Deposits And Progress Payments
It has come to my attention from clients showing me other company’s contracts that they did not accept, that many builders / house restumpers are asking for deposits of up to 50%. In one case there is a house raising and restumping contractor that demands a 50% deposit upon signing the contract!
One other case where I read a contract for restumping, he asked for 75% of the contract price to be paid – no less than seven (7) days before work starting!
It is imperative as a consumer to know your rights. On the 11th of May 2004 State Parliament passed the Building and Construction Industry Payments Act 2004 which you can read here.
Your building agreement / contract (which may be a written quote that you accept in the case of smaller jobs valued at under $3300) should clearly state the payment arrangements, which you have worked out with the contractor (including specific amounts for the deposit and progress payments, if any and details of when these payments are to be made).
The Domestic Building Contracts ACT 2000 sets out maximum deposit percentages, which must not be exceeded, even if the home owner is agreeable.
If the contract is for domestic building work valued at $20,000 or more, the MAXIMUM deposit payable is 5%.
If the contract value is between $3300 and $20,000 the deposit MUST NOT exceed 10%.
Note: Although the legislation does not set maximum deposits for smaller building projects valued at less than $3300, the Building Services Authority (BSA), generally recommends no more than 20%. Where the building work involves the construction of an entire home, the Domestic Building Contracts ACT also sets out an installment schedule for progress payments. This schedule can be varied by agreement between the contractor and the home owner but it should not involve payment in advance of work progress.
The Domestic Building Contracts ACT 2000 (click here to read) provides that if the domestic building work is valued at $20,000 or more, the deposit must not exceed 5% of the total contract price. If the domestic building work is valued at more than $3,300 but less than $20,000, the deposit must not exceed 10%.
Note: although the Domestic Building Contracts ACT 2000 does not stipulate a maximum deposit for projects less than $3,300, the B.S.A. recommends no more than 20%.
These are the maximum deposits allowed under the Domestic Building Contracts ACT 2000. You may negotiate and agree on a lesser deposit with your contractor, depending on a range of factors including how long the project will take to complete and what costs the contractor will incur (e.g. purchase of materials, preparation of plans, etc.) before commencing work.
It is an offence for a contractor to demand or receive a deposit, which exceeds the amount provided for in the Domestic Building Contracts ACT 2000. Demerit points can be allocated against the contractor’s licence for this offence. If your contractor demands or receives a deposit in excess of that provided for in the Domestic Building Contracts ACT 2000, please notify the B.S.A.
For all other domestic building work valued at more than $3,300 but not involving the full construction of a home (e.g. renovations or extensions, concreting, sheds, kitchen renovations etc):
The maximum deposit percentages mentioned above still apply (i.e. not more than 5% for projects valued at $20,000 or more, and not more than 10% where the work is more than $3,300 but less than $20,000). In practice, it is customary on very small, quick jobs for all or nearly all of the money to be paid upon completion.
The progress payment arrangements (timing and exact amount) set out in your contract, should be directly related to work progress. If the progress payment arrangements in your contract are not directly related to work progress, the contractor must give you a notice in accordance with Domestic Building Contracts Regulation 2000; Regulation 3, before you enter into the contract and you must initial the clause of the contract that sets out the progress payments. If this does not occur, the contractor cannot demand or receive money not directly related to the progress of the work; It is an offence if the contractor does so and demerit points may be allocated against the contractor’s licence.
- Once work gets under way, stick to these contractual arrangements and never pay early or in advance of progress on the job.
- Always inspect and check that the work is satisfactorily completed in accordance with your written agreement before making the final payment.
…If you pay any money before your job is started you are being foolish in my opinion. I would not pay any money at all before my job was finished and I would not pay a progress payment unless the job was half way finished and then would only pay a 10% progress payment.
Why, you may ask? Easy answer: If a contractor takes on a job, he should have enough funds to cover that contract and all contractors have a 30 day account with suppliers, so knowing this, why do they ask for the payments before starting work and payments of up to half the contract price?