Contractor - when to pay

[Dave Carney]

Having a 42x48x14' pole barn built, clear span trusses, 6" concrete, 3 overhead doors, overhang, wainscoting, blah blah blah.....So after getting bids from 7 different places, I'm basically down to one contractor. He lists his payment terms as one third in advance, one third after it's framed, one third upon completition. This would be completely contrary to how I've ever done business. I think at the point it's framed, and he has 2/3 of my money, and all I have is poles, no skins, no concrete, the deck is stacked completely against me. This is a small company and I empathize with the cash flow difficulties but what is reasonable...what have you guys done? I can't afford to lose my money.

 

[wythors]

We've had some rather extensive remodelling work done at our home over the last two years. We were very lucky to find a contractor that actually does what he says he will, when he says he's going to do it. Our agreement with him has always been to pay half up front. This allows him to purchase materials and pay his help. The balance is paid upon completion. It has worked out very well for all involved.

 

[70Dustpan]

Being a flooring contractor this is how I do it: At the start I get enough to cover all materials and labor that I will have to pay during the job and then the balance at the end of competition. His terms seem fine, look at it this way: a 3rd to start and frame it, a 3rd to finish it, and a 3 in his pocket. So pretty much he's not making anything til it's done. To cover yourself get EVERYTHING in writing and stick to his term's. That means if his comes to you saying well I need a little more then we said then you tell him no deal. Also if you don't feel you can trust him then don't use him.

 

[bmwpower]

Dustpan, I don't think his situation is that similar. I could be wrong since I don't know all of the specifics, but after the thing is framed, there is still a LOT of work to be done for 2/3 of the money. I feel better with 25% up front, 25% after framing and the rest at completion. Remember, most contractors have accounts with lumber yards and don't have to pay their bill until a month later... technically no need to float them an advance.

Dave, how do you normally do business with contractors? Most of the ones I know do business similar to this.

One thing to note... do not pay the final cut to any contractor until the final inspection (if required) is done. Keeps them from taking forever to come back and fix any issues.

 

[rdnkjeeper]

I am glad my buddy is a general contactor.....I tell him what I want done and he gives me a price. I then barter with him a little, then write the check. Sometimes it is a little slower that way, but I get REALLY good deals!

 

[70Dustpan]

BMW, I know what you are saying about most contractors having accounts, but most don't like to float the costs if they don't have to. If I only leave my profits on the table I can only loss that if something happens and they don't want to pay at the end. More then 95% of the time there's not a problem, but It only takes one person stiffing you for you to change your terms. And believe me it does happen. About 10 years ago I read an article in a big how-to magazine on basically how to stiff your contractor at the end and not pay the full amount at the end of a job. Talk about wanting to find a writer.


Anyway back to the payment terms. Most of the time by the end of a job of this nature it is not uncommon for 2/3s of the money to be eaten-up. The best thing for you to do if you are not comfortable with the terms is sit down with him and tell him so. Most people are open to negotiating the payment terms so that you both are comfortable with the contract.

 

[DynoDave]

BMW, I know what you are saying about most contractors having accounts, but most don't like to float the costs if they don't have to. If I only leave my profits on the table I can only loss that if something happens and they don't want to pay at the end. More then 95% of the time there's not a problem, but It only takes one person stiffing you for you to change your terms. And believe me it does happen. About 10 years ago I read an article in a big how-to magazine on basically how to stiff your contractor at the end and not pay the full amount at the end of a job. Talk about wanting to find a writer.


Anyway back to the payment terms. Most of the time by the end of a job of this nature it is not uncommon for 2/3s of the money to be eaten-up. The best thing for you to do if you are not comfortable with the terms is sit down with him and tell him so. Most people are open to negotiating the payment terms so that you both are comfortable with the contract.

I'd agree with the above. I think half/half may be a more common approach, but third/third/third is certainly not unheard of. Tell him you can understand he is not a bank extending you creidt, but that you don't understand why he needs 2/3 of the cash after framing. Maybe if he can explain the finances behind it, you'll feel more comfortable with it.

I'm sure your research in selecting this contractor had you speaking with past customers of his. Did they pay this way?

And as I think someone already pointed out, that last 1/3 is really just what he makes. By paying 2/3 before it's done, you are really just paying for materials as you go, which is not unreasonable, I don't think.

 

[z28toz06]

It is customary to always retain at least 10 percent until the job is done. 1/3 up front doesn't sound bad I paid the concrete guy 1/3 before he started but I dint have to pay anything else until he was finished. Keep in mind there will be some clean up, and make sure they don't leave a mess behind. It's hard to get rid of scrap building materials, especially when you don't have a dump truck.

By holding the last 10 percent you are assured that he will complete his punch list and you will be happy with the job.

 

[sboxs]

I will pay when the job is completed and we did the deal on a handshake but I'm lucky since the contractor also does work for my company . the way I figure it is my garage will cost 100 grand but the last project he did for my company was 2,300,000 so I'm thinking he will not screw me

 

[428]

I never pay anything up front. If they want the job they can start it, but no cash advances.
When the job is done I pay 100%. The only time I didn't was building the house and we set up draws just like a bank would. When certain things got finished he could draw a percentage of that, never was the builder above the break even point so he could not pull off the job without loosing money.
It's just business, nothing personal against contractors but I've seen to many pull off when a better job comes along if they are even or up. Trying to get one back after they do that is near impossible and the relationship will be strained at best.
I've had some great contractors, but some I wouldn't let back on my property.
I've also done plenty of handshake deals but I'd get referrals and a signed contract with completion dates and penalty clauses if you do any advance payment terms

 

[RedRacer74]

Just make sure you get lien releases from the contractor. I have many customers that ended up with liens from contractors not paying suppliers.
Recently one that bounced a check to a supplier had also let his license expire. A complaint was filed by the owner with consumer affairs. They gave him a $1000 fine and required an appearance. He did a no show. Now the fine has an extra $5000, then it will go to $10,000 and then they will seize his trucks and the DA will get involved. He bounced a $15000 check to a supplier and the supplier liened the owners home. Liens are only good for 1 year here and then they have to be renewed.

 

[Dave Carney]

Dustpan, I don't think his situation is that similar. I could be wrong since I don't know all of the specifics, but after the thing is framed, there is still a LOT of work to be done for 2/3 of the money.

You hit the nail on the head here, that's exactly what I'm saying. Probably though, the most risk is when I hand him 9 grand before he does anything....he's built alot of barns in this area but I was just looking for some way to handle this where i'm not twistin in the wind....like escrow or something......it's basically a 2 man operation, father and son and probably a couple workers and I'm sure he's subbing the concrete out. He seems trustworthy to me....but that's what everybody says on "60 minutes" right before they tell the story of how they got screwed...

 

[bmwpower]

You hit the nail on the head here, that's exactly what I'm saying. Probably though, the most risk is when I hand him 9 grand before he does anything....he's built alot of barns in this area but I was just looking for some way to handle this where i'm not twistin in the wind....like escrow or something......it's basically a 2 man operation, father and son and probably a couple workers and I'm sure he's subbing the concrete out. He seems trustworthy to me....but that's what everybody says on "60 minutes" right before they tell the story of how they got screwed...

I guess the only thing you could do would be to get some agreement in writing. Never seen it done, but you could get a stipulation that he needs to complete step x by a certain date. I don't think most contractors would go for this.

 

[BowtieNut]

I'd say if he's built other stuff in your area, and those people seem happy with his work, then go for it. You have to think about it from his side too. You don't want to be twistin in the wind, but neither does he. My best friend is a small time contractor. Just him & his brother, and one more guy for big jobs. He requires half up front, half upon completion. I don't know how many times he's gotten done and then never sees the second half, but I know of at least 4 times in the past 15 years. I have no idea how the whole lien process works, but according to him, the only thing it's done for him is waste more of his time.

Besides, if he was really looking to scam you, he'd most likely just take the first $9k and walk away like you said.

 

[OldCarGuy]

Do you homework when working with any contractor, particularly when one would ask for that kind of money in advance. There are far too many scam artists in construction that are under-financed and have no business in the trade. Get recommendations from his past customers, city inspectors, architects, and tradesmen that he uses.

Eighteen years ago I built a 6,000 square foot house. I went to a well know financially strong local custom home builder and advanced him 10%. He had an architect finish my preliminary drawings, pull the permits and oversee the construction. When he finished 6 months later and was ready to move in, I paid him the balance. Simple, clean, and no arguments. With the burden of all the building cost on him, he made sure his subcontractors showed up! And I couldn’t have been happier…

On my present build, I acted as the general contractor. I worked with the city and pulled all the permits, and purchased all the materials. And the times that I used any tradesmen I paid them for his work once completed.

 

[trovato]

Lets face it, the contractor would like 100% up front. You would like to pay 100% at the end. Neither is particularly reasonable. The only time you're likely to get anyone to agree to 100% at the end is for a small job that will be completed in a few days. Get paid on Monday or Wednesday, not that big of a difference. Check around with some local sources and find out what's "normal" in the current business climate in your area. Then sit down with the guy and tell him your concerns and try to work something out. He's probably more concerned about doing the work and not getting paid than he is about getting the check a week sooner. Try breaking it into more payments if that makes you more comfortable. One thing I have done is give the first payment when the materials are on site. And treat the guy right. Pay him when you say you will. Make some coffee in the morning. Buy lunch once in a while. You can build a lot of good will.

 

[trainer]

Whenever a contractor asks for a payment up front, I either tie the first payment to the delivery of materials to the worksite, or else I insist on making the cheque directly to the supplier.

After that, payments should be tied to completed stages of construction, with a portion of the total held back for a period after completion. The hold back gives you time to find flaws, or to make certain that all inspections are completed, and sub contractors or suppliers are paid.

Even with honest contractors,bad things can happen. They could get sick or injured (or die!). They could have a lawsuit/ divorce/ bankrupcy/ IRS audit that ties up thier bank accounts.

I had a contractor put siding on my house and do some brickwork this summer. He started in June, and still has about a day's work left to finish things up. I've only paid him 2/3 of the contract price so far, so you would think that he would be anxious to finish and get paid.
If he had been paid in full, my comfort level over this would be alot lower!

 

[Dave Carney]

There's alot of good info in this thread. I'll lay out my concerns when I meet with him. I like the idea of first payment when materials are on site, alot more then the one third up front see ya when I see ya...particularly this time of year when weather could delay startup for months. I'm all about that good will stuff and will make every effort.

 

[danski0224]

Funny how there are all kinds of warnings about shady contractors. How bout shady customers?

You know, the ones that change the scope of the project halfway through, and expect the changes for free...

How bout the other ones that want a "free detailed estimate", then shop those specs to another lowball bidder...

What about the other ones that refuse to pay out that last 10% knowing full well that a legal battle will cost the contractor more than that amount- especially for amounts even up to $20,000.00?

It's a two way street.

 

[Dave Carney]

You know what though? I think perceptions are shaped alot by actual customer dealings with the contracting industry....I don't know of any other industry where no-shows, lateness, non-communication, bait and switch, and the rest is so common place. It's unfortuneate because there are alot of good ones....but just from my own experience, there is reason to be afraid. Anybody seen the move "The Money Pit" ?.....the reason the movie is so funny is cause we've all been on the receiving end of it.....

 

[captainkeys]

Don't forget to get his contractors liciense as well as a copy of his DMV license so he can't skip on you.

 

[NHCharger]

I have been a General Contractor for 16 years. I adjust my payment schedule to make the customer feel comfortable if they don't know me. Concrete and framing materials, including trusses aren't cheap these days. As mentioned earlier, do a little checking up on the contractor to see how long he's been in business. Talk to the contractor about breaking the payment schedule into 5 or 6 payments.

 

[70Dustpan]

Funny how there are all kinds of warnings about shady contractors. How bout shady customers?

You know, the ones that change the scope of the project halfway through, and expect the changes for free...

How bout the other ones that want a "free detailed estimate", then shop those specs to another lowball bidder...

What about the other ones that refuse to pay out that last 10% knowing full well that a legal battle will cost the contractor more than that amount- especially for amounts even up to $20,000.00?

It's a two way street.

These are called lawyers. Out of the 16 years I've been in the trade I have had problems with 4 people, 3 were lawyers and the other was a 70 old lady that I really think was insane. I don't work for lawyers anymore. I don't mean to offend any lawyers out there just my choice.

And there are some contractors out there that F it up for the rest. It's only takes one bad one to give the rest a bad rep some times.

I have a good buddy that had some remodeling done on his house this last year. He went with a contractor that was a friend of his wife. He didn't get anything in writing and gave him $5000 up front and he was to start the next week. I told him not smart and sure enough he found out 3 weeks later the guy was in trouble with the law and was on the run. Then to get even dumber he hired the contractors helper to do the work. Well 6 months down the road he got about $30k of remodeling done for a cool $60k. He could write a book on everything not to do when remodeling your house.

So it comes down to DO your home work and make sure you are comfortable before you start and things should be fine.

 

[rockwithjason]

When I do a small job I tell the customer that I will get the materials and deliver them with a reciept, they pay that amount plus my fee for chasing the materials on delivery. Then when the job is done they pay the labor.

 

[unlvrebel]

Why not set out a different draw schedule entirely? If you are that concerned, have the contractor break out the work into component parts with pricing and as each milestone is reached pay the proportionate percentage withholding 10% retainage until the end of the project. This is how homebuilders pay their subcontractors.

I don't know anything about the construction of pole barns, but from a standard garage POV, you would have (not inclusive of everything, just for illustration):

Rough Plumbing 5%
Foundation 10%
Block and Labor 15%
Trusses 15%
Roofing 5%
Interior Framing 10%
Rough Electrical 5%
Mechanicals 5%
Drywall 10%
Trim (Elec., Mech, Plumb) 10%
Retainage 10%

Again, just an example. And as these milestones are reached, the contractor is paid. If it is a particularly large shop/garage consider breaking up the block and framing amounts into two or more draws.

Just a thought.

 

[johnf]

Most of the contractors and subs I have dealt with are completely unreliable. (and I have dealt with many) It seems to go with the occupation, at least around here (boom area). I would set it up like draws on a new house. Personally, I would pay for all the materials, verifying receipt as delivered. Sometimes after you pay a contractor and he has left your job, you find out he failed to pay for materials, and the lumber yard/ supplier comes after you, the homeowner. Then you end up paying twice. At the least, I would make him show proof of payment for materials before he draws any substantial amount. Believe me, these people as a whole are a VERY SORRY lot. If you are not constantly on your toes and watching, verifying, you WILL get taken.

 

[Blue]

Just to add my $.02,

When trying to get estimates on re-roofing my barn--I have been amazed at the number of guys who said they would come by to do an estimate, and never showed up.

I called around to a about 10 defferent places, mostly just picking them out of the phone book. 5 said flat out that they couldn't do the work for various reasons. 5 said they would come and do an estimate within the next week. Only one guy showed up--the same guy who did the roof on my house a few years ago.

Do people think I'm kidding? I'm ready to drop some cash into someones hand to get this thing fixed, and I can't hardly get anyone to take a look at it.

It does seem like the key is asking around. I have some relatives who have lived here since the dawn of time, and they've been a great source of recommendations.

 

[Dave Carney]

Just to add my $.02,

When trying to get estimates on re-roofing my barn--I have been amazed at the number of guys who said they would come by to do an estimate, and never showed up.

I called around to a about 10 defferent places, mostly just picking them out of the phone book. 5 said flat out that they couldn't do the work for various reasons. 5 said they would come and do an estimate within the next week. Only one guy showed up--the same guy who did the roof on my house a few years ago.

Do people think I'm kidding? I'm ready to drop some cash into someones hand to get this thing fixed, and I can't hardly get anyone to take a look at it.

It does seem like the key is asking around. I have some relatives who have lived here since the dawn of time, and they've been a great source of recommendations.

Tell me about it! The contractor I was referring to in this thread is already out of the picture....never had so much trouble spending so much money....but it all worked out...going to order the building tomorrow morning from another place. $5500 down and a real brick and mortar business...