
A progress payment claim is a written request for payment given to a company or an individual that owes money for the construction work delivered based on the written agreement.
Contractors, subcontractors, suppliers, and consultants can make a claim under the BIF Act for the work completed based on the original contract sum, and supporting documents.
The Requirements of a Payment Claim Include:
– The work carried up to the reference date
– The outstanding payments from a previous payment claim
The reference date is the date in the contract from which a progress claim may be made for work to be done. In the case that there is no written contract or it is a silent contract, the BIF Act will set a default reference date, which may vary depending on the circumstances.
Usually, the reference date is the last day of each calendar month.
It’s essential to note that all payment claims must be documented properly. The claim should identify the work carried out related to the claim and the amount of the claim.
Head contractors that will issue a payment claim to the developer or principal must have a supporting statement.
A supporting statement details whether the subcontractors or a head contractor have been paid in full. This also contains details on the outstanding amounts owed to subcontractors based on the contract terms.
It is expected that a supporting statement is always given with every payment claim. However, the head contractor is directly contracted by the financier or developer who provides the supporting statement. Also, this is only feasible when the head contractor has engaged subcontractors under the contract.
However, there are some contracts that require other documents, such as the statutory declaration, worksheets, and more for specific stages the claim brings based on the original contract.
Progress payments or one-off payment claims must be delivered within six months of the date the work was done. While final payment claims should be issued within the required timeframes—this can be within 28 days or within six months.
Invoice vs. Progress Claim
Invoicing is the total amount paid for the work that is completed, and the payment is sent within an agreed period. Progress payments in the construction industry are when the participants of the building project must send a progress claim for the money owed.It’s important to note that you need to raise an invoice for a progress claim once the progress claim has been approved.
There are also some instances when contractors may be asked to provide statutory declarations to prove the validity and legitimacy of the payment request.
How to Calculate the Claim Amount
Calculate the payment that is set out in the contract. In the case that the contract doesn’t state the requirements, the amount will be calculated based on the construction work value in accordance with the contract.
When is the Best Time to Give a Payment Claim
The contract usually has a reference date of the day from which contractors can make a payment claim. As mentioned, for those with no contracts or who don’t have reference dates, you can use the reference date guide stipulated by the BIF Act.
One thing to keep in mind is that only one payment claim for each reference date can be made. Contractors can give a payment claim for completed work on or after the reference date.
Progress Payment Claim Response
A progress payment claim should never be ignored. There are three ways to respond to a payment claim:
1. Pay the amount in full by the due date
2. Provide a payment schedule within the response period
3. Pay the proposed amount in the payment schedule by the due date
If a claim is denied, the claimant can take action. Contractors can hire a legal team to assess any errors and/or suspend work on the site.
What is a Payment Schedule
A payment schedule is only given to a claimant if the contracting party doesn’t agree with the amount claimed. This is when the contracting party plans to pay for a different amount.
There are different reasons behind this such as the claimant thinks the claim is not valid. In some cases, it can also be due to the contracting party only able to afford to make a partial payment in the meantime or disputing the claim because of the total value.
Whatever the reason is, as long as the contracting party doesn’t intend to pay the full amount by the due date, they should give the claimant a payment schedule within 15 days following the receipt of the payment claim.
The payment schedule should clearly identify which claim it is responding to. It should state the amount and must have all the reasons the contracting party is paying the lesser amount or withholding payment.
What to Avoid When Making Progress Claims
Making a mistake with a progress payment claim is not new. The good thing is, some of the mistakes are avoidable.
For one, there are contractors and principals who fail to send the progress claim on time. Although this may already be obvious, some people still miss it. Remember, the timing of the progress claims should be aligned to what’s defined in the contract.
Another one is when submissions are incomplete such as change orders, and other necessary documents. These are crucial documentation relevant to a project that must be included in the progress claim.
Finally, some contractors even fail to include evidence of the performed work. Visual documentation and daily construction reports are important to the progress claim, failing to add them can lead to further delays.
How to Make Progress Claims Online
To make the progress claims system more effective, most contractors have gone online. With this, it has become easier for the claimants to submit their claims, and for the developers or principal to check the status and approve or deny the claims.
As a result, there is no need for the involved parties to send their payment claims in paper forms. It has also allowed for faster tracking of the progress of a payment claim.
However, developers, principals, and contractors can still use their old methods, but they need to send their progress claims and supporting statements where required.
To ensure the best information and tracking possible, it’s crucial to use the correct progress claim form as it will help a lot in the future.
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What are progress payments in construction?
Progress payments are done while the construction project is ongoing. It is based on the percentage of work that is complete. With this, contractors don’t need to wait until the job is 100 per cent complete to get paid. Progress payments make it possible to bill incrementally, which takes a huge burden off the shoulders of contractors and ensures positive cash flow.
What is a progress claim invoice?
Invoicing is different from a progress payment claim in the construction industry. There is a requirement to lodge a progress claim for the money owed, which is more complicated than an invoice due to the many details that come with it. A progress payment claim may require other documents to solidify the claim.