Progress payment rules under the Home Building Act 1989 (NSW): section 8A

What it is

In NSW, the Home Building Act 1989 limits how a builder can structure progress payments on a residential job. The rules apply to work over $20,000, which the Act treats as a larger job rather than a small one. The aim is simple: the homeowner pays for work as it is done, not before.

Two sections do the heavy lifting. Section 8 caps the deposit. Section 8A sets out the only permitted ways to structure the progress payments that follow.

Why it matters

Progress payment terms decide a builder's cashflow and a homeowner's risk. If a contract demands money well ahead of the work, the owner carries the risk of paying for work that may never be done. The Act removes that risk by limiting payments to set bases tied to actual progress. A builder who writes a non-compliant payment schedule faces penalties and an unenforceable term, so getting this right protects both sides.

How it works in NSW

The deposit comes first. Under section 8, the deposit on a residential building contract cannot exceed 10% of the contract price. A builder cannot ask for more up front.

After the deposit, section 8A limits progress payments on work over $20,000 to one of three bases:

• Milestone payments: a set amount or percentage of the contract price, payable when a described stage of the work is finished. The stage must be set out in clear, plain language so both sides know what triggers the payment.
• Claim-by-claim payments: payment for labour and materials already supplied, which can include a margin. A claim is supported by invoices, receipts or other reasonable records, with payment intervals fixed by the contract or made as invoiced.
• A basis authorised by the regulations: any other method the Home Building Regulation allows.

Any payment that does not fit one of these bases is not permitted. A builder cannot demand a large payment in advance of doing the work, beyond the capped deposit.

In practice, a compliant milestone schedule ties each payment to a finished, named stage, such as a payment on completion of the base, the frame, lock-up, fixing, then practical completion. A schedule that asks for half the price before the slab is poured is front-loaded and does not comply. A claim-by-claim schedule instead pays for the labour and materials already supplied, backed by invoices.

Commercial construction is different. Progress claims on commercial projects are governed by the Building and Construction Industry Security of Payment Act 1999 (NSW), which gives a statutory right to claim and a fast adjudication process. That Act does not apply to a contract for residential building work where the owner lives in, or intends to live in, the home, so for those jobs the Home Building Act rules in section 8A are the ones that bite. A builder who works across both sectors needs to apply the right regime to each contract.

Penalties back the rules. A breach of section 8A is an offence, with a maximum penalty of 1,000 penalty units for a corporation and 200 penalty units in any other case. Beyond the fine, a payment term that breaches the Act cannot be relied on.

Common pitfalls

• Front-loading the schedule. Asking for large early payments before the matching work is done breaches the Act, even if the owner agrees.
• Vague milestones. A stage described loosely invites a dispute. Describe each stage in plain language tied to physical work.
• Taking too big a deposit. The deposit cannot exceed 10% of the contract price.
• Using the wrong regime. The Security of Payment Act is for commercial claims. It generally does not cover an owner-occupier's home, where section 8A applies instead.
• Treating progress payments as a quality sign-off. Payment for a stage does not accept the work. The statutory warranties and the defects liability period still apply after each payment.

Progress payments sit alongside the statutory warranties and the defects liability period, which set what the builder still owes after payment. See the related entries on statutory warranties under the Home Building Act 1989 (NSW) and the defects liability period in NSW.