What a fair payment schedule with your builder looks like

Money is where most building disputes start. A clear, fair payment schedule protects both you and your builder. Here is what a reasonable arrangement looks like, and the warning signs to watch for.

The principle: pay for work done

The basic principle is simple: you pay for work that has been done and materials that are on site, not for work that is promised. That way you are never too far ahead of the builder, and the builder is never funding your project for too long.

Deposits

Some builders ask for a deposit, usually to cover site establishment, early orders and long-lead items. A modest deposit linked to specific costs is reasonable. Be cautious of a builder who asks for a large percentage of the contract value before starting, with no clear reason. A large deposit puts you at risk if the builder fails to perform.

Long-lead items such as custom windows, kitchens and steelwork may need a deposit to the manufacturer. A fair approach is to pay these deposits directly to the supplier, or against a supplier invoice.

Progress payments

There are two common ways to structure progress payments:

Monthly valuations. The value of the work done each month is measured and certified, usually by the architect or quantity surveyor under a JBCC contract (see the JBCC in plain English). You pay the certified amount. This is the standard on larger projects.

Milestone payments. Payments are linked to clear stages, for example foundations complete, walls to roof height, roof on, first fix complete, and so on. This works well on smaller projects without a quantity surveyor. Make the milestones specific and easy to verify.

Retention

A portion of each payment, often a small percentage, is held back until the end of the project. Part is usually released at practical completion, and the rest after the defects period. Retention gives the builder a reason to return and fix snags.

Variations

Changes cost money. Agree the price of a variation in writing before the work is done, and add it to the next payment. Undocumented variations are a common source of disputes at the end of a project.

Final payment

Do not make the final payment until:

The work is complete and the snag list has been addressed
You have the compliance certificates: electrical, plumbing, gas, glazing, roof truss and waterproofing where applicable
You have the occupation certificate or the building inspector has signed off, where required

Warning signs

A large deposit with no clear reason
Requests for cash, or for payment into a personal account
Requests for payment ahead of the schedule, “to buy materials”
No written agreement or payment schedule
Pressure to pay quickly

How we work

Our payment schedules are linked to work completed, and on JBCC projects to certified valuations. Every variation is priced and agreed in writing before it is done. If you want to see what our payment terms look like, ask us for a sample.