How does payment work on a construction project?

Construction is not paid for on completion. It is paid for progressively, against work already done, and the mechanism matters to both sides.

The monthly cycle

Most contracts run a monthly claim cycle.

The contractor submits a payment claim covering the work completed to a stated date. The superintendent assesses it, agrees or adjusts the quantities, and issues a payment certificate. The client pays against that certificate.

The claim covers completed work, not work planned. Which is what makes progress claims a reasonably accurate picture of where a project actually is.

Security of payment sets the floor

NSW security of payment legislation establishes minimum entitlements and timeframes that a contract cannot reduce.

It sets when a claim can be made, how a respondent must reply, the maximum time to payment, and an adjudication process where a claim is disputed.

It applies whether or not the contract mirrors it, and its timeframes are strict. Missing a response deadline has consequences that have nothing to do with the merits of the claim.

Both sides are better served by an administered cycle that never reaches adjudication, and the way to achieve that is claims that are accurate and assessments that are timely.

Retention and security

Most contracts hold a percentage of each payment as retention, released in two parts: half at practical completion, the balance at the end of the defects liability period.

Some substitute a bank guarantee for cash retention, which serves the same purpose without holding the contractor's working capital.

The retention exists so the client has something to draw on if defects are not rectified. It is not a discount, and it is released when the obligations are met.

Variations run through the same cycle

An approved variation is claimed as work is completed, like any other item.

A variation not yet approved is not claimed. Which is another reason to price and approve before proceeding rather than after: work done ahead of an instruction cannot be certified, so it cannot be paid.

What smooths the cycle

A schedule of rates or a priced schedule agreed at award, so each claim is an assessment of quantity rather than a negotiation about value.

Supporting records submitted with the claim: site records, photographs, delivery dockets, test results, whatever substantiates the quantities.

Early notice of anything that will affect a future claim, so it is not a surprise when it appears.

And a superintendent who assesses within the timeframe, because a late certificate delays the payment regardless of who is at fault.

Subcontractor payment

The principal contractor pays its subcontractors under the same legislation, with its own obligations and its own timeframes.

A contractor that manages its own claim cycle well is a contractor whose subcontractors are paid on time, which is what keeps trades on the site and the programme intact.

That flow-through is one of the practical differences between a principal contractor and a managing agent.

Talk to Monument about a project.