Milestone Payments in Australian Residential Building Contracts

What it is

A milestone payment schedule splits the contract price into instalments tied to defined stages of work. The builder claims the relevant instalment once the stage is reached. The owner pays within the contract time. This is the dominant payment method in AU residential building because the state Acts that govern residential contracts either require it or strongly favour it.

The other method, claims-based payment, calculates the amount due from labour and materials actually used in the claim period. Claims-based regimes are common in commercial construction but tightly regulated in residential work, often requiring written acknowledgement from the owner that they have opted out of stage payments.

Why milestone payments dominate residential work

Two reasons. First, state residential building Acts protect owners from front-loaded payment schedules where the builder would otherwise collect cash well ahead of the work done. Second, milestones map cleanly to lending milestones used by banks for construction loans, where the lender releases funds against a quantity surveyor inspection at each stage.

The result is a stable structure across HIA, Master Builders, Fair Trading, QBCC and VBA residential contracts. The names of stages vary by state and template but the underlying idea is the same.

State by state requirements

NSW

Section 8A of the Home Building Act 1989 (NSW) restricts progress payments to authorised types. The two main types are stage-based payments (a specified amount or percentage payable on completion of a described stage) and claims-based payments (for labour and materials in respect of work performed). Where the contract uses claims-based payment, it must support claims with invoices, receipts or other reasonable documentation. The maximum deposit is 10 per cent of the contract price under section 8.

VIC

Section 40 of the Domestic Building Contracts Act 1995 (Vic) is the central provision. It sets a default stage schedule for major domestic building contracts: deposit, base, frame, lock-up, fixing and completion, each expressed as a percentage of the contract sum. The default percentages in Schedule 1 of the Domestic Building Contracts Regulations 2017 are 5 per cent deposit, 10 per cent base, 15 per cent frame, 35 per cent lock-up, 25 per cent fixing and 10 per cent completion. Parties may use a different schedule only if both owner and builder sign an acknowledgement that they have opted out of the section 40 default.

QLD

Schedule 1B of the Queensland Building and Construction Commission Act 1991 sets minimum requirements for domestic building contracts including deposit limits. For contracts of $20,000 or more, the maximum deposit is 5 per cent. For contracts between $3,301 and $19,999, the maximum deposit is 10 per cent. Stage payments in QBCC contract templates are tied to deposit, base, frame, enclosed, fixing and practical completion.

WA, SA, TAS, ACT, NT

Each jurisdiction has its own residential building legislation with stage payment rules. The pattern is similar: deposit caps, defined stages and limits on out of sequence claims. The WA Home Building Contracts Act 1991, the SA Building Work Contractors Act 1995 and the equivalent ACT, NT and TAS rules all sit within this general approach.

What counts as a stage

The most common issue with milestone schedules is what counts as the stage being reached. Most templates define stages in detail, for example base stage as concrete slab poured or footings completed depending on construction type. The builder cannot claim until the defined work is done. Owners cannot withhold payment if the stage is genuinely complete just because they want more proof.

A useful rule of thumb: if a quantity surveyor for a construction lender would sign off the stage on inspection, the stage is complete. If the QS would not, the stage is not yet ready for claim.

Claims-based payment in residential work

Claims-based progress payments are allowed in residential work in most states but only with proper documentation. In NSW under section 8A(1)(b), the contract must allow claims to be supported by invoices, receipts or other reasonable documents and may include a margin. In VIC the parties must sign a notice opting out of the section 40 stage default. In QLD the QBCC has minimum content rules that apply regardless of payment method.

Claims-based payment is uncommon in conventional new home construction because lenders prefer stage payments. It is more common in renovation, knockdown rebuild or cost-plus arrangements where the scope and the cost are not known precisely at contract.

Security of Payment overlay

The state Security of Payment Acts apply to construction work generally. Their interaction with residential work is jurisdiction specific.

NSW

Section 7(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (NSW) excludes contracts for residential building work where the other party is a resident owner who lives or proposes to live in the home. The Act does not apply between a builder and an owner occupier. It does apply between the builder and its subcontractors on the same job.

VIC

The Building and Construction Industry Security of Payment Act 2002 (Vic) similarly excludes contracts with resident owners.

QLD

The Building Industry Fairness (Security of Payment) Act 2017 (Qld) also excludes contracts directly with resident owners.

Across the states, the same pattern repeats: SoP does not give the builder a payment claim weapon against the owner-occupier, but does give the builder rights against principals on non-residential jobs and gives subcontractors rights against the builder.

The practical outcome for residential builders is that recovery from an owner uses the contract itself, the relevant state tribunal (NCAT, VCAT, QCAT and equivalents) and the state residential building Act. Recovery from subcontractor-related work uses Security of Payment.

What to check on every residential contract

Three things matter on every residential payment schedule.

Stage definitions are clear

The contract should describe the work that triggers each claim in language the owner and the QS can both apply consistently.

Percentages match the legislation

NSW limits the deposit to 10 per cent. VIC defaults to 5 per cent and a defined stage breakdown. QLD limits the deposit to 5 per cent for jobs over $20,000.

Opt-out documentation is in place

If the builder and owner want a non-default schedule (claims-based or different percentages), the opt-out paperwork must be signed in the form the legislation requires. Without it, the default regime applies and overpayments can be recovered.