Authorised Progress Payments: How Overpayment Can Increase an Insolvency Loss

Progress claims should follow completed work

For larger NSW residential building contracts, the payment schedule should relate to defined stages or the value of work actually performed. A claim becoming due under the calendar, the builder's cash-flow needs or the fact that materials have been ordered does not necessarily prove that the contractual stage is complete.

Before payment, compare the claim with the contract, approved variations and the physical site. An independent progress inspection can be valuable where the stage contains work that will soon be concealed or where the amount is substantial.

Why stage labels can mislead

A claim marked frame stage may be issued while bracing, tie-downs, lintels, fire separation or other components remain incomplete. A waterproofing stage may not establish that membranes were correctly installed or tested. A bank valuation may confirm approximate progress for lending purposes without certifying every contractual item.

The homeowner should record exceptions before paying. If the contract permits a payment only when a stage is complete, a list of outstanding items and the builder's response can later become important evidence.

The insolvency arithmetic

After liquidation, the insurer may reconstruct the original contract price, valid variations, payments made, work physically complete and reasonable cost of the contractual work remaining. A replacement builder's price is relevant evidence but is not automatically the insurance calculation.

If the owner paid $80,000 for a stage that was only partly completed, the unpaid balance of the original contract may look sufficient on paper while the site still requires far more work. The homeowner may then have to fund both the unperformed portion and the replacement builder's takeover premium, subject to whatever the policy accepts.

Build a payment evidence trail

Keep each progress claim with the corresponding invoice, bank record, inspection report, photographs and any list of incomplete items. Record direct payments to suppliers or subcontractors and explain whether they were authorised variations, payments on behalf of the builder or separate owner contracts.

Do not alter the payment history to make it appear simpler. A transparent reconciliation is more persuasive than a total that cannot be traced to documents. It also helps identify amounts to include in a proof of debt against the failed company.

Practical takeaway: Pay for verified progress, not reassurance. The closer the payment curve follows the physical construction curve, the smaller the uninsured gap is likely to be after a collapse.

How ARK Houses can help

ARK Houses links progress claims to measurable completed work and keeps variations separate. On recovery projects, this approach provides the owner, lender and insurer with a clearer record of what has actually been delivered before the next payment is made.

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