The Ultimate Guide to Progress Claims in Australian Construction

Construction progress claims are a financial tool in the construction industry, offering a structured way to ensure contractors, subcontractors, and suppliers receive timely payment for work completed. In this guide, we’ll dive deep into what progress claims are, why they are crucial, and how to handle them effectively while adhering to Australian laws and best practices.

What Is a Progress Claim?

A progress claim or payment claims is a formal request for payment submitted by contractors or subcontractors to a project owner or principal for work completed over a specific period. Unlike a simple invoice, progress claims are tied to the agreed-upon milestones, project stages, or percentage of work completed.

Key Features of Progress Claims:

• Incremental Payment Structure: Payments are distributed across the project timeline (i.e. progress payments), ensuring cash flow is aligned with progress.
• Detailed Breakdown: Progress claims itemize the work completed, variations, and other costs incurred.
• Legal Binding: They are formal documents governed by contract terms and legislation like the Security of Payments Act (SOPA) in Australia.

By ensuring transparency and clarity, progress claims help maintain financial stability across the construction supply chain.

Why Are Progress Claims Important?

Progress claims are not just routine paperwork—they are essential for the smooth functioning of a construction project. Accurately assessing the value of construction work is crucial for progress payments. Here’s why:

• Cash Flow Management: Construction projects are resource-intensive. Progress claims ensure contractors and subcontractors are compensated for work done, enabling them to pay their workforce, procure materials, and cover operational costs.
• Project Accountability: Each claim acts as a checkpoint, documenting the progress and ensuring work aligns with the agreed-upon schedule and quality standards.
• Stakeholder Transparency: Progress claims provide a clear picture to all stakeholders about how resources are being utilized and how much of the project is complete.
• Dispute Mitigation: Properly documented and timely claims reduce the chances of disputes by setting clear expectations and records for both parties.

How Are Progress Claims Used in a Construction Project?

The progress claim process in construction involves the submission and evaluation of claims for payment based on completed work, typically submitted at agreed intervals, often monthly, or upon reaching specific project milestones. They serve multiple purposes:

1. Interim Payments: Allow contractors to secure payment for ongoing work without waiting until project completion.
2. Progress Monitoring: Help project owners and principals verify that the work aligns with the scope, schedule, and quality standards.
3. Contract Fulfillment: Ensure compliance with payment terms outlined in the construction contract.

Progress Claim Interactive Example

What Is the Difference Between an Invoice and a Progress Payment?

While both a progress payment claim and an invoice serve to request payment, they differ in their purpose, scope, and role within the payment process, particularly in the context of construction and contract-based projects in Australia.

In Australia, the progress payment process involves both an invoice and progress claim. There are additional steps regulated by security of payment laws. After submitting a progress payment claim, the principal or Project Owner responds with a payment schedule outlining the amount they intend to pay. Once the amount is agreed upon or determined, an invoice can then be issued to formalize the payment request.

What Is the Form of a Progress Claim and What Should It Include?

A well-prepared progress claim template ensures timely payment and avoids disputes. The basic elements to include on the progress claim form are:

What to Include in a Progress Claim?

When preparing a progress claim, focus on the following details to ensure it meets contractual and legal requirements:

Contractual References:

• Refer to specific clauses in the contract related to progress payments.
• Indicate any relevant standards (e.g., Australian Standards).

Work Breakdown Structure (WBS):

• Itemize completed work based on the project’s WBS.
• Include quantities and unit costs for transparency.‍

Retention and Deductions:

• Understanding what is retention in construction is crucial - these amounts are typically withheld as security.
• Include any agreed deductions or offsets.

GST and Tax Details:‍

• Ensure the claim includes GST (if applicable) and meets tax invoice requirements.

Payment Details:

• Track and document all previous payments to ensure transparent financial management.

How to Submit a Progress Claim?

Submitting a progress claim involves several steps to ensure compliance with contract terms and legislation:

1. Prepare Documentation: Gather all necessary information, including work completed, variations, and supporting evidence.
2. Follow Contract Guidelines: Adhere to the submission format and schedule outlined in the contract.
3. Payment Schedule: Ensure the payment schedule is clearly defined, outlining the terms and conditions for progress claims, and specifying the payment amounts due at various project milestones.
4. Submit on Time: Progress claims must be submitted within the specified timeframes to avoid rejection or delays. Once approved, a progress certificate will be issued as formal verification of the completed work.
5. Use Software: Modern construction payment software can streamline the submission process and ensure accuracy.

What Is the Security of Payments Act (SOPA)?

The Security of Payment Act or Sopa Act is designed to protect contractors and subcontractors from non-payment. Progress claims in construction are crucial for ensuring timely payments to contractors based on the work completed. Key features include:

• Right to Payment: Contractors can submit payment claims for completed work, even if the contract doesn’t explicitly allow for progress claims.
• Timely Responses: Principals must respond to claims within strict deadlines.
• Adjudication Process: Offers a fast-track mechanism for resolving disputes.

Each Australian state and territory has its version of SOPA. For example:

• New South Wales: Payment claims must be submitted monthly unless otherwise agreed.
• Victoria: Allows for “no-claim” clauses to be overridden.

How to Time the Submissions?

Timing is critical to avoid cash flow disruptions, especially when dealing with progress payment claims. Here’s how to plan your progress claim submissions:

1. Contractual Deadlines: Always adhere to submission deadlines stated in the contract.
2. Monthly Submissions: If the contract allows, align claims with monthly project cycles.
3. Early Submission: Submit claims a few days before the cut-off date to account for any last-minute adjustments.

What Is a Progress Claim Response?

A progress claim response is the project owner’s formal reply to the submitted progress payment claims. It can:

1. Approve the claim in full.
2. Partially approve it, with modifications or deductions.
3. Reject the claim, providing reasons and an opportunity for revision.

How to Manage Disputes Over Progress Claims?

Disputes may arise due to disagreements on completed work, delays, or payment amounts. A progress payment report is crucial for tracking the progress of construction and facilitating payment claims. To manage disputes effectively:

1. Open Communication: Discuss concerns early and openly.
2. Document Everything: Keep records of communications, approvals, and evidence of work done.
3. Seek Adjudication: Use SOPA’s adjudication process for swift resolution.

Australian Construction Laws and Regulations Related to Progress Claims

In addition to SOPA, the following regulations are relevant:

• Building and Construction Industry Security of Payment Regulations 2020: Outlines specific requirements for progress claims.
• Australian Standards: Ensure compliance with standards such as AS 2124 or AS 4000 for contractual obligations.

Common Progress Claim Mistakes You Can Avoid

1. Inaccurate Claims: Avoid overclaiming or underclaiming.
2. Incomplete Documentation: Missing information can delay approvals.
3. Late Submissions: Always meet the deadlines.

Where to Get Help with Progress Claims

If you need assistance:

• Construction Industry Associations: Groups like the Master Builders Association can provide guidance.
• Legal Professionals: Construction lawyers specialize in payment disputes.
• Software Solutions: Progress claim software solutions like Mastt simplify claim management and tracking.

By understanding progress claims comprehensively and utilizing standardized payment claim template formats, you can streamline your payment processes, minimize disputes, and ensure your projects stay on track financially.