contractor down payment best practices?
any ideas on best practice for handling a contractor down payment for a project not set to start for a number of months? paying 20 or 30% and then not starting on anything for a long time doesnt feel very smart.
solehappy
in General Discussion 6 years and 5 months ago
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Lurker | 6 years and 4 months ago
newtomehouse what a valuable insight! I bet that was also the case when building 1 World Trade too! And I also think it’s safe to assume that anyone doing a 7 figure renovation isn’t crusing online forums for advice on how to deal with a contractor and likely has a construction lawyer drafting or at least consulting on the contract. For a typical homeowner though, I presume the person who posted, who is reading this blog and doing maybe a few hundred thousand dollar renovation, it’s good guidance to follow. Having a defined pay structure with limits and checks is the only way to keep from getting ahead of payouts.
newtomehouse | 6 years and 4 months ago
No way on a 7 figure project is a contractor only getting a 15,000 deposit or progress payment. If that’s really what DCA recommends thats laughable. Also as jcarch said you also don’t give 30% of a 1.5 million project upfront nor can you expect the contactor to wait for his last 30% on such a project.
Lurker | 6 years and 4 months ago
I’m not finding it now, and I’m sure contractors/trades may not love it, but I believe according to the DCA and consumers bill of rights you’re not meant to put down more than 20% of total cost upfront. And scheduled payments are no more than 20 or 15,000, whichever is lower. “Each scheduled payment should not be more than $15,000 or 20% of the total amount of the Contract, whichever is the LOWER AMOUNT, and the next payment must not be made until AFTER the work covered by the previous payment has been completed.”
If you’re doing any work I highly recommend using the DCA’s contract and adding to it as you and contractor agree. It makes it streamlined to pursue the contractor if things go wrong as they’re the agency that licenses and fines contractors in NYS. https://www1.nyc.gov/assets/dca/downloads/pdf/consumers/Consumers-Sample-Home-Improvement-Estimate-Contract.pdf
tothr2010
in General Discussion 6 years and 4 months ago
that”s pretty much standard practice… i am a heating contractor and not work with a client who did not realize that the initial permitting and material orders would eat up 30% before a job even starts
jmcycinvskdrboy | 6 years and 4 months ago
From my own experiences keep the payment percentages as small as possible. I agree with no more than 10% down to start a job. You have to always protect your own interest. Some contractors are friendly but remember they aren’t your friend.
citykitty | 6 years and 5 months ago
I agree, keep it small because I just had to go to court to get my retainer back from a contractor who never did work but refused to return the money. I won, but you don’t want to deal with that.
patrickburnsjr | 6 years and 5 months ago
uhhu jcarch
jcarch | 6 years and 5 months ago
carriagehouse99….that can work for very small jobs – tens of thousands of dollars for construction – where the architect and contractor’s work is done in weeks. But for longer/larger projects there are more/smaller percentage payments. It would be a bad idea for an owner on a $500K project to hand 34% of the money to the contractor on day one. And very hard for a contractor to wait on his last 33% until work was done.
patrickburnsjr | 6 years and 5 months ago
To the best of my knowledge – architects and contractors get retainers upon clients’ agreeing to architects starting the expediting /filing procedure (architects 50% of total job and contractors 10% of total job) with the “full balances” due to architects and the “downpayment balances” due to contractors upon DOB approval w. permit (at least 10 days prior to start of jobs), “and” that DCA licensed & NYC insured contractors’ contracts are commonly divided into 3 payment manners- downpayments from 34% to 50% of the total job, 2nd payments from 33% to 40% half way through the job and final payments from 10% to 33% – “this” based on trusting the contractors via researching
before hiring.
jcarch | 6 years and 5 months ago
We advise our clients to do a small ($5,000-$10,000) deposit on signing a contract with their contractor. Then make a larger payment 1 week before construction starts. – preferably 10% of the total cost. In exchange for the lower initial payments, the contractor is allowed to request payment as frequently as they want to (but only for work actually completed), and the owner commits to paying those invoices quickly, usually w/in a couple of days. The frequent/quick payments tend to alleviate the contractor’s cash flow worries, and makes the smaller initial payment acceptable to them.
patrickburnsjr | 6 years and 5 months ago
I would say, a contractor “retainer fee” of 10% of the total cost of contract is fair- the balance of the down-payment being due 10 days before job is scheduled to start to order materials ~
eman134 | 6 years and 5 months ago
that”s pretty much standard practice… i am a heating contractor and not work with a client who did not realize that the initial permitting and material orders would eat up 30% before a job even starts