Contractor Draw Schedule

5 Replies

I am hiring a contractor for my first rehab and flip project

 and I already have the scope of work on a typical contractor invoice.

My question is, do I need to have something drawn up in a draw schedule format before we sign off on it so he'll get paid only as each portion of the scope is completed.

If so, would anyone have an example of what I'll need.

You should definitely have something in writing outlining how and when the contractor will be paid. How detailed you get with this is up to you and also how detailed you've broken down the contractors prices. I would also recommend holding something back to be paid upon completion or receipt of C/O. 

@Nobuko Morgan Each SOW should have its own corresponding amount. You need to embed it on the contract itself, do not forget penalty timelines and what grounds you can fire the contractor, etc etc. It should look like: Demo $1000, Electrical Rough-in Bedroom 1 $300, Finish Electrical Bedroom 1 $800, Plumbing Master Bathroom Finish $5000, Painting All Bedrooms and Bathroom $1300, Painting other parts, interior $1000, Painting Exterior $1000.

In the commercial world where I work, it's common to hold retention from each draw - typically 10% of the invoice amount.  You withhold this 10% retainage until the work is fully complete.  Once it's complete per the contract, pay your contractor the last 10%.

The key is to never get upside down - always have enough money left to pay the balance of the work.  As @Manolo D. recommended, get a break down by scope of work so you can visually verify progress with each draw.

Personally, I will not agree to a retension on a residential contract, there are as many shady investors as shady contractors. 10% on a 50k contract is pretty tempting to hold. I won't be chasing my 10% on government contracts or commercial though. I think the visual product is enough to constitute full payment. Some retain 10% for punchlist, but that doesn't/rarely happens on residential.

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