Under the BuildSafe Security of Payment Scheme, BuildSafe holds an amount of money called the Security Amount.
This Security Amount may be a value agreed upon between the parties for the purpose of their specific contract or you may choose to use the BuildSafe recommended amount - Which is calculated to be roughly the equivalent of the deposit required by most contractors under typical building contracts. That amount is also roughly the equivalent of the final payment to be paid to the contractor under the contract.
The Security Amount is held in trust by BuildSafe until the contractor has performed its obligations under the contract and then BuildSafe releases the Security Amount to the contractor and the subcontractors, as the case may be, and the service is complete.
Of course, if the contractor fails to perform its obligations, the money will be given back to the Owner.
HOW IS THE BUILDSAFE RECOMMENDED SECURITY AMOUNT CALCULATED?
The Security Amount held is determined by the total Contract Value - with the proportion of the total contract value held as security decreasing as the Contract value increases.
This is because with lower value construction contracts, the contract works should, if properly and efficiently carried out, be completed in a relatively short period of time. In some cases that will be less than one month. In such a case the risk to the contractor of non-payment due to the default by the Owner is considerable because the works would be completed before any payment is due under the contract. Under the BuildSafe Security of Payment Scheme, the Contractor is protected from significant loss on smaller jobs because BuildSafe
holds a large percentage of the Contract Price and will release that to the Contractor upon proper completion.
The Owner is also protected by not having to pay the Contractor a large deposit to cover the Contractor’s risk at such time as there is little or no value of work in place.
On the other hand, the greater the value of the construction contract, the longer the period over which the contract works will be undertaken and over which progress payments will and must be made monthly to ensure cashflow for the contractor. In such a case, the risk to the Contractor of loss through nonpayment is relatively small during the early stages of the project with the risk progressively getting greater as the project nears completion. On the proper completion of the works, the contractor will receive the Security Amount from BuildSafe. Once again the Owner is protected by not having to pay the Contractor a deposit at the start of the project to cover the Contractor’s risk at such time as there is little or no value of work in place.
It can easily be seen that the Scheme works fairly and for the equal benefit of all parties to a construction contract.
To find out the BuildSafe recommended Security Amount for your specific project check out our Calculator
WHEN IS THE SECURITY AMOUNT PAID?
The Principal/Owner must pay the Security Amount on the date specified by BuildSafe in the Notice of Acceptance with failure to make payment on time resulting in the Acceptance being cancelled. The Security Amount is paid in order to initiate the scheme and is usually payable within five working days of receipt of an application (please note there may be exceptions to this if agreed between the parties. ie if the start date of the project is a long way away the date for payment of the Security Amount may be set at a time closer to the beginning of the project, although this is unusual).
If you have any further questions regarding the Security Amount please contact us at firstname.lastname@example.org