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Deposits for building work
The law governing contracts for building a home, or extending or renovating a house, in Victoria is the Domestic Building Contracts Act 1995.
When you build a house, renovate or repair your home, or add an extension, you pay a deposit and then make payments for completed stages of building. These are called stage or progress payments.
The law:
- sets an amount for the deposit
- defines the stages of building and how much you pay for each stage, including the final payment
- only allows certain changes to the price stated in your contract.
By law, your deposit for building work can be no more than:
- 10 per cent, if the total contract price is less than $20,000
- five per cent, if the total contract price is $20,000 or more.
If you pay too much deposit:
- you risk the building contractor taking the money and not finishing the job. This can leave you with a long and costly legal battle
- the builder may be unable to finish the work on time or fix defects
- the domestic building insurance company may not cover advanced payments on work not carried out if your builder dies, becomes insolvent or disappears.
Do not pay your deposit until the builder has given you a domestic building insurance policy and certificate of currency for your property.
Building stages
By law, you pay for completed stages. These are:
| Stage |
Complete when: |
| Base |
Depends on type of floor:
- timber - concrete footings for the floor are poured and base brickwork is built to floor level
- timber with no base brickwork - stumps, piers or columns are complete
- suspended concrete slab - concrete footings are poured
- concrete floor - floor is complete
- floor put in after exterior walls and roof are constructed - concrete footings are poured
|
| Frame |
The frame is completed and approved by a building surveyor |
| Lock-up |
External wall cladding and roof covering is fixed, the flooring is laid and external doors and external windows are fixed (even if those doors or windows are only temporary)
|
| Fixing |
All internal cladding, architraves, skirting, doors, built-in shelves, baths, basins, troughs, sinks, cabinets and cupboards are fitted and fixed in position.
|
Stage/progress payments
You pay a set amount for each completed stage depending on your contract:
| If your contract is to: |
you pay this % of the total price… |
when this stage complete. |
| build to lock-up stage |
|
|
| build to fixing stage |
|
|
| build all stages |
|
- Base
- Frame
- Lock–up
- Fixing
|
This is the usual payment schedule. If you are considering different payments, you must get legal advice.
Once you sign, you must make payments as set out in your contract.
Before you make each progress payment, check the work:
- has passed the building surveyor’s inspection
- meets your contract requirements
- is complete.
You can use an independent building consultant to check completed work before you make progress payments, or to supervise the entire project.
Do not make payments in advance. Domestic building insurance may not pay claims on work paid for in advance.
Changing the contract price
Keeping changes to a minimum helps avoid cost blow-outs. Make sure you:
- know exactly what you want
- put all details in your contract plans and specifications (details of building materials, appliances and fittings) before you sign.
We recommend you engage an independent building consultant to check whether the specifications in the contract are adequate for your project.
The law only allows certain changes to the price stated in your signed contract. These include:
- variations (changes agreed by the builder and owner to the plans and specifications after the contract is signed)
- prime cost and provisional sum items (fixtures and fittings, or 'selections', included in the contract but the actual make and model or price is not known. You only have an estimate of the price when the contract is signed).
If the builder wants to make other changes to the price, contact us on 1300 55 75 59 or your building lawyer for advice before you agree.
Your contract must include:
- a detailed list of any prime cost and provisional sum items
- a breakdown of the cost estimate for each item and selection. This must show the estimated quantity of materials and the unit cost to the builder
- if the builder intends to charge more than the actual cost increase, how the builder will calculate any extra amount charged for these items, and the exact extra amount to be charged.
Your builder must give you a copy of any invoice, receipt or other document that shows the cost to the builder of any provisional sum or prime cost item. This must happen as soon as possible after the builder receives the invoice.
Variations
Variations are changes to the building contract that:
- you or your builder want to make
- your building surveyor orders after the contract has been signed and building has started.
You should not have to pay for variations to deal with issues that the builder should have identified before starting work. For example, extra costs to deal with rock, when the builder could have predicted this problem by reviewing the foundation data.
By law, you and your builder must agree in writing to the changes and put the details, including new price and completion date, in your contract before the builder does the work. A variation notice is used to change the contract.
A variation notice is not required when your builder reasonably believes the changes will not:
- require a change to any permits for the project
- cause delay
- add more than two per cent to the original contract price.
A building surveyor (or other authorised person) can order variations. If this happens, the builder must give you copies of the order to make the changes, and the variation notice.
If you do not agree with the changes ordered, you must advise the builder in writing within five business days of receiving the notice.
If your builder has not followed the legal process for variations, contact us on 1300 55 75 59 or seek legal advice. You may not have to pay for the cost of the changes if the builder should have reasonably foreseen the issues when the contract was signed.
Prime cost and provisional sum items
Where possible do not agree to these, as they make your costs harder to control:
- Prime cost item - fixtures and fittings, or your 'selections', included in the contract but the actual make and model or price is not known. You only have an estimate of the price when the contract is signed
- Provisional sum - a reasonable estimate of the cost of work if the builder cannot give a definite price when you sign the contract (for example, supply and installation of air conditioning).
The builder must make a ‘reasonable allowance’ for the nature and location of the building site when estimating supply and delivery in the contract price. For example, if you are building on a rural property, your builder must allow for transport costs.
When building work is complete
Works are complete when:
- your building surveyor has issued the Certificate of Final Inspection for an extension or renovation, or an Occupancy Permit for a new home
- your builder has completed all works according to your contract plans and specifications.
The building project is not complete until your builder provides these documents. By law, you have a right to copies of documents related to your building project. You can also get these documents from the building surveyor. Keep them with other receipts and documents relating to the project.
Do not make your final payment until you have thoroughly checked that the builder has met all the requirements of your contract.
You can pay an independent building consultant to check for defects or unfinished work. If you have concerns:
- make a list of any work that you believe is faulty or incomplete
- speak with your builder immediately about your concerns
- put your request and any agreements made with the builder to finish work in writing, and send it by registered post.
If there are areas of work that are in dispute, contact Consumer Affairs Victoria or Building Advice and Conciliation Victoria for help.
Free information and advice: contact us on 1300 55 75 59.
Last updated: 12/05/2012