Section 40 of the Domestic Building Contracts Act 1995 (DBCA) outlines the specific stages of construction that builders must follow, along with the percentage of the overall contract price they can request upon completion of each stage. While the DBCA allows parties to mutually agree to different stages and payment percentages, such agreements must comply with the requirements outlined in the Domestic Building Contracts Regulations 2017 (DBCR) to be deemed valid. Understanding the complexities of building and construction law is essential for builders, especially when it comes to financial structuring and payments. This article will explore Section 40 of the DBCA, the guidelines for progress payments, and the significance of following these regulations. Adhering to these rules is vital for ensuring compliance and protecting the interests of both builders and property owners. 


Understanding Progress Payments 

Progress payments are specified amounts that builders receive at predetermined stages throughout the construction process. This structured approach allows builders to align payments with the completion of each stage.. More importantly, these payments are governed by the DBCA, which provides builders and owners with a clear framework to operate within. 


Insights into Section 40 of the DBCA 

Section 40 of the DBCA provides essential guidelines regarding progress payments. Its main provisions include: 

  1. Defined Stages and Percentages 
    The Act outlines specific stages of building work, including the base, frame, lock-up, and fixing stages. Builders are prohibited from requesting advance payments and can only charge a percentage of the contract price that corresponds to the completion of these stages. Builders must follow these percentage guidelines to avoid legal penalties for non-compliance. 

  2. Legal Compliance 
    Builders are prohibited from requesting payment not directly related to the progress of construction under major domestic building contracts. Failure to comply can result in significant penalties including up to 50 penalty units (currently equals $9879).  

  3. Mutual Agreement to amend stages
    The DBCA allows parties to agree on different stages and percentages of payment mutually. However, such agreements must meet specific requirements outlined in the Domestic Building Contracts Regulations. Not complying with these regulations can prohibit builders from receiving payments and expose them to legal consequences. 

Methods of Progress Payments: Method A and Method B 

Contracts generally utilise two methods for determining progress payments. Within the Master Builders suite of contracts these are known as Method A and Method B. 

Method A sets a fixed price for each stage of work, providing builders with clear, predictable payments at each stage. However, it requires strict compliance with the stages and payment percentages outlined in the DBCA. 

Method B allows parties the ability to deviate from the pre-defined stages within the legislation and create new stages.. While this method offers flexibility, it comes with added responsibilities. Importantly, builders using Method B must ensure that:  

  • The stages are clearly defined pieces of identifiable work such as ‘installation of kitchen cabinetry, appliances, sink and flooring’ and are not simply reliant on expiration of time bars such as ‘January payment, February payment ’etc. A good rule of thumb when drafting stages is to write each stage so that someone without any building experience would be able to attend site and identify if the claimed works had been completed. 
  • The percentages allocated to each stage accurately reflect the amount of works to be completed in each stage. For example, you must not allocate a 50% payment to works which are only 10% of the total project.  
  • The owner signs the acknowledgment on Form 1 before signing the contract. 
  • Both parties sign the acceptance on Form 2 before contract execution. 
  • Signatures are not merely initials but indicate intent to agree to the stipulated financial structures. 

 Failing to comply with these requirements can lead to non-compliance issues, further complicating payment structures. 

It is also important to note that Method B contracts still require work to be completed prior to invoicing for it. This is not something which parties can agree to contract out of.  


The Importance of Adhering to Legislation 

Adherence to the guidelines outlined in the DBCA is paramount for builders. The legislation exists to protect both builders’ rights and owners’ interests, ensuring transparency and accountability. By requesting payments outside of the defined stages or percentages, builders expose themselves to legal liabilities and potential penalties. 

Furthermore, clients are increasingly aware of their rights and the legal frameworks that govern construction contracts. Demonstrating a strong commitment to compliance can build trust and strengthen professional relationships with owners.  

In conclusion, progress payments play a crucial role in construction contracts governed by the Domestic Building Contracts Act 1995. Builders must understand and follow the specific guidelines outlined in Section 40, which detail the defined stages, approved percentages, and payment methods. By adhering to these requirements, builders can safeguard their own interests while also building trust with their clients.  

The information within this article is general information only and should not be relied upon as legal advice. Should you require information and advice specific to your circumstances we invite our members to contact the legal team on 03 9411 4555 or by emailing [email protected].