Holding back part of contractor payment standard or not?
We are working up a contract for a gut reno and I have a question about how contractors are paid. Is holding back a part of the final sum common practice? That way if we discover issues after the job is complete the contractor is more likely to come back and fix/repair the issue? From the few meetings I have had it seems that there is an understanding that they will come back even when job complete and all payments made but how likely is this? Does anyone have experience with this? Thank you.
anthonyjohnson
in Renovation 8 years and 7 months ago
11
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11 replies
andylewis1977 | 8 years and 6 months ago
This article seems to have some good info in it: https://randpc.com/ask/construction-administration-project-management/performance-bonds/
patrickburnsjr | 8 years and 6 months ago
LaLa718 is sharing her experience about a GC doing Capital Improvements/a gut renovation not about one specialty contractor like a plumber doing Home Improvements/repairs^^
steam_man | 8 years and 6 months ago
I’m a contractor and that ^^ is news to me. I’m going to have to disagree with that one. A lot.
patrickburnsjr | 8 years and 6 months ago
Hire a DCA licensed contractor with insurance coverage. When the job is completed with the last payment due on the last day of work as described in the contract you signed and you don’t pay the contractor, you are breaching the contract. If you have any complaints after the contracted job is completed and payment has been issued, call the contractor to discuss. If the contractor refuses to communicate with you, put in a claim with the contractor’s liability insurance policy. The liability insurance policy is for the workmanship of a job after it has been completed, not counting wear & tear and client abuse.
Guest User | 8 years and 6 months ago
Small correction: Final payment to the contractor occurs once PROJECT (!) is complete.
Guest User | 8 years and 6 months ago
We are an architecture firm and use an AIA Contract on most of our projects. In this agreement under the terms of payment we include a clause for “retainage” which is a common industry practice. 10% of every payment is held by the client. At substantial completion (typically when client moves in) this amount is reduced to 5%. This money is available for the client to address problems with the work that the contractor is unable or unwilling to correct. We also define project completion as including the sign off of permits with the Department of Buildings. Final payment to the contractor occurs once payment is complete. We generally prefer a payment plan of regular, smaller payments rather than a few large payments.
wjbehrle | 8 years and 6 months ago
Holding back money after you and the contractor agree the job is complete seems unethical. I agree with notontop on that. But if you mean holding back some money until the job is truly 100% complete, as in, all the punch list items are done, then I say definitely hold back, and hold back enough to get it done.
The first time we did a big reno, we paid something like 30% up front, 30% about half way in, 35% close to the end, and held back the last 5% for final blue tape punch list items. And I’ll tell you, that 5% was enough to motivate the contractor to come back and finish up those items in about 3 months, with a lot of prodding. The second time we did a reno (we own apartments), we held back 10% at the end, and THAT wasn’t enough, either! In fact, they NEVER ended up finishing, and stopped asking for the last 10%. In reality, the GC and I both knew that the monetary value of the work that remained was probably worth about that 10%–maybe less. I was pissed by then, so even if I lost a little money because of it, I let it go and just finished the work myself.
The real problem, if my experience is at all common, is that when the bulk of the job is done, GC’s start sending their workers to other jobs, and you’re left with just one guy, part time, and then the next thing you know, they are busy on something else and your 5% or 10% just isn’t worth the trouble. I fantasize about writing into a contract that the GC will be on site EVERY DAY, and that they will have a minimum of 3 workers, full time, until the job is 100% done. (A fantasy, I know. But doesn’t it seem like the way to do it??)
The next time around, I was firm on 30% up front, 30% halfway through, and the last 30% not until it was totally done done. As in, the GC asked for the last 30% and I asked him to meet me for a walk through first. We agreed on a few items (amounting to a day’s work for two guys), and I said I’d give him the check AFTER I approved that work. He agreed (and seemed fine with it), and it was done immediately, and it was all good.
candice.hampton | 8 years and 7 months ago
Hire a reputable contractor, treat them fairly and pay them on time and I’m sure they will take care of issues that are covered under your warranty. It’s surprising to me that people think they should be able to withhold pay for a service rendered just because there may be an issue in the future. What other industry would put up with that? How would you feel if someone didn’t pay you for work that was 100% completed just so they could hold it over you if they needed something in the future?
slopefarm | 8 years and 7 months ago
take steam man’s advice over mine
steam_man | 8 years and 7 months ago
5% is typical. As far as comebacks are concerned.. that is covered by warranty not retainage. Retainage is released after substantial completion. Consider your punch list being done and permits closed to be substantial completion. Any repairs required after the beneficial use are warranty items (if covered by the warranty).
slopefarm | 8 years and 7 months ago
Wish we had provided for a holdback. I believe 10% of each progress payment is a somewhat standard term, but may be hard to negotiate for it if the GC market is tight. If you have an architect in place, work with the architect to get GC to agree to this. Yes, there is an “understanding” at the start of every job that GCs will come back after they are fully paid to fix a few odds and ends. Does it ever happen? Perhaps, maybe, occasionally. Far more common — and the tales are legion in the archives here — is that the contractor disappears before the punch list is done because payments got a little ahead of the work. A holdback helps prevent that from happening.