Progress claims, variations and retention
The three mechanisms that move money on a fitout, and the three places a practice owner loses control of the budget without noticing.
The short answer
Most practice owners read the contract sum and stop there. The number that matters is the one at the end, and three mechanisms move it: what gets claimed, what gets varied, and what gets held back.
Key points
- A progress claim has a statutory clock. Ignoring one has consequences you do not choose.
- A variation should be priced and approved in writing before the work happens, not after.
- Retention is typically 5% during the build and 2.5% held through the defects period.
- The contract sum you signed is a starting position. Variations decide the finishing one.
Most practice owners read the contract sum and stop there. The number that matters is the one at the end, and three mechanisms move it: what gets claimed, what gets varied, and what gets held back.
Progress claims, and the clock you did not know was running
A builder claims progressively, usually monthly, against work completed to date. On a well-documented job the claim is assessed against a schedule of values agreed at the start, so the argument is about percentage complete rather than about what things are worth.
What surprises people is that this is not purely contractual. Every state has security of payment legislation, and it puts a statutory timeframe on your response. A payment claim served under that legislation has to be answered with a payment schedule within the period the Act sets, and if you do not respond in time you can become liable for the claimed amount regardless of what you think of it.
The practical consequence is simple and worth stating plainly. Do not put a payment claim in a drawer because you are unhappy with it. Respond within time, in writing, setting out what you propose to pay and why the balance is withheld. That is the mechanism for disagreeing, and it is the one the Act protects.
Agree a schedule of values before work starts. It converts every future claim into arithmetic and removes the monthly negotiation that otherwise sours a project.
Variations, where the budget actually goes
A variation is a change to the scope. Some are yours, some are the building's, and the second category is the one that hurts on a clinical fitout.
Client variations are your changes of mind. More joinery, a different finish, an extra data point. These are the easy ones, because you asked for them and you know they cost money.
Latent conditions are what the building turns out to be. Services not where the drawings said, a slab that will not take a penetration where the plan needs one, asbestos in a floor adhesive, a structural member nobody knew about. This is where a strip out and a fitout meet, and it is why a good builder opens things up early.
Documentation gaps are the third and the least excusable. Work that was always necessary but was not drawn, priced as a variation later. The defence is documentation quality at tender rather than argument afterwards, which is one of the arguments for design and construct on clinical work.
The rule that protects you is procedural rather than clever. No variation proceeds without a written direction, a price and your approval, in that order. A verbal agreement on site at four o'clock on a Friday is how a fitout finishes twelve per cent over with nobody able to explain when it happened.
Retention, and getting it back
Retention is money withheld from each progress payment as security that the job will be finished and the defects fixed. The usual shape is five per cent held during construction, reduced to half of that at practical completion and released at the end of the defects liability period.
Two things are worth knowing. A bank guarantee is often an acceptable substitute, which suits a builder's cash flow and costs you nothing to accept, so it is a reasonable thing to be flexible about in exchange for something you want.
And retention has to be actively released. It does not return on its own. Diarise the end of the defects period when you sign, because a small sum sitting unreleased two years later is one of the most common loose ends on a completed fitout, and by then the relationship that would have resolved it in a phone call has usually gone quiet.
What to fix before you sign
- A schedule of values agreed before work starts, detailed enough that a claim is arithmetic.
- The variation procedure written down: who can direct one, who prices it, who approves it, and that none proceeds without all three.
- A provisional sum schedule with the basis of each figure, so that the allowances are visible rather than buried.
- Retention terms including the release trigger and whether a bank guarantee is acceptable.
- Who receives payment claims, at what address, so a statutory clock never starts running against somebody on leave.
Sources and further reading
Security of payment frameworks differ by state in their timeframes and terminology. The principle does not. This is general information about how fitout contracts work and is not legal advice on your contract.
Building contracts, progress payments and the security of payment framework. Each state has its own equivalent act and timeframes.
A plain-language guide to retail leases: starting one, rent reviews, assignment and disputes. Written for tenants rather than for lawyers.
The National Construction Code: building classification, fire separation, egress, sanitary provisions and access.
Questions
What is a progress claim?
A builder's claim for payment for work completed to date, usually monthly, assessed against an agreed schedule of values. Where it is served as a payment claim under security of payment legislation it carries a statutory timeframe for your response, and failing to respond in time can make you liable for the claimed amount.
What happens if I ignore a payment claim?
Potentially the worst outcome available. Security of payment legislation in each state requires a payment schedule in response within a set period, and not responding can leave you liable for the full amount claimed regardless of its merits. If you disagree with a claim, the way to disagree is a payment schedule served in time setting out what you will pay and why.
How do I stop variations blowing the budget?
One procedural rule: no variation proceeds without a written direction, a price and your approval, in that order. Most overruns are not one large decision but a series of small verbal agreements on site that nobody priced at the time. Good tender documentation also removes the least defensible category, which is work that was always necessary but was never drawn.
How much retention is normal on a fitout?
Typically five per cent withheld during construction, halved to 2.5 per cent at practical completion and released at the end of the defects liability period. A bank guarantee is often an acceptable substitute, which helps the builder's cash flow and costs you nothing, so it is a reasonable concession to trade for something you want.
What is a latent condition?
Something about the building that could not reasonably have been known at tender: services not where the drawings said, a slab that will not take a penetration, asbestos in floor adhesive, a structural member nobody documented. They are a genuine basis for a variation, which is why a good builder opens things up early rather than discovering them at the worst moment.
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