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XXXXXXXXXXX1
Premium Member
join:2006-01-11
Beverly Hills, CA

XXXXXXXXXXX1

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Payment terms with contractors/subs who work on your home

Question for all, but aimed at those who work in the trades: What's the standard protocol for payments between parties? Specifically, do you allow for the holding of payment until work is complete and inspection has been performed?

Paying someone the full amount before the job is inspected and approved seems foolish from a homeowner's standpoint. Should it be half down when the tools hit the job, and the second half when the inspector signs off? Is that reasonable?

What is considered normal and reasonable? Or standard practice?
lawsoncl
join:2008-10-28
Spirit Lake, ID

lawsoncl

Member

Around here, it's normal for contractors to ask for half up-front and the rest on completion. This is especially true for smaller contractors when they need to order materials up front, more so if the materials are special order.
joewho
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join:2004-08-20
Dundee, IL

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Can you be more specific? What kind of work and how big is the job (total money amount). Depending on where I'm at with money and if I trust the customer credit, I do a couple of things. If I can get a signed contract, I'll buy the materials up front, deliver them to the home and ask for a check to cover materials.

If I have employees and not enough to cover a couple weeks worth of work, I'll ask for material money, plus money to cover labor.

To me, it should be 1/3 down. 1/3 at a certain point and 1/3 at the end. In a full house consruction, very little is left to pay out at the end due to the time it takes to get inspected, touched up and closed. Hope this helps.
XXXXXXXXXXX1
Premium Member
join:2006-01-11
Beverly Hills, CA

XXXXXXXXXXX1

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I'm considering installing a radon mitigation system. I called the AHJ and the building inspector only requires an electrical permit and finished work inspection.

The job will end up being around $1000. Ideally, I'd like to pay half on the day it is installed, and the other half after the inspector signs off on the installation.

I don't know what is standard in the trades, but I have heard of too many stories where the job was done, inspector red flags something in the job, and then it takes an act of congress to get the tradesman back to fix the problem since the full price has already been paid.

Tursiops_G
Technoid
MVM
join:2002-02-06
Brooksville, FL

2 recommendations

Tursiops_G

MVM

If the contractor won't agree to 50% down, and 50% upon Final Inspection signoff, then find another contractor.
joewho
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join:2004-08-20
Dundee, IL

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Have the installer pull the permit. That helps with the trust issue. Hard to wait for a full half of money when the first half basically paid for everything up to the end. Having to wait is a pain. On 1000, I'd give half up front and half when done. If it doesn't pass, on HIS permit, then you have some leverage.

Camelot One
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join:2001-11-21
Bloomington, IN

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said by Tursiops_G:

If the contractor won't agree to 50% down, and 50% upon Final Inspection signoff, then find another contractor.

50% up front has been the max everywhere I've lived. You certainly don't pay 100% up front. Your basically covering the cost of materials, with labor due after it has been rendered. And the bulk of that $1,000 quote is labor.

I also agree with having the contractor pull the permit.
XXXXXXXXXXX1
Premium Member
join:2006-01-11
Beverly Hills, CA

XXXXXXXXXXX1

Premium Member

What is the problem with the homeowner pulling the permit? It is actually easier for me to pull it and deal with inspection. What is wrong with 50% after final inspection if the homeowner pulls the permit?

Camelot One
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join:2001-11-21
Bloomington, IN

Camelot One

MVM

If you pull the permit, you are responsible for the work. If the contractor pulls it, they are responsible.
Some areas only allow licensed/authorized contractors to pull permits, and will revoke that power for repeated problems. My area is one of them, so a contractor here making the homeowner pull it is a red flag.

robbin
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join:2000-09-21
Leander, TX

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As a contractor, I shouldn't have to wait for you to schedule your inspection. Pay the company when the job is finished. I would consider that after work is completed if you pull the permits and after final inspection if they pull them. Basically, if you pull the permit and withhold 50% then you take any control of when the job is completed away from the contractor. I would not agree to that if I were bidding your job.
XXXXXXXXXXX1
Premium Member
join:2006-01-11
Beverly Hills, CA

XXXXXXXXXXX1

Premium Member

I guess I'd be comfortable with the contractor pulling the permit and payment at job completion... OR me pulling the permit and payment when the inspection has been signed off on.

If the contractor prefers one over the other, I'd be flexible.

Homeowners pull permits all the time here. Very common practice actually. I'm surprised that would raise a red flag elsewhere.
joewho
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join:2004-08-20
Dundee, IL

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Sounds like a plan. Depends on the company. A bigger company with the resources will probably do that. Same big company would also pull the permit but still wait to clear inspection for payment. I'm sure you have several options. I just want to point out that when you put 50% down, you're extending credit to the contractor. After the half way point of any job, the credit is then extended to you. The trust you extend is fulfilled immediately. With holding fulfillment, on your part, takes the deal out of balance. Contractors have to trust customers just as much as you trust them.

Tursiops_G
Technoid
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join:2002-02-06
Brooksville, FL
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Tursiops_G

MVM

That is what written contracts are for.
Failure to abide by the terms of the contract by Either party will result in legal action... If the Contractor fails to fulfill his contractual obligations, he may be subject to forfeit of his final payment. If the Homeowner fails to pay what's owed upon proper completion, the Contractor can take legal action, up to and including placing a Mechanics Lein upon the homeowner's property.
Speedy Petey
join:2008-01-19

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said by Tursiops_G:

If the contractor won't agree to 50% down, and 50% upon Final Inspection signoff, then find another contractor.

At the same time, if someone suggested I extend credit to them equal to 50% of the job until sign off I'd find another customer.

IMO 50% until final inspection is ABSURD. Something like 10-20% is a FAR fairer amount.
Like someone already said, contractors have to trust their customers will pay them, JUST as much as clients have to trust their contractors do a good job.
You see special news shows about contractor stings and catching crooked contractors. For some reason you don't see shows about rich a-holes that refuse to pay a final few thousand dollars of a contract over some made up trivial issue. Yes, this DOES happen.... a lot. A friend of mine was simply told "I'm not paying you the final amount. You'll just have to sue me."

On a small job like this I would probably not ask for anything up front, and 80-90% upon completion. Then the balance after inspection.
Bigger jobs I typically do the 30% deposit, 30% at rough-in completion, 30% at trim out, 10% punch-list/final inspection.

Corehhi
join:2002-01-28
Bluffton, SC

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said by Tursiops_G:

If the contractor won't agree to 50% down, and 50% upon Final Inspection signoff, then find another contractor.

I agree with that.

Anonymous_
Anonymous
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join:2004-06-21
127.0.0.1

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10% you pay as progress is made

keeps them motivated to comeback
XXXXXXXXXXX1
Premium Member
join:2006-01-11
Beverly Hills, CA

2 recommendations

XXXXXXXXXXX1

Premium Member

said by Anonymous_:

10% you pay as progress is made

keeps them motivated to comeback

This job is only a few hours at best... Kinda hard to space out payments at 10% given that timeframe.

John Galt6
Forward, March
Premium Member
join:2004-09-30
Happy Camp

1 recommendation

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said by Camelot One:

If you pull the permit, you are responsible for the work. If the contractor pulls it, they are responsible.

Some areas only allow licensed/authorized contractors to pull permits, and will revoke that power for repeated problems. My area is one of them, so a contractor here making the homeowner pull it is a red flag.

Agree completely...why anyone would go to the trouble of accommodating someone who won't do the permit process and can seriously fuck the owner over is unfathomable to me.

You also need to make sure that the contractor has the proper insurance coverage, paid and up-to-date. Check with your state agency. They usually have online access to the list of who is covered and who isn't. Make sure the insurance isn't set to lapse during your project. That includes Workman's Compensation. The owner of the project can be made liable for any wage claims that arise if the worker bees employer doesn't pay them. Worker falls down, breaks their back. Contractor has no insurance? Guess who gets stuck with the bills? It's a short list...your name is on it, usually at the top.

You need to get lien releases from each and every entity that may have a claim against your project. Contractor buys materials (allegedly) and has them delivered to the job. You see them and pay the contractor. Everything's good, right?Turns out the contractor didn't pay for the materials...he put them on account and then didn't pay that. Who's responsible? You are...the owner of the project where the materials were delivered to and installed. Also turns out the contractor had extra materials delivered to your job, and then took those when you weren't there to another 'side job' he has going. You get to pay for those, too.

I do construction supervision for a living. I work for a major construction management firm. Our jobs are from a few tens of thousands to projects in the $500M class. I represent the particular interests of the owner, not the contractors or any other entity. I inspect the work, the material deliveries and authorize payments when the terms of the contract are completed, according to the specifications set forth in the signed contract. I've heard it all, and don't take shit from anyone...from architect to lowly laborer. I expect those that represent themselves as professionals to conduct themselves accordingly, no matter who they are.

Due diligence, friends...do it. Or die.
XXXXXXXXXXX1
Premium Member
join:2006-01-11
Beverly Hills, CA

XXXXXXXXXXX1

Premium Member

So John, just to clarify... If I have the contractor pull the permit, the AHJ will vet the contractor for insurance, workmans comp, etc., and put them on the hook for all of that? If I went that route, would I then be able to safely pay at job completion given the AHJ will handle any problems with the installation?

Or maybe a better question to ask you is how SHOULD a homeowner proceed with a project like the one I am considering?

John Galt6
Forward, March
Premium Member
join:2004-09-30
Happy Camp

2 recommendations

John Galt6

Premium Member

The AHJ will only do the inspections requested. That is the extent of their responsibility...nothing else.

It's your job to do perform the rest of the vetting process. Most states have reasonably consolidated insurance programs for construction, with the information online. The BBB is worthless...they'll take anyone's money for a good rating. Angie's List might be helpful. Prior work references (recent) and a direct discussion with those folks is good. Beware of shills. Keep a fresh battery in your 'bullshit detector'.

The contractor's licensing board in your state, if your state has one, is a good place to check. Some are better than others...you kinda gotta go with what you got.

Check their credit rating. You'd be surprised about how many contractors are one job away from bankruptcy. This applies to huge contracting firms as well as little one-horse shops.

Sign real, detailed contracts, with a full and complete description of the work to be completed, the materials to be used (most contractors are used to providing "cut sheets" of the products they'll be using) and a sufficiently detailed description of *how* the work is to be completed. You need to keep the contractor on schedule, making sure they complete their work according to the agreed upon schedule. Don't succumb to pleas for advanced payments prior to the completion of the work.

Tell the contractor they need to provide you with the list of the suppliers that they are going to be using. Refuse to accept any others. This needs to be fully stipulated in your contractual agreement with the contractor. Joint-check the contractor, the sub-contractors (if any), material suppliers and other vendors to protect yourself. Read about that here:

»www.bdcnetwork.com/joint ··· and-cons

»azconstructionlaw.com/th ··· s.5.html

I cannot over-emphasize the necessity of making sure you have all of the lien waivers. This is something that can come back and bite you well in the future. Attention to this detail is imperative. The lien waiver states that the supplier or vendor is fully paid, and that no monies are outstanding in any regard for materials or work performed. Once that piece of paper is signed and in your hands, no further claims can be made by that vendor against your project.

This is why people hire general contractors for projects. They know how to do these things. You can find books that cover all of this; I've seen some good ones that I find acceptable. They'll have checklists, schedule examples and such. Go to the bookstore, look around, thumb a good number of them, find one that looks like it suits your purposes and spend a few hours educating yourself. It's well worth the time and money to do.

robbin
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join:2000-09-21
Leander, TX

robbin

Mod

I guess you could go through all of that but it really seems like serious overkill for a $1000 job.
said by XXXXXXXXXXX1:

The job will end up being around $1000.


ArgMeMatey
join:2001-08-09
Milwaukee, WI

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There is always some risk unless you use an escrow service.

On jobs over $2500:
30% up front
30% in progress (rough-in, etc.)
30% substantial completion
10% after punch list items fixed AND final inspection, whether by me or AHJ.

On jobs under $2500:
50% up front
40% substantial completion
10% after punch list items fixed AND final inspection, whether by me or AHJ

On small jobs not requiring AHJ inspection:
50% up front
50% after punch list items fixed and my final inspection
or credit card

I've never had an issue with any contractor. I ask them to bring their lien waiver at time of payment. Some have mailed it the same day, and that's OK with me if I know where their office is located. I usually offer to make the final payment via cashier's check, or credit card. They have always said a personal check is OK.

Msradell
Premium Member
join:2008-12-25
Louisville, KY

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said by Speedy Petey:

At the same time, if someone suggested I extend credit to them equal to 50% of the job until sign off I'd find another customer.

IMO 50% until final inspection is ABSURD. Something like 10-20% is a FAR fairer amount.

Considering the entire cost of this job is about $1000 withholding 50% is about right. If you hold 10% if you suggest you don't have enough leverage to get the contractor to come back and fix anything that is found wrong during the inspection process. On a larger job you are correct but for a small job like this you need to withhold enough to have leverage.

As far as who pulls the permit goes, I definitely feel that the contractor should pull the permit for any work they are performing. A homeowner should only pull the permit if they are doing the work themselves.

John Galt6
Forward, March
Premium Member
join:2004-09-30
Happy Camp

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John Galt6 to robbin

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said by robbin:

I guess you could go through all of that but it really seems like serious overkill for a $1000 job.

I was speaking more to the general case, but your point is still valid.

It all boils down to how much risk one is willing to take. People have different levels of risk aversion, and each job is different.

Proceed accordingly...
joewho
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join:2004-08-20
Dundee, IL

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»www.thisoldhouse.com/toh ··· ,00.html

nunya
LXI 483
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join:2000-12-23
O Fallon, MO
·Charter

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On a $1,000 dollar job, the thought wouldn't even cross my mind to collect any money up front. I do have the customer sign a lien consent and a material / permit consent. That way if I buy materials or a permit and something happens, the customer is still "legally" on the hook for anything that I can't return.

On a bigger job, I usually collect 1/3, 1/3, 1/3.
I still get a lien consent and a material / permit consent.
I collect 1/3 on the first day. 1/3 on rough-in, and 1/3 on final. I'll let them hold 10% if they insist on waiting for final inspection.
I also have a "not to exceed" payment interval of 30 days. Some people like to start projects and let them drag on forever. Therefore, regardless of the status, I am paid for all completed work within 60 days.

Any contractor who is nudging you to get the permit should be looked upon with great suspicion. Usually when a contractor wants the H.O. to get the permit, it's because they do not have insurance or a proper license.

I'd never pay fully up front. I probably wouldn't pay 50% either, unless it was someone I knew and trusted.
joewho
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Dundee, IL

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I've never been asked to sign a lien waiver by a customer, but many times by banks. Sometimes multiple waivers as I collect payouts. I'm only a painter though. Small beans compared to the G.C.'s here.
dev0
join:2013-05-25

dev0

Member

As a commercial GC I am routinely amazed by the lack of due diligence done by most homeowners and residential contractors. Anyone reading John's advice would be well advised to heed it.

Just because a job is small, does not mean it isn't without substantial risk.