Chapter 9 Progress payments
As building projects usually take some months to complete, contractors will want to ensure that they have some cash flow during the course of construction. All standard form construction contracts include a provision for progress payments to be made at particular intervals, either on a monthly basis or upon completion of specific stages of work. Even if a contract does not specify payment in instalments, where the work to be undertaken is extensive and involves staged completion, the entitlement to payment in this manner may be implied.
Standard form contracts
Most standard form contracts link the contractor’s entitlement to progress payments to the issue of progress certificates. Contracts will usually provide for the contractor to be paid the value of the work done and materials supplied in the nominated payment period, less the amount retained by the principal as security for the completion of the work (if retention is an agreed method of security for that contract).
See, for example, AS4000-1997 clause 37.
Entitlement to lump sum payment where work is substantially performed
Some contracts (described as ‘entire contracts’) may provide for payment only upon complete performance of the works. Substantial completion of the work under an ordinary lump sum contract will generally entitle the contractor to be paid the contract amount adjusted for the cost to complete or rectify the work. What constitutes ‘substantial performance’ is a question of fact.
CASE STUDY
Zamperoni Decorators Pty Ltd v Lo Presti [1983] 1 VR 338
Facts
- A painting contractor agreed to paint the principal’s premises for $1200. Upon ‘completion’ of the work, the principal refused to pay alleging that the standard of the work was not good.
- The contractor sued and the court held that the work was sub-standard and treated the case as one where the work had been ‘finished’ but was not satisfactory in all respects.
- The court reduced the claim by the amount required to rectify the defective work and ordered the principal to pay the contractor $600.
- The contractor appealed this decision.
Result
- On appeal, the court upheld the decision and found that whether or not there had been substantial performance of the work or such substantial defects that the work was not carried out, was essentially a question of fact to be determined on the evidence and circumstances of each case.