Getting paid on-time in Australian construction is tough. The payments process is broken and need re-imagining - which is why Docketbook has created software and solutions for fixing the antiquated order, dockets and invoicing system with the express intent of speeding up progress claims. In this article we give you tips on how to manage progress claims effectively, as well as software solutions for speeding up the process of administering and receiving payments for work completed.
Understanding progress payments in the construction industry
In the construction industry, progress payments are essential for maintaining steady cash flow throughout the construction process. Rather than waiting until the final payment at project completion, builders and contractors are paid in stages as work completed progresses. This process is intended to be advantageous for cashflow throughout the construction supply chain, however it has become administrative laborious on both sides of the transaction.
What are progress payments?
Progress payments refer to partial payments made at specific points during a construction project. These are usually tied to significant milestones or building stages that have been pre-agreed in the contract negotiation phase, ensuring that contractors receive compensation as agreed work is performed.
Why progress payments matter
For contractors, progress payments ensure consistent income and help cover ongoing costs - including input costs for the project and staffing expenses for labour onsite. For property owners, these payments offer financial structure and allow for inspection of completed work before releasing more funds. This arrangement (theoretically) promotes transparency and helps prevent disputes. That said, due to out-moded paper based systems, the process of submitting documents for a progress claim is over-wrought, prone to errors, causing double handling and rework.
Linking payments to construction stages
Most construction contracts include a standard progress payment schedule based on clearly defined stages. In building, these stages may include slab down, frame completion, lock-up, fixing, and practical completion. In commercial construction, you might receive a progress payment after mobilisation of machines, after site preparation works has been completed, after rough-in of services or at practical completion of the stage (which is usually carefully defined in any contracts you might have for the avoidance of doubt in either party). Each stage must be clearly defined in contracts, then reached and verified before a progress payment claim can be made.
The role of construction contracts
A construction contract outlines the payment structure, including the total contract price, payment milestones, and timeframes.
Contracts should clearly define payment stages and align with the relevant legislation. If terms like 'practical completion' are not carefully defined, then there can be a dispute at the time of payment that can cause major financial hardship on the completing contractor (who has likely outlaid a large expense in materials and labour to get the project to this point).
At Docketbook, we recommend using a lawyer to draft project-specific terms once you are operating over a specific project size, otherwise create templatised hire or services terms that capture many of the concepts as part of your standard terms and conditions, then make additional clarifications in writing between you and the contractor (so everything is in writing).
We also recommend you using software that can help streamline the progress payments process.
Understanding progress claims in construction
What is a payment schedule?
A payment schedule sets out when each progress payment is due. It can be calculated based on a percentage of the contract price or on fixed amounts linked to work performed. Having a well-defined schedule helps all parties stay on the same page regarding payment expectations.
Legal considerations in progress payment claims
When preparing a progress payment claim, it's crucial to adhere to your contractual and legal rights. Any mistake or delay in making a claim could affect your right to receive payment. As we've said before in this article, engaging a construction lawyer or a solicitor can provide clarity and reduce the risk of legal action. Tracking your schedule closely can protect against any hiccups.
What to include in a progress payment claim
A proper payment claim should include details of the construction work completed, the amount being claimed, the date of the claim, and any supporting documentation. Claims must comply with the contract, site terms and any applicable legislation and may need to include the following:
- The existing payment schedule
- Any WHS compliance reporting required
- Any environmental and sustainability reporting required
- Relevant original signed order documentation
- Proof of any agreed variations and documentation supporting these agreements
- Breakdown of work completed - with signed dockets reconciled
- Evidence of work (including photos or other site based documentation)
Calculating payments accurately
Progress payments are usually calculated on a percentage of the total contract price or on a fixed dollar amount per stage. Ensure the method is documented in the contract to prevent misunderstandings.
Amounts may need to be adjusted based on variations ordered onsite. These variations need to be carefully documented and agreed upon by the site manager, or risk being rejected by administration staff who have not been informed. Be sure you are very aware of your site variations policies and processes.
We have also created Smart Dockets for complex entitlement calculations and the automation of docket interpretation. This tool can greatly speed up the calculation of correct docket submissions for labour hire, plant hire and services.
Understanding your legal rights
Understanding your legal rights as outlined in your construction contract is essential when dealing with progress payments. If disagreements arise, either party may need to refer the matter to a competent jurisdiction for resolution. We think this should be avoided at all costs - as construction legal battles can be costly, can destroy productivity and can often cause companies throughout the supply chain to go into bankruptcy. That is why we think it's essential to have an effective proof-of-work system that can be relied upon for accurate record keeping and administration.
Delays to payment in progress claims
The most common issue in progress payment claims in Australian construction, is the massive time lag from submission to payment. Many of the large contractors have lengthy payment terms, including 60-90 days from submission to payment, or longer. This is both unfair and extremely difficult for small contractors, which is why there is such a need to increase the speed that contractors can administer their operations and invoice for work.
Some common issues include unclear contract terms, disputes over work delivered, delays in issuing payment schedules, and disagreements over the due date. There can also be financial strain on the part of the head contractor, meaning they might drag out payments to subcontractors in an effort to remain solvent. Addressing these proactively and legally is the best way to avoid escalation. We have a saying - the loudest contractor gets paid first. If you're payments are getting delayed, then enforce your rights under your contract or use tools like Creditorwatch to provide disincentives for contractors to delay payments.
Lodging your final progress payment
This typically covers the remaining balance of the contract price after all progress payments have been made. It’s usually made upon project completion, once all work has been finalised and any defects rectified. An inspector, a surveyor or project manager may be involved to confirm that the final work meets agreed standards.
Preparing for completion payments
As the completion stage approaches, it's critical to finalise all paperwork, clear outstanding issues, and prepare for the final payment. This sometimes means sitting down with your project manager and having a conversation about any potential administrative roadblocks that might exist before the payment claim is made. Getting 'out in front of it' if you will! Then, start stacking up your dockets, orders and site materials (if you are still using paper dockets). If you are using digital dockets, then you'll have all that data at the ready inside of Docketbook already that is instantly reconciled to its relevant paperwork!
Ensuring the final payment (and paperwork) is accurate
Before making or receiving the final payment, verify that all contractual obligations have been met. This includes ensuring that subcontractors have been paid, compliance certificates have been issued, and the completed project is delivered to expectations.
Double check all orders, dockets and invoices to ensure they reconcile. This can be a very time-consuming process if you are using paper dockets and not digital dockets. You may need to reconcile hundreds of daily dockets against orders. Any errors that administrators find in dockets from the field, or any reconciliation issues at all, will cause the head contractor administrators to reject the submission and require resubmission. This can cause days, weeks or months' delays in payment processing, putting pressure on cashflow.
Lump sum payment versus staged payments
Some construction contracts may use a lump sum payment structure instead of staged payments, which means that the administrative burden for that final lump sum progress claim submission can be enormous. While lump sum payments simplifies budgeting for contractors, it may create cash flow challenges for sub-contractors. Given the lack of liquidity in Australian construction, this practise of final lump sum payments has been abandoned quite broadly. Staged progress payments are generally preferable for managing large-scale or long-term construction projects.
The link between progress payments and construction loans
In construction, many construction loans are released in line with stages of building. Lenders disburse funds as progress payment claims are made, often following a site inspection by the bank and certifiers. These loan milestones can apply to both head contractor and subcontractor, and can ensure both have sufficient liquidity to continue with the project to completion. Timely and accurate claims are essential for preventing loan delays and keeping the project on track.
Managing cash flow effectively with Progress Claim Software
Good cash flow management is critical to the success of any construction business. By aligning your payment claim process with your financial needs and maintaining accurate documentation, you can avoid delays and ensure your obligations are met on time.
To prevent payment disputes, ensure all parties clearly understand the contract terms and standard progress payment schedule. Open communication, timely documentation, and professional conduct help maintain trust throughout the construction project.
Using technology to streamline claims
There are a number of software solutions out there that can speed up the payment cycle in construction - and specifically progress claims. For large contractors, platforms like Aconex, Payapps and Procore can help with the administration of progress claims throughout the payment value chain.
For smaller contractors, and head contractors alike - modern construction management platforms like Docketbook can simplify the payment claim process through the streamlining of the proof-of-work documentation - including the syncing and real-time reconciliation of orders, dockets and invoices. Digital tools like Docketbook offer real-time tracking, document storage, access to live data, automation of docket interpretation and automated signature capture, as well as integrations with financial management and accounting software —helping subcontractors get work approvals from the site faster, and therefor allow administrators to submit claims faster.
Benefits of speeding up progress claims
Speeding up the progress payment process has several advantages: it maintains steady cash flow, supports the construction timeline, reduces the risk of disputes, and ensures smoother relationships between parties. Smooth relationships can ensure future work opportunities and long-term client relationships for mutual benefit.
For subcontractors - the benefit principally comes down to a reduction in cost of administering projects, and a speeding up of the payment cycle - which ensures better cashflow and job profitability.
General contractors should ensure that subcontractors are paid promptly. Efficient progress claims and final payment procedures help maintain a positive working relationship and avoid project delays.
Ensuring accuracy and transparency
Being accurate in all documentation and open in communication builds trust and helps reduce conflict. Submitting accurate and reconciled orders, dockets and invoices also demonstrates professionalism and ensures an ongoing relationship with that contractor for future work opportunities.
Transparency in the payment schedule, scope of work, and expected delivery times ensures both subcontractors and construction managers know what to expect.
Streamline your progress claims with Docketbook
Managing progress payments in civil construction doesn’t have to be difficult. With a clear understanding of contract terms, a consistent payment schedule, and the right administrative tools that instantly syncing and reconciling your proof of work documentations, contractors can maintain cash flow, reduce delays, and protect their legal rights.
Docketbook’s digital dockets solution supports efficient claims, real-time tracking, and data storage—helping you speed up progress claims and keep your projects running smoothly.
Want to take control of your progress claims? Contact Docketbook today to see how we can support your next project. Grab a demo of our software today.
