before you build

Paying your builder

  • Creation Date: Thursday, 09 May 2019

If you want to avoid the vast majority of the horror stories that are told by people who have had a bad building experience then this bit of advice is for you.

Firstly, you must have a valid legal contract between you and your builder in place before you start. (See the article on ‘Building Contract – Do You Need One?’) You must also have an agreed payment structure set out between you and your builder for your project. This structure is designed to protect you and still give your builder every chance to complete your project within the terms of his quote.

If you engage a builder who is registered with the Master Builder’s Association then a deposit is usually not required to start the project and progress payments to the builder are based on work that has already been completed. A retention amount of up to 5% of the contract value is also kept by yourself for an agreed period after practical completion of the project which varies from one to three months. 

This is the best method of payment and it is what we recommend. The amount that is claimed by your builder can easily be checked against what has been built and can, therefore, be verified by a third party in the event of a dispute.

If you should choose to engage a non-registered builder, protect yourself and never, never agree to give your builder a deposit or “up front’ money of any kind at any time and never ever pay cash.

Always pay a builder's draws into a bank account. It is the only way that you can trace the builder at all times. If he does not have one, then get another builder. It is common knowledge that the vast majority of small builders are not able to operate without being paid money up front but there are alternatives that work just as well that will protect you and still allow your builder to do his work.

If your builder requires a deposit, or an up front payment at any stage during the project, then you should request a breakdown of what that money is needed for. If the money is required for labour then the money should be paid to the builder for that purpose on the day that he needs to pay his staff and not in advance. Where the builder requires large deposits to pay for items like window and door frames or other materials, arrange to pay his supplier in person yourself, or by direct bank transfer.

It is a simple thing to arrange but the payment method and schedule need to be worked out with your builder before you sign any contract. Your architect is well able to assist you with this and verify the stage payments for you. It will save a lot of heartaches if the flow of funds throughout your project is managed properly.

Where the building project is being financed by a bank, they usually insist on builders who are registered with either the NHBRC or Master Builder's Association and progress payments will be subject to a checklist and paid out for work that has already been completed.

Bad building experiences can be avoided but you need to be aware of what you are getting yourself into and how you can protect yourself.

You will find recommendations for builders from satisfied clients in My Little Black Book and we encourage you to make use of the services of those firms who are recommended there.

You might also be interested in reading this article - Building: Prevention is Better.