Progress payment issues

Hi all,

This is my first post on here so be nice!

My fiance and I have recently purchased land at Gregory Hills (NSW) and are building with a small, local builder. We are in process of getting construction loan approved and are having some issues with the required progress payment.

According to our lender, the progress payments must follow the "industry standard" as follows:

Deposit 5%
Base 10%
Frame 15%
Enclose 35%
Fixing 20%
Final 15%

My builder went back to the bank and said he was not happy with this structure as according to him the base and frame stages are too low. The biggest problem he has is with the base stage of 10%, which he says there is more than 10% worth just in costs.

He suggested making the enclose stage slightly less (30%) and using the 5% there to make the base stage 15%, however the bank will not approve the loan unless it follows the "industry standard" format.

Is this normal? Should the bank be more flexible? Is there an industry standard that has to be adhered to?

Thanks in advance!

payments schedule is normally changed by the builders to be front heavy. I told my builder that my bank would only accept the hia contract standard payment schedule. They where happy to do it that way.

The builder will make everything to their advantage. Having schedule front heavy will also cost you money in interest payments. Maybe if he wants it changed you could ask him to discount the price of the house to cover your extra costs.

Mine was

Deposit 5%
Base 15%
Frame 20%
Lockup 30%
Fixing 20%
Handover 10%

Changed it back to

Deposit 5%
Base 10%
Frame 15%
Lockup 35%
Fixing 25%
Handover 10%

What the builder has suggested is fairly typical of what builders want.

In Victoria legislation says:

Deposit 5%
Base 10%
Frame 15%
Lock Up 35%
Fixing 25%
Completion 20%

The trouble with paying too much is that it can all go really pear shaped if the builder goes bust (which is unfortunately not uncommon) see http://www.anewhouse.com.au/?p=3820

The simple answer to your question is that the lender is in control of the loan, no loan no build.
Stand your ground and say NO to the builder.

I think you are within your rights to ask the builder to explain why the standard HIA format wouldn't work for him. There is a clause that the builders can change it, if one section is more expensive than normal - so our builder explained to us. If it does truly cost more for a certain section, and your builder can justify this, maybe your bank will accept it.
But at the end of the day, everyone is right - no loan, no build!

His issue is with the base stage of 10%, which he says there is more than 10% worth just in costs. He wanted this bumped up to 15%.

However, he's agreed to go ahead with the build under this structure so all good.

Thanks for the replies.

I would actually be very concerned because a builder that gets 5% and completes the slab would actually get his 10% (first payment) before he has to pay out for his materials and subcontractors.
Most builder will have trade credits covering them for 30 days
That means a positive cash flow right from the start because builder is using trade credits instead of working capital to fund the job.

My question is why is he complaining? Perhaps he has no credits left and now cannot fund the job.

I would be asking lot of questions and doing a lot of research to ensure builder is solvent. Maybe it's all legit but it pays to be careful.

Actually, to be fair , I don't agree on that point. Many builders pay subcontractors weekly and if there is any delay with payment from a bank, which often is the case, the builder will pay out before he receives the progress payment. Anyway this is really a swings and roundabout problem. Sometimes progress payments are received before payment for goods and services and sometimes the other way. I don't think one should be concerned because a prudent builder wants to manage his cash flow. Thanks for listening to this one.

My point on this is the HIA New Home plain english contract is produced by a residential building organisation for builders, contractors, etc to use that complies with the state/federal regulations and any loop hole is used to bias it towards the builder not the customer. Banks now are a lot tougher with loan conditions as they now have realised they may be liable if they screw things up and so they see this as a standard contact and don't want anything changed. Customers have enough on their plate without adding extra stress with them having to go back to the bank. It adds a negative before the contract is even signed.

/rant on
My biggest hate in this contract is the Inclement weather clause loop hole. Its an excuse that builders use to extend the contract when they are running behind. Builders are not on site 7 days a week, just because you have a wet day doesn't mean they can't work on the site for the day and they also claim for days when they would not have been on site in the first place.
/rant off

Regarding inclement weather is there any rules that says temperatures must hit 35deg or above in the morning before tradies can go home? Or that if they can work inside to avoid the heat then they must do so?

Also with wet weather, if the roof is already on then they must be able to work inside to avoid the rain. They shouldn't be able to just go home and the builders then claims an extension due to weather delays.

Builders should be submitting an extension for time due to weather delay straight away once it happens. I will be very annoyed if my builder submits it weeks or months later!

I work for a builder and have completed an HIA contracts course.

I think you will find that there is a clause in the contract to say that the builder has 10 working days in order to submit an extension of time. If they do not issue it during this time, than whatever the delay was is null and void. When an extension of time is issued by the builder, you have 5 working days in order to respond to the extension.

With our builder, I advised that no extensions of time would be accepted for delays for bad weather as there were so many fine days when tradies were not on site. I also advised that I was aware of the time issue and would not accept any late ones. I didnt receive any extension of time notices during our build.

All fair enough debates but sometimes the effects of rain make it virtually impossible to work on a site, whether it is still raining or not, and also it can be dangerous. So sometimes work must stop and an extension under the contract is fair. One can always read a contract before signing and negotiate? I mean that is best done before signing. thanks

I'd be worried about a builder who needs such a small amount of money. We're talking 5% !!!

Does he work on a job to job basis ?