How to space out payments

[kmacht]

For those of you who paid someone to build your garage/shop, how did you space out the payments to the contractor? I have read some horror stories on here about people getting bad work or no work and out a lot of money so I want to make sure I am protected. On the flip side I don't expect the contractor to front money for my build on their own dime. To be clear, I don't have any reason to not trust the contractor. I just want to make sure if he got in a car accident or something I wasn't out significant sums of money beyond what would be needed to finish the build. What is customary and reasonable? Do you do it by percentages spaced out over the build, certain dollar amounts at certain points, pre-payment up front for certain subs he will need such as excavation and concrete work?

Keith

 

[bczygan]

Why shouldn't a contractor have the resources to finance his own work, at least for subcontractors. If a big job, or GC, then you can have spaced out payments, but never pay for work that is not completed, inspected and approved. Then retain 10% for one year for warranty work. Also get a lien waiver for each payment. I also recommend a bond for the value of the work plus any demo that might be required to correct deficiencies.

We used to pay out on a certain day of the month, if bills had been submitted and work inspected and approved by a certain day, but some places did +30.

Bill

 

[Pig9r]

We did 20% at start of work, 60% at completion of framing, and 20% after job completed. The last phase included concrete, gutters, doors etc.

 

[kmacht]

Why shouldn't a contractor have the resources to finance his own work, at least for subcontractors. If a big job, or GC, then you can have spaced out payments, but never pay for work that is not completed, inspected and approved. Then retain 10% for one year for warranty work. Also get a lien waiver for each payment. I also recommend a bond for the value of the work plus any demo that might be required to correct deficiencies.

Bill

I don't doubt that the contractor has the resources to cover the work. Looking at it from their perspective though I don't think they would want to be on the hook for the whole thing either. What would happen if I got in a car accident during the build? They can't exactly repossess a building. The building is actually a horse barn so I'm not worried about warrantee. There is very little that could go wrong with the building after it is put up. I will be doing all the interior finishing myself.

Keith

 

[ford fanatic]

Doesn't matter just as long as you hold about 25% for final payment. You need some leverage if you're not satisfied with the work.

 

[ratdoggy]

I don't doubt that the contractor has the resources to cover the work. Looking at it from their perspective though I don't think they would want to be on the hook for the whole thing either. What would happen if I got in a car accident during the build? They can't exactly repossess a building. The building is actually a horse barn so I'm not worried about warrantee. There is very little that could go wrong with the building after it is put up. I will be doing all the interior finishing myself.

Keith

Yes they can repossess a building..They put a lien on it...Sometimes a shady guy will do crappy work and when the customer withholds payment they'll slap a lien on it too

 

[astroracer]

Look into a home equity loan. Enough to cover the cost of the building.
I know of no builders who will front the cost of materials on a construction job. You will have to pay them for the initial materials to "get started" and then cover cost and labor as "draws" on your loan. Total cost payments will be paid to your lending institution, bank or CU.
Mark

 

[Jinks]

It's called a "draw". When you set your contract you discuss with the builder how he will be paid. Are you going to put an up front down payment? At what stage will he need/want a "draw", & determine what work will be done by that point.

Another method is to pay the material costs yourself. You pay for the concrete when it's delivered. The contractor gets a "draw" when he's finished the concrete. You pay for the lumber when it's delivered. The contractor gets a "draw" when the framing/roofing/siding is done. This method keeps the contractor from fronting the money, & allows you to pay only for his labor. Of course some contractors make a percentage on the material & don't like loosing that.

 

[Dirtydan69]

Why shouldn't a contractor have the resources to finance his own work, at least for subcontractors. If a big job, or GC, then you can have spaced out payments, but never pay for work that is not completed, inspected and approved. Then retain 10% for one year for warranty work. Also get a lien waiver for each payment. I also recommend a bond for the value of the work plus any demo that might be required to correct deficiencies.

We used to pay out on a certain day of the month, if bills had been submitted and work inspected and approved by a certain day, but some places did +30.

Bill

Contractors are not in the business of financing your project. That what banks are for. 10% hold back for a year is absolutely rediculous. Depending on the size of the project thirds or quarters can be typical. In over 40 years I've rarely had 10% holdback and that was only for issues that arose. It doesn't always go perfect every time. And then only till any issue was corrected. Typically 10-14 days.

 

[kmacht]

This will all be paid with cash so no need for a home equity loan or trying to work it out with a bank. Here was what I was originally thinking:

10% start of excavation
This should be enough to cover his costs for the sub he will be using for site prep work.

15% completion of concrete (forms removed and site backfilled)
This will cover the cost of the concrete work. Don't want to get too far ahead in payments here as concrete work is usually where a lot of the problems have been reported by people on here.

25% - Delivery of building materials to the site
Figured that this would cover most of the material cost and give some incentive to start work after the concrete is done. it leaves me enough left over that if he decides to bail on the project I still have enough money left to hire someone else.

25% at completion of framing (roof and walls framed but not sheeted or sided)
This will probably come pretty quickly after the material is dropped off but it provides a mid point in the build.

25% at job completion and permit signoff
Assuming most of his profit will be in this last payment. Leaves enough room/incentive to get anything fixed if something is found by the building inspector.


Thoughts, risks? From the contractors point of view does this seam reasonable. Am I missing anything? Should I split up some of the payment so there is a little but of money up front for him to draw up the plans and get them thought the permit process?

Keith

 

[Farmall450]

Contractors are not in the business of financing your project. That what banks are for. 10% hold back for a year is absolutely rediculous. Depending on the size of the project thirds or quarters can be typical. In over 40 years I've rarely had 10% holdback and that was only for issues that arose. It doesn't always go perfect every time. And then only till any issue was corrected. Typically 10-14 days.

Yes, you better pay up when a project is completed. Do you hold back 10% from the store when you buy some groceries, to ensure they're quality when you get around to using them?

I could see a lawsuit come your way if you did that to a contractor.

 

[kmacht]

To keep the conversation from descending further I want to be clear. The contractor will be paid in full by the time the project is complete. I am not planning or wanting to do any sort of withhold for warrantee after the building is up. It is a simple barn, not a complex house. There is very little that could go wrong with it after both I and the local building department are satisfied it is done.

Keith

 

[astroracer]

If you have the cash, simply have the contractor tell you where the draws should be. This should all be in the contract anyway. It doesn't matter what YOU think the payments should be, do what the contractor is used to doing on his builds. He will probably want a draw every week so he can pay his guys.
Pay with certified checks to cover your ****.
Mark

 

[Brian_WK]

Stick to what you agree on.
Materials paid once they have been delivered on the property if you for some reason don't trust the contractor. Otherwise if you have a good relationship pay the materials up front. 1/2 the remaining balance once enclosed. All but the last 10% if they have any punch list items on completion, otherwise pay contractor once you sign off on the completed and OKed structure ASAP.

My BIL who is a GC that does one house a year but also smaller remodel type jobs with a 3 man crew charges 1/3 upfront 1/3 once enclosed last 1/3 when completed. When doing a job he will not get into anything that he cannot finance the first 1/3 himself as that goe to employees wages etc. The customers first 1/3 goes to materials subs permits etc. The second 1/3rd goes to replace the money back into the fund to replenish the amount he first used to start the job. The last 1/3rd is profit and overruns on the job. This works for him as he is in a small <50k people city and works mainly on referrals.

Brian

 

[rsanter]

I have never had a shop built, but I have project managed several build at work.

Have the bid broken down and itemized into foundation, framing & outer skin, electrical, interior finish, and finish/completion/wrap up phases.
Set the milestones of the project such that payment is made after each successful finish of a phase.
Set the payments to be a little less and no more than the cost of that phase. The contractor can wait for a little of his built in profit.
Set it such that at completion there is roughly 20% money still owed. If too little is owed and there is an issue then the contractor can walk away. Have it such that the last 20% is due no sooner than 30 days after completion of all work including warranty or rework.
Don't let the contractor get ahead of you money wise, many like to do that but it's BS.
Be polite as much as you can but be firm on judging the quality of things.

I have dealt with contractors that I have gotten into arguments with over little things that were wrong, they did **** work and could not keep a schedule. I have excluded contractors from future work with the company.
And I have dealt with contractors that were easy to deal with, did great work, when there was a problem it was fixed with no issue...etc
Contractor should run his subs to do a good job and be an advocate for you, that shows they want good quality and a happy customer.

Bob

 

[hh76]

This will all be paid with cash so no need for a home equity loan or trying to work it out with a bank. Here was what I was originally thinking:

10% start of excavation
This should be enough to cover his costs for the sub he will be using for site prep work.

15% completion of concrete (forms removed and site backfilled)
This will cover the cost of the concrete work. Don't want to get too far ahead in payments here as concrete work is usually where a lot of the problems have been reported by people on here.

25% - Delivery of building materials to the site
Figured that this would cover most of the material cost and give some incentive to start work after the concrete is done. it leaves me enough left over that if he decides to bail on the project I still have enough money left to hire someone else.

25% at completion of framing (roof and walls framed but not sheeted or sided)
This will probably come pretty quickly after the material is dropped off but it provides a mid point in the build.

25% at job completion and permit signoff
Assuming most of his profit will be in this last payment. Leaves enough room/incentive to get anything fixed if something is found by the building inspector.


Thoughts, risks? From the contractors point of view does this seam reasonable. Am I missing anything? Should I split up some of the payment so there is a little but of money up front for him to draw up the plans and get them thought the permit process?

Keith

Sounds like a decent plan, but may need a down payment? builder should have a preferred plan.

In my opinion, you are in the most critical stage of the build. Communication is the key to making sure everything goes well. Discuss all aspects with builder and write down what you both agree to. Read through all the "builder horror stories" and you'll find a common theme, poor communication of expectations.

Some Key points:

Timelines
Precisely what needs to be complete at the payment stages
Change orders
Inspections (municipal and customer)
Site clean up and restoration
Quality expectations

 

[Radix2]

This will all be paid with cash so no need for a home equity loan or trying to work it out with a bank. Here was what I was originally thinking:

10% start of excavation
This should be enough to cover his costs for the sub he will be using for site prep work.

15% completion of concrete (forms removed and site backfilled)
This will cover the cost of the concrete work. Don't want to get too far ahead in payments here as concrete work is usually where a lot of the problems have been reported by people on here.

25% - Delivery of building materials to the site
Figured that this would cover most of the material cost and give some incentive to start work after the concrete is done. it leaves me enough left over that if he decides to bail on the project I still have enough money left to hire someone else.

25% at completion of framing (roof and walls framed but not sheeted or sided)
This will probably come pretty quickly after the material is dropped off but it provides a mid point in the build.

25% at job completion and permit signoff
Assuming most of his profit will be in this last payment. Leaves enough room/incentive to get anything fixed if something is found by the building inspector.


Thoughts, risks? From the contractors point of view does this seam reasonable. Am I missing anything? Should I split up some of the payment so there is a little but of money up front for him to draw up the plans and get them thought the permit process?

Keith

This about right and how I did it. But rather than percentages, it was based on the actual cost of each step. Basically it makes the big project into small ones. Build foundation, frame structure, Outside finish, HVAC plumbing elecrical,inside finish, final payment after completion. All spelled out at contract signing.

The builder has all the numbers from quoting, so he can break it down.

 

[n20junkie]

All of my contractors required nothing more than a signed contract. All payment was made after the work was completed and inspected my the GC (me).

I assured that the work met spec through the process, and in a final inspection. Then I assumed the project liability back and payed up.

This 10 percent hold back is BS where I am from. If you don't know enough about your project to inspect the work and pay up once completed, you better pay someone who does. If you hired a GC, he is paid his final payment when work is inspected by the locality, owner and bank if needed.

If a constructon firm is handling the build, and your doing phased payments, each phase should pay for the work completed. Concrete is expensive, it can easily be 25-50 percent of the build. If your cheap, you might just get cheap work.

 

[Git]

Check with the laws in your state. For example, in California, the down payment is limited to 10% or $1,000

If you think the 10% hod back is BS - then don't write that final check until you have had time to go over everything and see if it was done properly

I have been screwed by contractors twice. Both were licensed and came highly recommended. First time was a cement contractor who I hired to pour our pool deck. First time he poured the deck he screwed it up and had to rip it out and pour it again. I paid him cash, but because I felt bad for him I failed to insist on a LIEN RELEASE. About 6 months later I get a call from the cement company saying I hadn't paid.... Luckily for me it worked out - the cement company repo'd some vehicles

Second time I found out later that the guy who really knew what he was doing had passed away and the 'partner' was clueless. Ended up going to arbitration and getting our money back.

Can't stress enough, contract contract contract, get lien releases from everyone who worked on your project, and don't let payments get ahead of work

Here are some links to release forms:

Conditional Waiver And Release On Progress Payment

Unconditional Waiver And Release On Progress Payment

Conditional Waiver And Release On Final Payment

 

[ard]

Also... Keep track of pre liens and lien releases. (This may vary with you State laws...)

Might not be a issue for small garages or outbuildings, but larger projects, large vendors (concrete, lumber, roofing, hvac) may have a standard business practice for larger deliveries, and you will get a prelien notice...Before you pay a draw or progress payment, make sure you have lien releases from anyone prior. And certainly before the final payment, all must be released..

My contractor buddies tell me concrete foundations always her paid...as does framing... It's painting, cabinets and concrete Flatwork that happens toward the end, when -if the project goes sideways- these can be more problematic.

Edit...composed while Git posted... Agree

 

[Radix2]

I don't know about other states, but here, the property owner gets notified both when a contractor or supplier files to secure his right to lein and when he actually files a lein. This way it is clear to add these items to the checklist at each stage.

For example, concrete companies in this area always file to secure their option, so it was clear to ask for proof of payment before the next step was due. Ditto on equipment rental.

 

[WhiffySpark]

You need to find out what he wants. Depending on the size of he project and the person I require up to 50% down payment.

I used to work with paid on completion. But after getting screwed by a few people in one year I don't anymore.

 

[maxpower_hd]

When I did mine I only subbed out the foundation and the frame. The foundation guy wanted his money upon completion. The framers were paid for labor upon completion and they had my buy and deliver the stock. They just showed up and framed.

 

[ezover]

if I had more time I would tell you about my buddy who contracted out a 5 week project back in june and the job is not complete yet, as a matter of fact he had to hire people himself to come and remove all the work the other crew installed wrong. hold at least 25% back until the job is completed to your satisfaction.

 

[Jazz1]

I would purchase the garage package and then have contractor assemble. For the few days it takes to build a garage contractor should not get a dime until building is completed.
I built my garage however a contractor prepared site and poured. Paid him the day concrete was poured.

 

[joes169]

This will all be paid with cash so no need for a home equity loan or trying to work it out with a bank. Here was what I was originally thinking:

10% start of excavation
This should be enough to cover his costs for the sub he will be using for site prep work.

15% completion of concrete (forms removed and site backfilled)
This will cover the cost of the concrete work. Don't want to get too far ahead in payments here as concrete work is usually where a lot of the problems have been reported by people on here.

25% - Delivery of building materials to the site
Figured that this would cover most of the material cost and give some incentive to start work after the concrete is done. it leaves me enough left over that if he decides to bail on the project I still have enough money left to hire someone else.

25% at completion of framing (roof and walls framed but not sheeted or sided)
This will probably come pretty quickly after the material is dropped off but it provides a mid point in the build.

25% at job completion and permit signoff
Assuming most of his profit will be in this last payment. Leaves enough room/incentive to get anything fixed if something is found by the building inspector.


Thoughts, risks? From the contractors point of view does this seam reasonable. Am I missing anything? Should I split up some of the payment so there is a little but of money up front for him to draw up the plans and get them thought the permit process?

Keith

Without seeing an actual set of plans, I think this structure leans heavily in your favor. Not sure a barn buildier who might do 10-100 of these a year is going to agree to your pricing structure. Doesn't hurt to propose it to him, but don't be surprised if their contract looks much different than yours.

 

[scottydosnntkno]

I have never had a shop built, but I have project managed several build at work.

Have the bid broken down and itemized into foundation, framing & outer skin, electrical, interior finish, and finish/completion/wrap up phases.
Set the milestones of the project such that payment is made after each successful finish of a phase.
Set the payments to be a little less and no more than the cost of that phase. The contractor can wait for a little of his built in profit.
Set it such that at completion there is roughly 20% money still owed. If too little is owed and there is an issue then the contractor can walk away. Have it such that the last 20% is due no sooner than 30 days after completion of all work including warranty or rework.
Don't let the contractor get ahead of you money wise, many like to do that but it's BS.
Be polite as much as you can but be firm on judging the quality of things.

I have dealt with contractors that I have gotten into arguments with over little things that were wrong, they did **** work and could not keep a schedule. I have excluded contractors from future work with the company.
And I have dealt with contractors that were easy to deal with, did great work, when there was a problem it was fixed with no issue...etc
Contractor should run his subs to do a good job and be an advocate for you, that shows they want good quality and a happy customer.

Bob

How is getting ahead of a project a bad thing? As a contractor, we can have last weeks jobs payment waiting to clear, this weeks job, next weeks tile, the week after a cabinets, and five other projects cabinets as well since cabinets are a 6-12 week item typically. Before you know it, I'm 100k in the whole in special order items. You can be damn sure I take deposits and draws when I can to offset the cost, because most people don't have that kind of cash laying around like a legitimate contractor does.

Heaven forbid someone actually makes money without fronting your job. We're not a bank, we expect to be paid and make money on money and labor we put out.

 

[chaosracing]

I have been involved in both residential and commercial buildings. The 10% hold for a year is total BS, unless you are involved in commercial work. And then, it usually applies to major construction (multimillion) or public bids(schools, government work)

The OP has not told us what type of garage construction is being done, is it stick frame or pole building. What is size? Is it bare bone (no interior fit out) or is it a finished garage maj hal?
Dont forget, pole buildings take 2 to ? days, depending on size, not including slab pour. Stick frame takes longer.

In the end, it will be a discussion he and his builder must have and agree upon, usually stipulated in the contract. Most require a certain % down payment. Those can range in the 5% to 15%.
I really like(not really) the mention earlier where it was mentioned a GC should be able to cover all expenses until job completion. HAHAHA You have never worked in the building industry have you? GC's are using money from previous jobs to cover the work being done on current jobs. Subs typically do not wait till the end of the job for payment. Once they are done, they bill it. (Depending on size of contract) Material is typically billed when picked up or delivered. Some suppliers offer discounts if paid in 10 days. SO a contractor that wants to take advantage of that must get the money from somewhere, and thats typically profit from another job.


Like I said above, it comes down to the builder and the OP. I know the OP is looking for a suggestion, but typically, its the GC that determines the pay schedule. The owner can ask for a different schedule or values, but ultimately, it really is up to the GC. I walked away from a few jobs because I was not footing the entire build myself.

 

[minytrker]

I paid 10% up front and the rest when they finally got everything correct (3 months after building was put up). They asked for money the day the building was done minus missing a 10x10 door. I had a list of items that weren't correct and told them to fix them and get my door installed and I would pay them on the spot.

Doing a massive remodel on my house and building a shop I learned the hard way to make sure you hold back at least 25-50% until the job complete to your satisfaction. If you dont have enough money help back alot of contractors will just walk away and go to the next job.

 

[matt_i]

If your state has General Contractor or "Builder" licensing (Michigan does) then there are defined processes for disputes. A contractor not paid may place a "mechanic's lien" on the property which attaches essentially to the title/deed and must be resolved before the property can change hands.

Likewise, customer who feels like they have been had by a builder can open a formalized compliant with the bureau of licensing and regulation. Its sort of an arbitration process but the builder can't just ignore this...refusal to answer the complaint and deal with the issue puts the builder on a pathway to have their license revoked! Pretty serious if suddenly you can't pull any new permits and have to essentially go to work for someone else.

As always it would take organization and the ability to put together notes, pictures, paper trails, etc, to aid one's case but it seems to be a heck of a lot cheaper than trying to go thru small (or large!) claims court.

I agree the proposal of 10% holdback is going to get you a price that's 10%+ higher than it should be...I would never agree to those terms nor would I ever finance a project for someone else, working for profit, without their "skin in the game". They sound aggressive for a consumer but likely the project would sit idle for a very long time with no active bids, or else outlandish bids, once such terms were understood.

 

[WhiffySpark]

And people couldn't understand why I said I wouldn't work for a gj men ever in the other thread

 

[laser3kw]

20% down, balance after signed off by building department. I over-saw the construction and gave incremental approval of various steps. Did a walk through before building inspector was called to get my final approval. I had a super great contractor.

 

[jetnow1]

as already stated get lien release from suppliers ie concrete and lumber yard as well as
the general contractor when paying.
one year hold back is not going to happen, no contractor will agree to that on this small a job. In CT the state mandates a one year warrantee anyway, check what your state law is
or what your contractor gives.

 

[maxpower_hd]

A friend of mine is a building contractor and he usually gets 1/3, 1/3 and 1/3. 1/3 up front to cover materials, 1/3 half way through completion to pay the help and buy any additional supplies and 1/3 upon completion.

 

[DonPowers]

For my 48 x 32 two story garage, I set up an account with the local building supply for the materials and just paid the contractor for labor. Also paid the concrete guy directly well as the electrician. The materials were billed monthly and I also got a contractor's discount. This approach requires more involvement on your part but does reduce cost.

 

[kmacht]

Thanks everyone for the replies. I know that I will have to work directly with each contractor who bids the work to figure out what their preference is and determine if I am comfortable with it. I was just looking for what the norms were so I don't get one pulled over on me or I don't ask for something unreasonable. I think I have what I need.

Keith