Pay your contractor on an incentive/penalty basis?

[Ryan Dossey]

We have a particular contractor we have used for 2 jobs now. They do GREAT work. They are creative and stick to budget. But they are slow. I think I want to give them one more shot. Here are my thoughts.  

Offer something like an extra grand for deadlines being met. When I set up the scope of work I'm going to ask them to date when each phase of the project should be completed. I'm thinking for any deadline that's missed they forfeit a certain $ amount. 

What do you guys think? 

[Ed Caldwell]

I would have a discussion with the contractor and ask them what they think is a fair resolution if they don't meet the deadline.  If they come up with the penalty, then it is their own reputation and word at stake and it is easier to get it into the contract.  Most contractors start other jobs before they finish the one they are on, which always causes time issues for investors.  Like I said, if your business was at the level that you kept them busy all the time, they pretty much would be working exclusively for you and you would have more control.  As a new flipper, you are hit and miss as you come across a property to rehab, so the contractors pretty much have more control as they don't know when and if you will have more work for them.  At least this has been my experience.  Build the relationship and get to the point you are giving them work consistently and you will have more control and negotiation over time.