BiggerPockets

Ashan,
Most contracts that I have seen between contractor and Real Estate Investor have some clause like that built in. For Example:

Contractor agrees to a reduction in payment, or if any payment has already been made, Contractor agrees to reimburse to Client the sum of $ each week Contractor delays completion beyond , xx/xx/xxxx. Completion date shall be adjusted for change orders as agreed between Contractor and Client.

make sure you get a lawyer to review any contract you put together as your local laws will impact what you can and can not legally bind a person/company to.

Way over stated to say it is the #1 problem

I would be careful about clauses that take $$ away from your contractor - several reasons.

- you going to use him again? Guess what your paying on house number 2's bid - the money he lost on deal 1
- there is a "fairness" to every relationship - time overruns - can happen. Has it happen to me - sure - has it caused me a huge deal or burden - no - sometimes things come up - if there is a delay because they are lazy and dont' show up or are slow walking it - then you have a bigger issue on your hands if you ask me
- at somepoint it becomes coutner productive - meaning you want your house done and they want their pay - if they walk and "undo" somethings they have done - how much will it cost you (in time and $$) to get another crew in there?

yes you can sue them but is that the rep you want? Is that how you want to spend your time?

Not saying you don't just playing devils advocate.

Manage your crews well and you shouldn't have this problem

Originally posted by Bob McIntosh

have any of you guys used incentives to finish earlier? I have read a few things that suggest using this method but what have those of you out there seen?

Yes, the sooner they finish, the sooner they can move on to my next rehab and make some more money...

Might sound like I'm joking, but I'm very serious. My contractors know that if they aren't available to start on another one of my projects when it's ready to start (even if they're currently working on one of my projects), I'll find someone else.

So, their goal is to finish quickly so that they can move on to the next without "missing" any of my houses.

I also give my contractors a bonus after each house I sell...the more I make in profit and the more quickly they sell, the bigger the bonuses. While I don't stipulate this in any contracts, my contractors know that there is a reasonable chance they'll get a bonus at the end of the project if it finishes quickly and high-quality.

Depends on who you are working with. I am a General Contractor and I insert those clauses into my own contracts as a selling tool against other GC's (I also get the work done on time, so it really doesn't matter). Those clauses generally cut both ways though. For instance, penalty clauses can be extended by issuance of a change order signed by both parties. The problem for you is that anything not specifically spelled out in the contract (depends on the state) is considered to be extra. You then end up getting a million change orders, which both delay and increase the cost of the project.

I would also be careful with the carrot route as well. A good GC should want to get the job done on time and in budget for the simple reason that they should have other projects lined up that they can't work on because they are on your project. There is definitely an opportunity cost and if they like you, they will want to work for you in the future. If you give the guy extra, then it can become an expectation and ultimately the expectation won't hold up between both parties.

It really comes down to building a personal relationship with the GC you are working with. I don't advertise at all (most GC's don't). All my work is referrals so it is important to have that relationship on the GC's end as well.