Pay As You Go
When you’re building a home, make sure every progress payment reflects a job well done, writes
Builder’s progress payments reward a job well done.
Asucker for hard-luck stories, that’s me. Not long ago, I was approaching the end of a homebuilding project that involved a lot of steelwork, done by a welding fabricator under a contract that had nothing to do with the builder. The fabricator asked for his final payment early so he could pay for materials and apply all his time to completing my job. I paid him – silly me.
Of course, he disappeared. I spent weeks trying to track him down, ringing a phone that never answered, bashing on his front door, all to no avail. The matter ended up in court and another contractor finished the job. The lesson? Never pay a progress payment before it’s due.
When you sign a contract for a house to be built, it will include a schedule of progress payments. Dodgy builders sometimes try to ‘front-end load’ this schedule so that they’ll get big, unwarranted payments early on.
Depending on which state you live in, legislation may limit the amount you pay the builder as a deposit to five per cent. Typically, you’ll then pay 10 per cent for the slab/foundations, 15 per cent when the frame is erected, another 35 per cent at lock-up stage and 25 per cent when the ‘fix-out’ (architraves, doors and the like) is done. The 10 per cent balance is the final payment.
While legislation varies across states, the Housing Industry Association advises that, generally, any progress payment should be for work that has actually been performed and materials that have been supplied. A builder cannot, for example, demand a progress payment for bricks until the bricks have been delivered to the site.
Don’t sign a building contract before checking it with both your bank and your solicitor. Sometimes a bank will have special requirements for progress payments, and these may need to be covered in additional clauses.
State fair-trading organisations suggest having a progress inspection done by an independent building consultant or architect before each payment is made. It will then be the consultant’s job to make sure all the work set out in the contract has been done and meets the appropriate standards. Expect to pay between $250 and $500 for each of the inspections.
An independent inspection is especially important when it comes to the final payment at ‘practical completion’. This is when all works are done, with the exception of ‘minor defects or omissions’, and the house is fit for occupation. At this stage, before you pay up, you should be given all the relevant warranties and certificates for things such as waterproofing and termite protection.
If necessary, withhold the final payment; it’s one of the best ways to ensure that your builder stays on the job until it’s finished and the major defects are rectified. Just make sure you give the reasons in writing.