Understanding Contractor Payments

writing-contractor-checkThere is a lot to understand when working with a contractor, not the least of which are the contractor payment requirements that come along with any construction project. Understanding how they work can be to your advantage.

Contractor Payment Scheduling

By and large, your payment schedule will be outlined in your original construction contract with your contractor. It will generally call for a down payment to start work, followed by progress payments as work is completed.

If you were a bank, you would draw up a schedule of contractor payments—a draw schedule—due at specific checkpoints throughout the construction process. As a homeowner, you should do the same. The number of payments should be negotiated according to the contractor’s needs and preferences, taking into consideration your comfort level and ability to pay at set intervals. Payments may be due when the house foundation is complete, then again following completion of the rough framing, etc. If it is a new home construction, you can expect normally between five and seven payments.

Make sure that the payments are in line with the amount of work completed—the schedule of values. This will outline each phase of work in a chronological order, with estimates costs for each, and perhaps the total percentage of work to be completed. For example, beginning fees may include drawing up the plans and specs, obtaining permits and inspections, clearing the lot, surveys, hookups, excavation, and foundation work. This may be followed by rough framing. Your contractor should supply the schedule of values. Keep in mind that the schedule of values may not include the contractor’s and developer’s fees and profit margins that will add approximately 20-25% to the cost.

DO NOT

Do not pay in advance or for work you are not satisfied with. And do not let your contractor rush you for payment. Use the payment as your negotiating tool to get the job done right.

How to Pay for Completed Work

Your power is in the ability to pay along the way for materials used and the work completed, although there may be an exception from time to time, such as for special-ordered items where paying in advance for that item is required.

A fair contractor payment schedule should strike a good balance between you and your contractor, and allow you to review progress along the way.

Be wary if a contractor pads the schedule up front. He may be worried about getting paid in the end and is using the up-front payment as a buffer. Be sure payments are in line with the work and materials in the schedule and look out for payments that are higher in the first stages. You may run through your money early on without the work being completed.

Stick to the schedule milestones and inspect the work at each juncture. Do not make the final payment until all work has been inspected and punch list items have been completed to your satisfaction.

What To Do if You Question a Contractor’s Work or Payment Schedule

If you have questions about a contractor’s work or need assistance negotiating a contractor or in working out a fair contractor payment schedule, or end up in a contract dispute, contact Först Consulting Group.

We’ve set up a consultancy just to help homeowner’s through the maze of issues that can occur when building or remodeling a home. Check out our variety of homeowner services, home inspection services, and litigation support services.

From choosing a builder and negotiating the contractor, to serving as your construction project manager, Först Consulting Group has the services you need to protect your most valuable asset—your home. You don’t have to go it alone, with Först on your side. Contact us today.

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