Deposits and payments for building work

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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.

Domestic building insurance covers you if the builder dies, becomes insolvent or disappears. For more information, visit the Victorian Managed Insurance Authority ’s website.

View our Paying for building work checklist page.

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
  • 20%
  • 25%
  • Base
  • Frame
build to fixing stage
  • 12%
  • 18%
  • 40%
  • Base 
  • Frame 
  • Lock-up
build all stages
  • 10%
  • 15%
  • 35%
  • 25%
  • 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.

You can view our Changing a major domestic building contract checklist page.

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 items

Prime cost items are your selections of fixtures and fittings (for example: ovens, taps and tiles) that are listed items in the contract but which are not specifically identified and costed.

This is because you or your builder could not determine or agree the make, model or exact price of the item at the time you signed the contract – you could only estimate the price, which could be less than the final cost.

Where possible, avoid prime cost items. Try to include the specific details of your selections (such as make, model, colour and style) in your contract, so that the building cost is final.

Get a copy of any invoice, receipt or other document that shows the cost of any prime cost item.

Provisional sum items

These are items listed in the contract for possible additional work, such as excavation, where the builder cannot give you an exact price of the work at the time you sign the contract – they can only make a reasonable estimate of the cost.

Where possible, do not agree to provisional sum items as they can make your final cost higher.

For example, it is common for excavation work to be included as a provisional sum item. Be aware that this cost could increase substantially if additional excavation work is needed because rock was not determined in the soil report. Make sure that your builder has obtained a comprehensive soil report in order to give you a reasonable estimate of costs. Seek advice from your independent building consultant.

When building work is complete

View our When building work is complete checklist.

Last updated: 07/03/2017

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