Stage Payments
Stage payments are one of the most important points a homeowner has during a build, yet they are often treated as automatic or administrative. When a builder issues a stage payment invoice, they are saying that a certain milestone has been reached in accordance with the contract. Typically, these are base stage, frame stage, lockup stage, fixing stage, and completion. Understanding what that actually means is so important, because once a stage payment is made, it becomes much harder to raise issues that should have been dealt with earlier.
When a homeowner receives a stage claim or stage invoice, that should trigger a check of two things. First, has the milestone genuinely been reached? And second, is the work at that stage free from defects that should reasonably have been rectified before payment is made. A stage payment is tied to the completion of a defined stage, and must be stated in the contract.
How this works in practice depends entirely on how the stage is defined in the contract. In many standard Victorian domestic building contracts, stage payments follow what is commonly referred to as “method one”, which aligns with the statutory payment schedule set out in section 40 of the Domestic Building Contracts Act 1995. That section not only sets out the payments for each milestone, but also provides descriptions of what constitutes completion of each stage. The statutory descriptions of each stage become important in determining whether a payment is actually due.
Because of the financial significance of stage payments and not wanting to over pay the builder, many homeowners engage an independent inspector to assess the works at each stage. This can help confirm whether the milestone has been reached and whether there are defects that should be addressed before payment is made. Where a stage also requires a mandatory inspection by the relevant building surveyor, it is sensible for homeowners to ensure they receive the relevant inspection approval or report before proceeding with payment. These reports provide independent confirmation that the work has passed the required regulatory inspection.
It is important, however, to understand that stage payments should not be withheld without proper grounds. If a homeowner delays a payment in circumstances not permitted by the contract, interest may become payable on the outstanding amount. That interest rate is often higher than standard home loan interest, which means an unjustified delay can quickly become expensive, particularly for larger stage payments. This is why understanding the contractual basis for any delay is essential.
At the same time, homeowners are not required to pay a stage claim if the stage has not actually been completed. A stage may be incomplete because required work has not been finished, because a particular trade has not completed their scope properly, or because key elements of the milestone are missing. In those circumstances, the payment is not yet due, regardless of the invoice being issued.
Much of the confusion around stage payments arises because homeowners do not fully understand how stages and milestones are defined in their specific contract. While many contracts follow the standard statutory stages in Method One, some builders use special conditions to alter or re-define what constitutes each stage. A common example is a builder may re-define the lockup stage by saying something like “the eaves lining does not need to be complete for the lockup stage to be reached”. These changes can significantly affect when payments fall due and what level of completion is required. Knowing whether the contract has modified the standard definitions is particularly important when assessing whether a stage claim is valid.
Stage payments are a contractual checkpoint as well as a build milestone. Each payment confirms that a defined portion of the work has been properly completed. Homeowners who understand how stages are defined, and when payment can legitimately be withheld are far better placed to manage their build, control quality, and avoid disputes later in the project.