For those of you in the know, how do contractors get paid?  We are starting an addition/remodel to our house this weekend.  Our contractor told us the basement digging guys are going to be at our house on Monday to start digging but that he, the contractor, needs $2k upfront to get "started".  What exactly does that mean? Is that normal?  I guess this is the part where we need to keep our receipts through out the project handy.  Plus the bank requires us to get "lien waivers" from everyone we are paying through out the project. Don't get me wrong, I fully trust this guy, its just that I don't know how this whole construction thing works yet.  What are some of your experiences regarding contractors and home remodels.  Thanks for any advice in advance. 

No advance payments - ever! You are not a bank. Pay is based on work performed, with a small percentage held back (usually 10%) until the final item on the punch list is completed.

Verbal agreements do not work at all when disagreements pop up, as memories fail predictably. A contract is your best friend. It will detail all of the work to be performed by the contractor, any items that you may elect to furnish toward the project, and a list of what is not included for clarification purposes. A firm dollar amount, with scheduled payments based on completion is standard to be included with the scope. And a schedule should be included in the contract as well.

Do you pay the neighborhood kid before he mows the lawn?

I recently went through this. Apparently it's fairly standard industry practice that jobs under $10k are paid on completion. Jobs over that are paid as work progresses, with as much as half up front.

$2k up front doesn't sound at all unreasonable for pre-purchase of materials and essentially a "deposit" for reserving the workers. Many contractors are small business owners, and can't afford to float thousands of dollars over weeks and months they potentially won't get paid for.

I'm no expert, that's just what I read from a bit of reading recently. I'd say Wildcats has it mostly right with respect to a contract.

I assume the "lien waiver" from the bank is in case you have a dispute and withhold partial payment. I have no experience with how easy that is to get, but I'd expect most contractors would resists and many may flat out refuse because it can be very difficult to collect even with a court judgement.

Generally "lien waivers" are not needed if the bank loan is done before any work is done.

But if anyone does any work before the bank loan is done then the bank lien would be behind any "mechanics liens".

(08-19-2016, 01:27 PM)BengalHawk62 Wrote: For those of you in the know, how do contractors get paid?  We are starting an addition/remodel to our house this weekend.  Our contractor told us the basement digging guys are going to be at our house on Monday to start digging but that he, the contractor, needs $2k upfront to get "started".  What exactly does that mean? Is that normal?  I guess this is the part where we need to keep our receipts through out the project handy.  Plus the bank requires us to get "lien waivers" from everyone we are paying through out the project. Don't get me wrong, I fully trust this guy, its just that I don't know how this whole construction thing works yet.  What are some of your experiences regarding contractors and home remodels.  Thanks for any advice in advance. 

I am a concrete contractor.  For residential work, we require a 40% deposit payable at the beginning of the second day of work.  It locks the home owner in.  For years, we never asked for anything until the job is done,  After having ben burned a couple times, we started collecting a deposit.

We never ask for it until the job is underway.

I know a lot of other contractors and they all operate the same way.  I would go so far as to say it's standard practice these days when doing residential work.  Commercial work is different for us.  We require no deposit for commercial or municipal work, mainly because you might ask but you won't get it.

I strongly urge any homeowner to require references for any contractor.  Good ones, legitimate ones, like me, have a long list of references.  Bad ones don't.

(08-19-2016, 04:29 PM)McC Wrote: I am a concrete contractor.  For residential work, we require a 40% deposit payable at the beginning of the second day of work.  It locks the home owner in.  For years, we never asked for anything until the job is done,  After having ben burned a couple times, we started collecting a deposit.

We never ask for it until the job is underway.

I know a lot of other contractors and they all operate the same way.  I would go so far as to say it's standard practice these days when doing residential work.  Commercial work is different for us.  We require no deposit for commercial or municipal work, mainly because you might ask but you won't get it.

I strongly urge any homeowner to require references for any contractor.  Good ones, legitimate ones, like me, have a long list of references.  Bad ones don't.

I can understand why any contractor would require part of the money up front.  And if the contractor is purchasing the building supplies I assume that would have to be paid first also.


What about the lien waivers?  Have you ever been asked to sign anything like that, and would you?

(08-19-2016, 03:27 PM)JustWinBaby Wrote: I recently went through this. Apparently it's fairly standard industry practice that jobs under $10k are paid on completion. Jobs over that are paid as work progresses, with as much as half up front.

$2k up front doesn't sound at all unreasonable for pre-purchase of materials and essentially a "deposit" for reserving the workers. Many contractors are small business owners, and can't afford to float thousands of dollars over weeks and months they potentially won't get paid for.

I'm no expert, that's just what I read from a bit of reading recently. I'd say Wildcats has it mostly right with respect to a contract.

I assume the "lien waiver" from the bank is in case you have a dispute and withhold partial payment. I have no experience with how easy that is to get, but I'd expect most contractors would resists and many may flat out refuse because it can be very difficult to collect even with a court judgement.

This is pretty much correct. I mostly handle insurance claims so getting paid upon completion is never a problem. I have learned to ask for half of the deductible up front if it is $1000 though. I do ask for a little money up front if a customer wants work done outside of their claim, but NEVER the full amount.

At times I've had to pay a portion up front, others not until completion of the job.

Sometimes payment can be broken down by milestones (ex. 10% at signing, 20% at start of work, 30% at midpoint, 50% upon completion).

The main thing is that the terms and milestones are listed in the contract before anything is signed.

And if there is no contract to sign, there should be no work performed.

This is to protect both parties. It is the only way to prove what the scope of work is and remedies for violations.

(08-19-2016, 03:27 PM)JustWinBaby Wrote: I recently went through this.  Apparently it's fairly standard industry practice that jobs under $10k are paid on completion.  Jobs over that are paid as work progresses, with as much as half up front.

$2k up front doesn't sound at all unreasonable for pre-purchase of materials and essentially a "deposit" for reserving the workers.  Many contractors are small business owners, and can't afford to float thousands of dollars over weeks and months they potentially won't get paid for.

I'm no expert, that's just what I read from a bit of reading recently.  I'd say Wildcats has it mostly right with respect to a contract.

I assume the "lien waiver" from the bank is in case you have a dispute and withhold partial payment.  I have no experience with how easy that is to get, but I'd expect most contractors would resists and many may flat out refuse because it can be very difficult to collect even with a court judgement.

From my experience working for contractors, pretty much this. Usually if the contractor is asking for money it may be because of deposits he's paying for different crews. Like McC said, he requires a 40% deposit. Whoever is doing the concrete or dirt work on your basement may have required a similar deposit from your contractor.

It's usually best to get all of it worked out in a contract before work gets started.

(08-21-2016, 05:24 PM)jfkbengals Wrote: And if there is no contract to sign, there should be no work performed.

This is to protect both parties.

This.

(08-19-2016, 03:27 PM)JustWinBaby Wrote: I recently went through this.  Apparently it's fairly standard industry practice that jobs under $10k are paid on completion.  Jobs over that are paid as work progresses, with as much as half up front.

$2k up front doesn't sound at all unreasonable for pre-purchase of materials and essentially a "deposit" for reserving the workers.  Many contractors are small business owners, and can't afford to float thousands of dollars over weeks and months they potentially won't get paid for.

I'm no expert, that's just what I read from a bit of reading recently.  I'd say Wildcats has it mostly right with respect to a contract.

I assume the "lien waiver" from the bank is in case you have a dispute and withhold partial payment.  I have no experience with how easy that is to get, but I'd expect most contractors would resists and many may flat out refuse because it can be very difficult to collect even with a court judgement.

I have been in the industrial and heavy commercial construction industry working as a PM since the mid 80's, hence my emphasis on contracts and no advance payments. On my personal residential projects where a contractor requests advance $ for materials, I work with the suppliers using his materials list, and pay the supplier directly. Additionally I sometimes pay the contractor weekly for his labor costs, depending on his cash flow needs. I have deviated from this practice occasionally, but only after I've established a good working relationship with the contractor. Far too many residential contractors take advance money on one project to cover costs on another project, ending with someone getting burned eventually.