When should i pay my contractors

[Rose Davis]

Should a contractor receive 75% up front or should they be paid in smaller increments?

[Account Closed]

Rose Davis The St Louis home building and remodeling market is a very small world. Everyone knows each other and finding a reputable contractor only takes a few calls. I would imagine Davenport Iowa is the same way.

A good starting point would be to call your local home builders association and ask for a list of quality contractors. In today's market most reputable remodelers will have a website with testimonials and pictures of past projects.

We represent over 35 home builders/remodelers in our area. My experience has been that most reputable contractors will require you to pay for a portion of materials up-front and then request draws as needed to pay for additional materials and labor. Some will provide a fixed fee for serving as gc and others will build profit into the work.

A contractor who requires a large down payment without a detailed schedule of when and why $ is needed is probably having money problems. A contractor who will work with no down payment is also likely starving for work. Like anything in life if it doesn't pass the sniff test there is probably a good reason. Good luck!

[Hank Oyler]

Pay at time of completion or within 30 days of completion. If multiple scopes draw based on percentage of completion. If contractor isn't confident enough to accept payment at time of completion RUN 

[Adam P]

I have been scammed by a lot of contractors.  Mostly because I do plenty of rehab.  

 I now pay nothing up front.  I pay for all materials, so they are not out of pocket.  We have milestones, that when they are met and I am satisfied with the work, they get partial payment.  However you STILL need to backload payments.  If you make milestones equal, the number of contractors who won't complete the last one is still very high.  

Even contractors who did a great job on 1 project, can turn into scammers the next.  It is not usually that they are dishonest, just too many "chasing a bad job".  This means they underbid on a job, which went wrong and now they can't finish it without making a huge loss.  They may also have subs to pay.  So they bid on next job, take deposit money, and pay for last job.  They try to stay afloat doing this, while still paying the bills, and get themselves into trouble.   So then they are bidding on the next job, when yours is only 25% complete, to try and get next deposit.  You want their incentive to be to finish your job to get the money, not incentivized to move onto next job and collect another deposit.  

Some of these guys who collect 75% deposit could have 5 jobs going at same time.  Your job could take 6 months.

[Mike Haskins]

That all depends. My company and many many more like mine in this jurisdiction (Wisconsin) will not under any circumstances commence a project for a client without 100% MATERIALS funds up front, and one third labor draw. 

I see these questions time and time again on the internet. You can never be too careful, on both sides. Most often, contractors become micromanaged by clients who have zero trust because of what they've "read on the internet".  Whereas the contractor has real world experience as to why you always request 100% of materials and one third labor to commence. 

I do contract work for a few "house flippers" amongst private home owners. The house flippers in my opinion are the ones you as a contractor have to watch out for. 

Change Order is a term anybody in that business or a contractor business should be well aware of.  I would assume that half of the "internet horror stories" you see in regards to contractors come down to owners unwilling to pay for change orders for extra work foisted on to the contractor.  

Utilize the contract. It protects both parties completely. 

Would you as an owner expect to walk into any other place of business and leave with goods or a service without paying? I didn't think so. There is this internet myth that contractors are out there to get over on people, when that's not the case. Yes, bad things happen , as they do in every other profession, but that's 1%.

[Marcus Auerbach]

I sometimes do remodeling jobs for higher end residential clients, so all the sudden I am the contractor - and walking in the shoes of a contractor definitley changed my perception.

Interviewing contractors is a skill just like interviewing tenants - with time you get good at it and you will develop a nose for the good and not so good ones. For most people it is best to have a very clear scope of work, a very clear draw schedule and a solid contract. First payment after demo or after the first day on the job, never before the work starts. Major materials will be paid for when they arrive on the job. However, try to keep it simple.

I do things a little different at this point, and that may not work for everyone. I GC most of my jobs, so all contactors are subs. Here are my typical policies: I do not pay up front, but Friday is payday. Nobody has to wait for money with me after the hours have been put in. If you expect someone to offer a competitive price (and work on a small profit), you can't expect them to also wait for their money. They have bills to pay like you and I.

If a contractor underbids a job, I will work it out with them. I will not let a contractor go home feeling I took advantage of them, because there ended up to be more work than expected. If it took more time than expected because of something we discovered during the job, a change order, or because the house was "fighting back" I will keep them whole at least on a minimum hourly rate. I can do this, because I am on the job typically once a day and I know my contractors, and I understand how long stuff should take. 

This requires a strong realtionship and mutual trust. Because I absorb the "scope-risk" they don't have to inflate their initial estimate and pad it for anything unknown, so I get usually lower bids upfront and it lowers the stress for the contractors. Another benefit to me is, that they will make time for me if I need them, so we can keep jobs moving fast without any idle days.

If you are new to remodeling and if you don't know the contractors very well, this is NOT how you should aproach things: stick to scope and draw schedules as mentioned before.