Plain-English definitions of the terms in your building contract.

Progress payment

A staged partial payment of a building contract, made when the build reaches a defined milestone. The payment structure used in almost all Australian residential building contracts.

Retention

An amount held back from progress payments to ensure the builder returns to rectify defects after practical completion. Typically 5% of each progress payment, released after the defects liability period expires.

Variation

A change to the scope of work in a building contract after signing. Variations adjust the contract price up or down based on the change. They are one of the most common sources of dispute in Australian residential construction.

PC sum (Prime cost sum)

An allowance in a building contract for an item or product that the owner will choose later. The contract specifies a budgeted amount; the actual cost is reconciled against that amount when the item is selected.

Provisional sum

An allowance in a building contract for work where the scope or extent is uncertain at signing. The contract includes a budgeted amount; the actual cost is determined when the work is done and reconciled against that amount.

Practical completion

The legal moment a residential build is considered finished, even if minor defects remain. Practical completion triggers the final progress payment, the start of the defects liability period, and the owner's right to take possession.

Defects liability period

The period after practical completion during which the builder is contractually obligated to return and rectify defects identified by the owner. Typically 12 weeks to 6 months. Retention is released at the end of this period.

SOPA (Security of Payment)

Australian state legislation giving subcontractors and suppliers in construction a fast legal pathway to recover unpaid invoices. Each state has its own version. The protections are powerful but time-sensitive: missing the deadlines usually means losing the protection.

Adjudication

The legal process under each state's Security of Payment Act for resolving construction payment disputes. An independent adjudicator decides the dispute within weeks. Decisions are binding and enforceable through the courts.

Payment claim

A formal invoice issued under a state's Security of Payment Act. A payment claim triggers SOPA timeframes and protections. Most state legislation requires specific wording for a document to qualify as a payment claim.

Construction loan

A type of home loan structured around the staged payment schedule of a residential build. Funds release in tranches matched to construction stages, with the bank verifying progress at each stage before releasing the next payment.

Owner-builder

A homeowner who manages their own residential build directly, taking on the role of the builder rather than contracting one. Common for renovations and rural builds. Subject to state-specific licensing and insurance rules.

HBCF (Home Building Compensation Fund)

New South Wales' statutory insurance scheme for residential building work. Provides cover for homeowners when their builder dies, becomes insolvent, or disappears. Administered by icare on behalf of the NSW government.

VMIA (Victorian Managed Insurance Authority)

The Victorian Government insurer that operates the Domestic Building Insurance scheme for residential builds in Victoria. Provides cover when a builder dies, becomes insolvent, or disappears. Maximum payout $300,000 per dwelling, capped at 20% of the contract price.

QBCC (Queensland Building and Construction Commission)

Queensland's building industry regulator. Operates the Home Warranty Scheme that provides cover for homeowners against builder insolvency, incomplete work, and defective work. Maximum payout $200,000 per dwelling.

Building contract

The legal agreement between a homeowner and a builder for residential construction work. Most Australian residential builds use a standard contract template from HIA or MBA, modified for the specific build.

Defect

Building work that doesn't meet the contract specifications, the building code, or industry standards. Defects can be cosmetic (paint, finishes), functional (windows that don't close, taps that leak), or structural (foundation cracks, roof leaks).

Construction insolvency

When a construction company can no longer pay its debts as they fall due. In Australian residential construction, insolvency rates surged from 2022 onwards, leaving thousands of builds stranded.

Liquidation

The formal process of winding up an insolvent company, realising its assets, and distributing the proceeds to creditors in priority order. Most Australian residential builders that fail end up in liquidation.

Voluntary administration

The formal Australian insolvency process in which the directors of a financially distressed company appoint a registered administrator to assess whether the company can be saved, sold, or wound up. Usually 25 business days. Most construction administrations proceed to liquidation.

Escrow

An arrangement where money is held by a neutral, regulated third party instead of by either side of a deal, and released only when agreed conditions are met.

Regulated custody

The holding of customer money by a licensed financial institution under formal regulatory conditions, separate from the operating accounts of the business arranging the transaction.

Trust account

A bank account in which money is held on behalf of someone else and can only be used for their specific purpose. Solicitors and real estate agents are required to use them for client money.

Unsecured creditor

A person or business owed money who holds no security over the debtor's assets, and so is paid only after secured lenders, employees, and the tax office in an insolvency.

Drawdown

The release of funds from a construction loan in stages as the build progresses, with the bank verifying each stage before releasing the next tranche.

Domestic building insurance (DBI)

Mandatory insurance for most residential building work over a threshold value, covering the homeowner if the builder dies, disappears, or becomes insolvent. Capped and run state by state.

AFSL (Australian Financial Services Licence)

The licence, issued and regulated by ASIC, that a business must hold to provide financial services such as holding or dealing in client funds in Australia.

AUSTRAC

The Australian Government agency that oversees anti-money-laundering and counter-terrorism-financing obligations, and to which certain businesses must report as designated service providers.

Phoenix activity

The pattern of closing a company that owes debts and starting a new one that carries on the same business, leaving creditors of the old company unpaid.

PPSR (Personal Property Securities Register)

The national register where a business can record a security interest over goods or money it is owed, such as materials supplied on credit.

Quantity surveyor

A construction cost professional who measures and values building work, often used by banks to verify each stage of a build before releasing the next drawdown.

Subcontractor meaning in construction

A subcontractor is a trade business engaged by the builder to do part of a residential build. Subs sit last in the payment chain and are paid for completed, approved work.

Supplier (Materials Supplier)

A construction materials supplier sells building goods like timber, tiles, and fixtures, rather than doing on-site labour. Suppliers invoice for goods and get paid separately from labour subcontractors.

Set-Off (Materials Set-Off)

When a builder pays a supplier for materials on your behalf, that cost is set off (deducted) from what you are later paid. Set-off stops you being paid twice for the same materials.

Subcontractor Payment Pool

A subcontractor payment pool is the total a sub can be paid on a project, set by the accepted quote and moved only by approved variations. Know your ceiling before you start.

Subcontract Cap in Construction: How It Works

A subcontract cap in construction is the ceiling on what a sub can be paid: contract value plus approved variations. Learn how it protects your money.

Stage verification in construction payments

Stage verification is the construction payment step that confirms a stage of work is genuinely complete before the matching progress payment is released. See how it works.

Construction Payment Schedule Explained

A construction payment schedule is the staged ladder that splits a contract price into a deposit and progress payments tied to completed work. Learn what is negotiable.

Variation Order in Construction Contracts

A variation order is the formal, agreed document that records a change to a building contract's scope or price after signing. Learn how it works in Australian residential builds.

Dual Approval (Variations)

Dual approval means a variation needs both the builder and the owner to sign off before it changes the contract price. It protects owners from silent cost creep and builders from disputed claims.

Defect Rectification in Building Work

Defect rectification in building work is the builder or subcontractor fixing an identified defect, with evidence the issue is actually resolved. See how it closes out a defect.

Retention Release in Construction

Retention release is when withheld retention money gets paid back, usually in stages: part at practical completion, the rest once defects are fixed. Here is when it lands.

Final Inspection (Building Handover)

The walkthrough near the end of a build where owner and builder list outstanding defects and confirm the work is ready for handover. It feeds the practical completion decision.

Final release

Final release is the last construction payment of the remaining project funds, made after practical completion and a short completion hold once outstanding defects are resolved. See how it closes out the build.

Tender Package: Quote, Contract, Spec Sheet

A tender package for a residential build bundles the quote, the contract, and the spec sheet so the owner reviews scope, price, and terms in one place. See how it works.

Specification Sheet (Spec Sheet) in Building

A specification sheet in building lists the exact materials, finishes, fixtures, and workmanship standards your builder must deliver. Vague specs cause disputes. Learn how it works.

Materials Specification in Construction

A materials specification in construction records the exact products and grades chosen for your build. It drives PC sum allowances and the cost of every later variation.

Subcontractor Removal in Construction

Subcontractor removal is the process of taking a sub off a job, ideally with notice and any outstanding invoices resolved first. Done carelessly, it can mask payment fraud.

Bank Valuation in a Construction Loan

A bank valuation in a construction loan checks how much of your build is complete before the lender releases the next drawdown. It is about the lender's security, not the quality of the work.

Bank Drawdown Process

How a construction loan drawdown releases money in tranches: you claim a finished stage, the lender inspects and values it, then the next tranche is released.

Trade Credit in Construction Supply

Trade credit lets a construction supplier deliver materials now and get paid later, usually 30 days. Here is how it works and where the PPSR can protect the debt.