Draft regulations released for consultation would lift the maximum deposit on a standard house build from 5 per cent to 10 per cent, add a site preparation stage, and remove the ability to agree a different payment schedule. Submissions close 16 September.

The Victorian Government has released draft regulations and a Regulatory Impact Statement setting out how builders will be allowed to take deposits and claim progress payments under domestic building contracts. Consultation opened on 18 August 2026 and closes on 16 September.

For most Victorian residential builders this is the detail that has been missing for eleven months.

When the Domestic Building Contracts Amendment Act 2025 passed in September last year, it stripped the deposit limit and the progress payment table out of the Act and handed both to regulation. That made the numbers easier to update in future. It also meant nobody knew what the numbers would be. The draft regulations answer that.

The deposit increase will get the coverage. It is not the change that will reshape how Victorian builders get paid.

What the draft regulations propose

Under the current Act a builder cannot take a deposit of more than 5 per cent on a contract priced at $20,000 or more. The draft regulations replace that with a tiered structure keyed to how much of the build is manufactured offsite.

A standard house build, where less than 30 per cent of the builder’s reasonably incurred cost is attributable to prescribed modern methods of construction, gets a maximum deposit of 10 per cent. Contracts where 30 to 50 per cent of cost is attributable to prescribed MMC get 15 per cent. Above 50 per cent, the limit is 20 per cent. Every other domestic building contract, including renovation work, sits at 10 per cent.

The threshold for a major domestic building contract also rises from $10,000 to $20,000, aligning it with the insurable contract threshold under the First Resort Home Warranty Scheme that commenced on 1 July. That threshold governs which contracts attract the full set of statutory requirements, including how progress payments are structured in a contract.

Where the money actually moves

The current stages sit in section 40 of the Act. The proposed stages sit in a new Schedule 1 to the regulations.

Both add to 90 per cent before completion. The total has not changed. What has changed is when you get it.

Five per cent moves forward into the deposit. A new site preparation stage picks up another 5 per cent at the point where site work is carried out to prepare the site for construction. Lock-up drops by five points and fixing drops by five points.

On a $600,000 build that is $60,000 at signing instead of $30,000, plus another $30,000 available at site preparation before footings are poured. The same $60,000 comes off the back end, split between lock-up and fixing.

If your costs before base stage have been climbing and you have been funding the gap out of working capital between signing and base stage, this improves your position. If your book is structured so that lock-up carries the load, it does not.

The Regulatory Impact Statement is direct about the new stage. Complex sites are becoming more common in both infill and greenfield work, and stakeholders wanted higher upfront payments to cover early site costs. Restricting the stage to sites classified as complex was considered and rejected as too difficult to define, so it applies to every contract under 30 per cent MMC.

The provision half the market relies on is being removed

This is the change that has gone almost entirely unremarked, and it is the one that will land hardest.

Section 40(4) of the current Act lets the parties to a major domestic building contract agree that the prescribed stages do not apply, provided they do it in the manner set out in the regulations. Regulation 13 of the 2017 Regulations sets out that manner: a signed warning in the form of Form 1, and a signed clause in the form of Form 2, both executed before the contract.

Form 1 sets out the situations it was designed for: land that is very expensive to prepare, such as a steep or rocky site; a home so large that intermediate payments are needed; exceptionally expensive finishes that make the final stage a much larger share of the price; work on a later stage required before an earlier one can be finished; and builds where an architect independently assesses the value of completed work.

The Amendment Act substitutes sections 40(1), (2), (3) and (4) in full. The new section 40(4) is a different provision entirely, covering contracts of a type not specified in section 40(2). The agreement power is gone. The draft regulations then revoke regulation 13 and substitute Schedule 1, which removes Forms 1 and 2.

There is a replacement mechanism, but it does not reach ordinary home builds. The Amendment Act requires a clause approved by the Authority and published in the Government Gazette, plus a notice in an approved form signed by the owner before they sign the contract. Those requirements apply to two categories: contracts specified in section 40(2) that are prescribed for the purposes of section 40(3), and contracts not specified in section 40(2) at all.

A standard home build under $1 million with less than 30 per cent MMC falls into neither category. For those contracts the prescribed schedule becomes mandatory, with no route to agree anything different.

The Regulatory Impact Statement states that as many as 50 per cent of contracts used the existing opt out.

Read that alongside the modelling and something odd emerges. The RIS models 0.5 per cent of contracts under 30 per cent MMC as genuinely requiring bespoke payment terms, and states plainly that there is no comprehensive database of which contract types used the section 40(4) mechanism. A sensitivity test doubles the proportion of contracts with insufficient payment flexibility, which still leaves it far below the share of the market the RIS says was using the provision.

The government’s own document concedes the gap. It states there is uncertainty as to what proportion of those contracts truly required a bespoke payment schedule. That caution is fair. It also means one of the least evidenced figures in the package sits directly under the number that decides whether the regulations pay for themselves.

The test almost nobody is discussing

There is a structural change in the amended Act that the deposit headline buries.

The new section 40(1) says a builder must not demand, recover or retain more than the lower of two amounts: the prescribed percentage for that stage, or an amount that directly relates to the progress of the building work.

That is not how the current section works. Today the prescribed percentage is the ceiling. Reach the stage, claim the percentage. Under the amended Act the prescribed percentage is one ceiling and actual progress is a second, independent ceiling. Whichever binds first, binds.

For builders who claim on completed work this changes nothing in practice. For anyone whose stage claims have drifted ahead of site reality, it converts a commercial argument into a compliance question with a 50 penalty unit exposure attached.

Offsite builds leave the prescribed schedule entirely

The three MMC categories do more than set deposit tiers.

The draft regulations prescribe stages and percentages only for contracts under 30 per cent MMC. Contracts at 30 per cent or above have no prescribed schedule at all. Payments on those jobs are governed by the progress test alone.

That is deliberate. The RIS reasons that a fixed schedule is a poor fit for a delivery model where most of the value is created in a factory before anything happens on site, and that imposing one would push those builders to raise contract prices to restore cash flow. Under the preferred option that cost is estimated at $7.6 million over ten years. Under the most prescriptive option modelled it reaches $25.8 million and the package stops paying for itself. The preferred option returns a net present value of $13.5 million and $2.29 of benefit for every dollar of cost over ten years at a 4 per cent discount rate. For anyone tracking where the residential market is heading, it is a deliberate regulatory tilt towards prefabrication.

Three further contract types are carved out of the prescribed schedule. Contracts to build a single home priced at $1 million or more. Contracts between a builder and someone who is not a developer to build two or more homes where each home is priced at $1 million or more. And contracts to build a small second dwelling within the meaning of the Building Regulations 2018. All three fall back to the progress test.

What counts as modern methods of construction

The regulations do not leave this open. A prescribed modern method of construction is the use of a module that delivers a home to lock-up stage, a module requiring only installation and connection to services such as a bathroom, kitchen or laundry pod, or a building component that results in a wall, floor or roof.

The RIS attaches an explicit exclusion list. Roof trusses, windows and door frames, standard kitchen or bathroom cabinetry, individual bathroom fixtures, and structural materials supplied as individual products such as timber or steel framing items do not count.

That list is doing real work. Without it, a builder could argue past the 30 per cent threshold on trusses and frames alone and the deposit tiers would lose their meaning. The RIS says as much, noting that without an enforceable definition builders could claim higher MMC content than they actually have in order to access higher upfront payments.

The proportion is measured on cost reasonably incurred by the builder, not on floor area or component count. If you are anywhere near a threshold, how you cost your offsite components becomes a compliance decision.

A higher deposit does not mean a better protected client

Worth knowing before you ask for 10 per cent.

The First Resort Home Warranty Scheme covers lost deposits to the lower of up to 5 per cent of total contract value. It does not move with the new limit. On a 10 per cent deposit, half of what the client hands over is uninsured. On a 20 per cent deposit for a high MMC build, three quarters of it is.

The RIS goes further on offsite work. Cover under the scheme is payable only for work undertaken on site, because offsite building work is not legally recognised, and the RIS acknowledges a residual risk of misalignment between the scheme’s building stages and those established for offsite work under the proposed regulations.

The practical consequence is that the builders granted the largest deposits are contracting with the clients who have the least protection if it goes wrong. The RIS expects this to limit uptake on its own, reasoning that consumers have a strong incentive to keep upfront payments down and that standard form contracts elsewhere in the country do not exceed 10 per cent. A builder who asks for the full amount may find the number on the page and the number the client’s lender will accept are two different things.

The start date is not settled

The draft regulations state a commencement date of 1 December 2026. So does the RIS.

The consultation page says something different. It states that the government is proposing to defer commencement of both the Amendment Act and the regulations to 31 March 2027, to give industry and consumers more time to prepare, and that a further update will follow once confirmed.

That is a proposal, not a decision. Plan for it, do not bank on it.

Either way the transition risk is the same. The framework applies to contracts entered into on or after commencement. A contract mid negotiation on the day the regulations start will need to comply. The RIS acknowledges this and says the department is considering how transition can be managed, which is a polite way of saying it has not been resolved. If you are quoting work into early 2027, the contract you sign may not be the contract you priced.

What is not changing

Cost escalation clauses stay as the Act set them. Available only on contracts of $1 million or more, capped at a 5 per cent increase to the total contract price. The RIS considered adjusting both and recommended against it, on the basis that changing thresholds set in legislation last year would pre empt the legislative intent. The settings will be reviewed after five years.

The draft regulations do prescribe two circumstances that cannot support a cost escalation claim: a foreseeable cost increase the builder could reasonably have mitigated, and increases arising from a contractual dispute between the builder and a subcontractor. There is also a prescribed warning form the owner must read and sign before the contract, with the clause separately initialled.

Not the same reform as the payment changes in April

This is not the security of payment overhaul.

Changes to the Building and Construction Industry Security of Payment Act 2002 commenced on 15 April 2026 and reach into contracts already signed. That regime governs the contracting chain below the head contract, and domestic building contracts between a builder and a home owner sit outside it.

The regulations under consultation now govern the contract between you and the owner. Different Act, different scope, different commencement, and no retrospectivity. A builder running both a domestic book and subcontract work is dealing with both regimes, in different places, on different terms.

What to do before 16 September

The consultation asks for feedback on progress payment arrangements specifically, and the RIS puts several options on the table rather than presenting one as settled. That is an open door, and the number of builders who will walk through it is small.

Three things are worth working out first.

• Run your last five completed jobs against the proposed schedule and find out whether the money brought forward covers what you lose at lock-up and fixing. The answer will differ sharply between a builder doing twenty standard homes a year and someone doing four architectural builds on difficult sites.
• Work out where your offsite content actually sits as a proportion of cost, using the prescribed definition and the exclusion list rather than a general sense of how much prefabrication you use. The gap between 29 and 31 per cent is the difference between a fixed schedule and none at all.
• Check your standard contract against the lower of two amounts test in the new section 40(1). If your stage claims have historically run slightly ahead of on site progress, that practice now has a penalty attached.

Submissions can be made through Engage Victoria by survey or written submission. The department can also be reached at [email protected]

THE GOOD BUILDER TAKE

The deposit increase is the least consequential change in the package, and the government’s own analysis says so. It expects the limit to have limited impact because clients have every reason to keep upfront payments down, because deposit protection stays capped at 5 per cent of contract value whatever the contract says, and because standard form contracts elsewhere already sit at or below 10 per cent.

The change that will actually be felt is the removal of the ability to agree a different payment schedule. A mechanism the Regulatory Impact Statement says as many as half of all contracts used is being closed for ordinary home builds, and the replacement route does not extend to them. The modelling puts the share of those contracts that genuinely needed bespoke terms at 0.5 per cent. That figure has been stress tested against itself, but not against any record of actual use, because the RIS says no such record exists.

There is a reasonable case that a mandatory schedule is the right call. Bespoke payment terms put the onus on clients to assess whether a schedule is proportionate, and most cannot. There is also a reasonable case that a fixed table designed around a traditional detached house will not fit a meaningful share of what Victorian builders actually build, and that the cost of the misfit will show up as higher prices rather than as complaints.

That is exactly what a consultation exists to test. Four weeks is not long, and the builders who will live with the answer are the ones least likely to have time to respond.

Frequently asked questions

Related reading from The Good Builder

Victoria Rewrote Its Payment Rules and Applied Them to Contracts You Already Signed — the separate security of payment overhaul that commenced in April, covering the contracting chain below the head contract.

This article provides general information only and does not constitute legal advice. Domestic building contract requirements vary by state and territory, and the regulations discussed here are in draft and subject to change following consultation. Builders should seek advice specific to their contracts and circumstances.

Last updated: 20 August 2026.

Author: TGB Editorial