Construction progress payments

What are progress payments?

Unless you are paying in one lump sum, chances are you will have a clause in your contract for regular progress payments to be made to your builder.

You can negotiate with your builder how these payments will be organised, including:

• The number of payments.
• The amount of each payment.
• The gap or stage of progress between payments.
• The date or stage when each one is due.

If you have a project manager, one of their tasks will be to monitor progress payments on your behalf. Make sure this is specified as a task and they are qualified to recommend payment.

However, if you don’t intend living in the house you are building - for example you are building it as a ‘spec’ home, or to rent - the Construction Contracts Act is more prescriptive in how progress payment are to be made.

You should also be aware that residential property developers (including spec builders) must obtain a code compliance certificate before sale can be completed or possession can take place.

Making the payments

Depending on what you agreed with the builder, they will claim a progress payment by serving a payment claim on you. They will do this at the end of the month to which the payment relates, or at the times specified in the contract.

The claim must be in writing, and must give details about:

• What work it covers.
• The period the claim covers.
• How much money is due.
• When payment is due.
• How the builder calculated the amount.
• What you have to do to respond to the claim, i.e. how to pay.
• What will happen if you don’t respond to the claim or don’t pay the amount.

The form that the builder must use to explain to you items 6 and 7 on the list is set out in the Construction Contracts Regulations 2003 Schedule 1, Form 1 which you can view on www.legislation.govt.nz.

Disagreements and non-payments

You are legally liable for the amounts due under the contract as a debt. If you simply don’t pay and don’t give the builder a written payment schedule (see below), it becomes a debt that the builder can recover from you in the courts, along with legal costs.

If you disagree with the amount claimed, you must notify the builder within the time proposed in the contract documentation and show your method of calculation for the alternative amount. The form in Schedule 1 of the Construction Contracts Regulation 2003 provides for a written payment schedule where you can state the amount you think you should pay. In the schedule you’ll need to state exactly:

• How you calculated this amount.
• Why it’s different from the builder’s claimed amount.
• If you’re withholding some money, why you are doing so.

If you don't pay the alternative amount described in the schedule, the builder can recover this amount, along with costs, in court.

The builder can only suspend work if this is agreed in the contract, or if it’s a commercial construction contract, i.e. if you have built the house with the intent of selling or renting it.

If you have a dispute about whether you have to make a progress payment or about the standard of work, you can take the dispute to an adjudicator under a scheme set up under the Construction Contracts Act or under the provisions of your contract with the builder for dealing with disputes. Building work is now covered by mandatory warranties.