Understanding Progressive Payments: How to Safely Manage Your Building Costs in New Zealand

April 1, 2025

When building a new home, understanding how you’ll fund the project is critical for keeping your build on track and protecting yourself financially. One of the most common funding methods for home construction in New Zealand is through progressive payments, often called stage payments.

In this guide, we’ll explain what progressive payments are, highlight the potential risks, and provide clear advice on how to ensure these payments are structured fairly, safeguarding your investment every step of the way.

What Are Progressive Payments?

Progressive payments (also known as stage payments) are payments made to your builder in instalments, typically upon completion of specific construction milestones. Rather than paying the builder one lump sum upfront or upon completion, you pay progressively as each major stage of the build is finished.

Common construction milestones for stage payments might include:

  • Foundations laid and inspected
  • Frame constructed and erected
  • Roof installed
  • Exterior cladding completed
  • Interior lining completed
  • Final fit-out and compliance

Each of these stages triggers an invoice from your builder, reflecting the value of the work completed at that point.

Why Progressive Payments are Popular in New Zealand

Progressive payments offer several benefits:

  • Reduced Risk: You only pay for completed work, reducing the risk of losing large sums if something goes wrong.
  • Improved Cash Flow Management: You manage your finances incrementally, avoiding the strain of a significant one-off payment.
  • Accountability: Your builder is motivated to meet milestones, keeping the build progressing at a steady, agreed-upon pace.

However, the structure and timing of these payments are crucial for ensuring you stay protected.

Key Risks with Progressive Payments and How to Avoid Them

While progressive payments are beneficial, there are important risks you need to consider. Being unaware of these risks can lead to serious financial pitfalls:

1. Front-Loaded Contracts

Some builders may attempt to front-load contracts. This means charging disproportionately higher amounts at earlier stages, such as foundations or framing. If your builder experiences financial trouble after you’ve made substantial early payments, you risk being left with a partially completed home that you’ve already paid too much for.

How to Avoid This:

  • Get Legal Advice:
     Have your lawyer carefully review the progressive payment schedule in your contract. They can identify and challenge unfairly front-loaded payments.
  • Consult a Construction Professional:
     Engage an independent construction professional (e.g., quantity surveyor or trusted industry expert) to verify whether the payment structure accurately reflects industry norms and actual costs.

2. Paying Ahead of Completed Work

Your progressive payments should always reflect actual completed work—not anticipated future progress. Paying in advance for unfinished work exposes you to unnecessary financial risks, especially if issues arise later.

How to Avoid This:

  • Clear Contract Milestones:
     Ensure each payment milestone explicitly specifies what work must be fully completed and independently verified before payment is required.
  • Independent Inspections:
     Arrange independent inspections at each stage to confirm milestone completion before releasing payments.

Essential Tips for a Fair Progressive Payment Structure

Here’s how to set yourself up for a smooth, secure build:

Clearly Define Your Payment Milestones

Ensure your contract explicitly lists each stage of construction with clear descriptions and agreed criteria for completion. Each milestone should directly correspond to completed work, not future promises.

Regular Independent Checks

Conduct regular site visits or appoint an independent inspector to verify work completion before payments are made. This not only protects you financially but helps maintain build quality and timelines.

Get Professional Advice

Always engage your lawyer and financial advisor before signing your contract. They can identify potential risks or unfair clauses related to payments, providing you with peace of mind and financial security.

Why Transparency Matters

Transparent builders have no issues clearly outlining progressive payment stages. They structure payments fairly, matching completed work precisely, and ensuring you’re only paying for tangible progress.

If your builder hesitates or avoids clearly defining payment stages, consider this a red flag. Professional, trustworthy builders are always transparent and confident in their approach.

Final Thoughts: Stay in Control of Your Build Payments

Progressive payments are an effective way to fund your new home—but only when structured clearly, fairly, and transparently. Protect yourself by thoroughly reviewing your payment structure, seeking expert advice, and ensuring you never pay ahead of actual completed work.

By taking these proactive steps, you can confidently manage your finances, safeguard your investment, and keep your building project running smoothly from start to finish.