Section 40 Domestic Building Contracts Act 1995 (VIC) (DBCA) The different interpretations of payment stages

9 Dec 2024

Progress Payments  

Major Domestic Building Contracts are usually paid in progress payments. Many industry standard building contracts involve  progress payments to be made pursuant to the amount stipulated in the contract (i.e. at the completion of the main defined stages). 

Example 1 

Imagine you are an owner and have entered into a Major Domestic Building Contract for $800,000.00. There will likely be a table in your contract which states when you must pay the builder certain amounts of the contract price. See table below:-  

Contract to build through to all stages 5% $40,000.00 Deposit 
 10% $80,000.00 Base Stage 
 15% $120,000.00 Frame Stage 
 35% $280,000.00 Lock up Stage 
 25% $200,000.00 Fixing Stage 
 10%  $80,000.00 Final Payment upon Completion 
 = 100% $800,000.00 Total 

Cardona V Brown  

In Cardona V  Brown [2012] VSCA 1741,  The Court of Appeal found that builders claiming progress payments can only make consecutive claims incrementally at the completion of each stage (in accordance with the legal definition of completion of each stage). 

This means that the builder can only make the progress claim for each stage payment once the previous stages (and the current stage) have been completed. Further, the claims must be in sequence. 

Given that in the past it has been widespread in the industry for some builders to claim  these payments when prior stages had not been fully completed (e.g. claiming for Fixing Stage, even though Lock Up had not been claimed due to some missing brickwork), this decision has now effectively forbidden this practice.

For this reason, it is essential that the stage has been finalised before an owner makes a  payment to a builder.  

Interpretations of the Payment Stages 

In Victoria, stages are usually verified as completed by a surveyor coming to check and approve that the stage has in fact been completed. However, there can be variations in what each stage entails.  

Additionally, it is important to review your contract carefully as it will list what work is attributed to each stage. However, broadly, there are common stages which can be defined. These stages are:- 

  1. Base Stage 
  2. Frame Stage 
  3. Lockup Stage 
  4. Fixing Stage 
  5. Completion 

Base Stage  

Definition under Section 40(1) of the Domestic Building Contracts Act 1995 (VIC)  (“DBCA”)

“base stage” means— 

        (a)     in the case of a home with a timber floor, the stage when the concrete footings for the floor are poured and the base brickwork is built to floor level; 

        (b)     in the case of a home with a timber floor with no base brickwork, the stage when the stumps, piers or columns are completed; 

        (c)     in the case of a home with a suspended concrete slab floor, the stage when the concrete footings are poured; 

        (d)     in the case of a home with a concrete floor, the stage when the floor is completed; 

        (e)     in the case of a home for which the exterior walls and roof are constructed before the floor is constructed, the stage when the concrete footings are poured; 

The base stage will only be viewed as complete once substantial foundational work and compliance with regulatory standards has been met.  

Case Law 

In the case of Sightway Construction Pty Ltd v Jayasinghe (Building and Property) [2018] VCAT 6762, a dispute arose as to whether the base stage had been completed for the construction of three two-storey units. 

The court examined the circumstances of the case, given its difficult structure of the land. However, specific principles can be drawn as to the interpretation of base slab: 

  1. Foundational structure 
    • a. The base stage involves parts of the structure that are to support the building. Concrete pads must also be completed, to ensure the completion of the stage. 
    • b. It is common industry knowledge that the base stage is fulfilled when either a concrete slab-on-ground has been constructed or, in the case of suspended floors, when the footings and the supporting case brickwork are installed and an explanation is provided.  
  1. Engineering plans 
    • a. Reinforcement slabs when corroded need to be fixed by a structural engineer, in accordance with the plans and drawings. 
  1. Establishing support for Water 
    • a. When there are difficulties in terms of access to a site, the drainage retention systems should be constructed prior to the base stage. 

Thinking back to Example 1 above, at this point, where you are satisfied that Base Stage has been accomplished, payment would be made to the Builder, in the amount of $80,000.00.  

Frame Stage 

Definition under ss 40(1) of the Domestic Building Contracts Act 1995 (VIC) 

“frame stage” means the stage when a home‘s frame is completed and approved by a building surveyor; 

Case Law 

The case of AMO Rifat Holdings Pty Ltd v Dib (Building and Property) [2024] VCAT 4193 assists in the interpretation of frame stage. This is a case where a dispute occurred over three storey house. The parties disagreed on whether the frame stage was completed satisfactorily, which impacted subsequent stages of the project.  

Four principles which can be derived from the case in relation to frame stage are:- 

  1. Structural integrity
    • a. The frame stage is defined as the point in construction where the essential structural elements of a building are completed. This includes the erection of walls, floors and roof structures which provide necessary support for the building. The stage cannot be completed until the work that is so core to the structure of the building is satisfactorily sound.  
  1. Compliance with plans 
    • a. The work completed during the frame stage must adhere to the approved architectural and engineering plans. Any deviations from these plans without the proper permits could indicate that the frame stage is not completed.  
  1. Building Code Compliance 
    • a. As with all the stages, the frame stage must meet all relevant codes.  
  1. Formal inspections  
    • a. A formal inspection by a Building Surveyor is required to verify that the work meets the necessary standards.  

Example 

Thinking back to Example 1 above, at this point, where you are satisfied that Frame Stage has been accomplished, payment would be made to the Builder, in the amount of $120,000.00.  

Lockup Stage  

Definition under ss 40(1) of the DBCA: 

“lock-up stage” means the stage when a home‘s external wall cladding and roof covering is fixed, the flooring is laid and external doors and external windows are fixed (even if those doors or windows are only temporary); 

Case Law 

In the past garages have not always been considered to be part of ‘the home’ as it is a class 10a non habitable area – further, builders often delay the installation of the garage door as it can be damaged during construction. 

In Cardona the Victorian Court of Appeal found that the garage is indeed part of the home and falls within the scope of the Lock Up stage, if the garage is part of the agreed scope of works in the contract. The Court supported this approach given that if the garage was not installed then the home could not be secured.  

Example  

Thinking back to Example 1 above, at this point, where you are satisfied that Lockup Stage has been accomplished, payment would be made to the Builder, in the amount of $280,000.00.  

Fixing Stage 

Definition under ss 40(1) of the DBCA  

“fixing stage” means the stage when all internal cladding, architraves, skirting, doors, built-in shelves, baths, basins, troughs, sinks, cabinets and cupboards of a home are fitted and fixed in position. 

The case of Alpha Developers and Promoters Pty Ltd v Advance Building & Engineering Pty Ltd (Building and Property) [2015] VCAT 3174  assists in interpreting what fixing stage actually means and highlights the potential consequences to a builder for not meeting those standards. The principles which can be derived form this case are:- 

  1. Completion of Internal Works 
    • a. The fixing stage is characterised as the point in the construction process where all internal fixtures, fittings and finishes are installed. This includes elements such as internal cladding, shelves, sinks, cabinets, and cupboards. 
  1. Standards of work 
    • a. The tribunal emphasises that there are high standards of workmanship which must be completed, including compliance with relevant codes, standards and specifications of the contract. 
  1. Weather-Proofing and security 
    • a. The fixing stage focuses on internal works. However, the fixing stage implies that the building should be secure and weather ready, for example through ensuring all troughs and sinks are properly fitted to prevent ingress. 
  1. Readiness for inspection 
    • a. The fixing stage is typically followed by a final inspection which assesses whether the building is ready for occupancy. Thus, it must be completed to a standards which allows for this.  

Example  

Thinking back to Example 1 above, at this point, where you are satisfied that Fixing Stage has been accomplished, payment would be made to the Builder, in the amount of $200,000.00.  

Completion  

The final payment for a build is paid when the build have in fact been completed in accordance with contractual the plans and specifications.  

Case Law 

In the case of Carlisle Homes Pty Ltd v Dawn (Building and Property) [2023] VCAT 660 5(“Dawn”), there was a dispute behind the construction of a new dwelling on Mr Dawn’s property. 

When a Builder considers their building works have reached completion, the Builder is to give to the owner: 

  1. A Notice of Completion; and 
  2. The Final Claim. 

The Builder must not demand Final Payment until after the builder has given the owner either: 

  1. A copy of the occupancy permit under the Building Act 1993, if the building permit for the building works requires the issue of an occupancy permit; or 
  1. In any other case, a copy of the certificate of final inspection. 

In this case, a final inspection was carried out that lead to a list of defects being identified. Completion as reiterated, is achieved when the works “have in fact been completed in accordance with the plans and specifications”. 

As the principle in Cardona, it is necessary for there to be “effective and satisfactory completion of the required stage…[as] a condition of any instalment payment.” 

In Dawn the builder demanded a full payment for Completion stage. However, the builder was not entitled to demand this stage of the work before it was completed. 

Example  

Thinking back to Example 1, at this point, where you are satisfied that the build is completed, final payment would be made to the Builder, in the amount of $80,000.00.  

Summary 

Owners paying Builders at the correct time is essential to ensure that the build operates smoothy. However, on occasion, a Builder will request payment when a stage is not yet complete. This reiterates the importance of a clear understanding of the common stages of a Major Domestic Building Contract.

Disclaimer 

The information provided in this article is for general informational purposes only. It does not constitute legal advice. For specific legal advice related to building regulations and compliance, please consult a construction lawyer. 

  1. Cardona V  Brown [2012] VSCA 174 ↩︎
  2. Sightway Construction Pty Ltd v Jayasinghe (Building and Property) [2018] VCAT 676 ↩︎
  3. AMO Rifat Holdings Pty Ltd v Dib (Building and Property) [2024] VCAT 419 ↩︎
  4. Alpha Developers and Promoters Pty Ltd v Advance Building & Engineering Pty Ltd (Building and Property) [2015] VCAT 317 ↩︎
  5. Carlisle Homes Pty Ltd v Dawn (Building and Property) [2023] VCAT 660 ↩︎