Taking payments for building - checklist

• Provide your client with a copy of the domestic building insurance policy covering their property before taking a deposit and starting work
• You must ensure your deposit and progress payment schedule is legal

You can only change a contract for variations, prime cost items and provisional sum items with appropriate documentation.

The law and payments

Victorian law in relation to building projects:

• sets an amount, not to be exceeded, for the deposit
• defines the stages of building and how much the client pays for each stage
• only allows certain changes to the contract price (legal changes include variations, and prime cost and provisional sum items).

Deposits and progress payments

Deposits

By law, a deposit 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.

For work worth more than $16,000, before taking a deposit or any other money, you must give your client:

• a current certificate of domestic building insurance
• a copy of the insurance policy for their building project (including the building project’s address, amount, and your builder registration details).

Progress payments

The contract must set out the price and progress payments. By law, your client pays for defined completed stages. Progress payments are generally made at the base, frame, lock-up and fixing stages when each stage is complete in accordance with the contract. These payments are set out in the table below. 

Your client pays a percentage of the total price for each completed stage depending on the details of the contract.The client makes the final payment when the building work is finished in accordance with plans and specifications (free of defects) and the Occupancy Permit (for a new home) or Certificate of Final Inspection (for an extension or renovation) has been issued. You are not entitled to the final payment until then.

Standard payment schedule

Using a different payment schedule

You can ask your client to agree to a different payment schedule to the standard one. Whether your client signs a contract with a standard or different payment schedule, they are obliged to make the payments as set out in the contract when that stage of work is completed.

Changing a domestic building contract price

The law only allows certain changes to the price stated in a signed major domestic building contract:

• variations (changes agreed by you and your client to the plans and specifications after the contract is signed)
• prime cost items (client selections of fixtures and fittings that are included in the contract but not specifically identified and costed)
• provisional sum items (for additional work where the price is not known when the contract is signed).

All changes must be in writing and signed by you and the client.

The contract must include:

• a detailed list of the prime cost and provisional sum items
• a breakdown of the cost estimate for each item. This must show the estimated quantity of materials and the unit cost to you, the builder
• if you intend to charge the client more than the actual cost increase, how you will calculate any extra amount charged, and the exact extra amount to be charged.

You must give your client a copy of any invoice, receipt or other document that shows the cost to you of any provisional sum or prime cost item as soon as possible after you receive it.