Best way to pay your contractor

[Anwar Shabazz]

When you hire a gc and the bid is 50k, how do you pay him so you make sure he doesnt screw you over?

10k  per week? 50 percent down? 50% when he completes the job?  I have always been burnt by these so called pros and I want to make sure I do it the right way this time.

Any advice would help guys.

[John Mathewson]

I have been burned so many times it's not even funny. here is what works best for us. 

We typically give 2k-3k down to get the job started. The job starts with demo, and rough ins, they don't need a ton of cash for that. From there we set up draws related to the scope of work. In order for them to receive the next draw those items have to be completed simple as that. Things still can go wrong most contractors don't estimate the job correctly so they get stuck in between one of those draws and run out of money so the crew stops showing up. So you have to watch for that and be willing to step in and help give them something work with them to complete the job. 

Do not a set amount a week. 

Do not pay 50% down

Always hold an amount until the job is complete. 

You have to be able to hire another contractor to finish the job at any point if you fire the contractor or they walk away without running out of money. 

[Anwar Shabazz]

Awesome!  Thanks

What about the contract?  What do you put on paper?  I had liens put on my property with no paperwork

[Anwar Shabazz]

So basically work in sections?

Demo 3k

Then, Structural, 5k

Plumbing 5k

etc

[John Mathewson]

@Anwar Shabazz Yeah Chicago is the worst about liens I swear they don't look at anything when contractors go to file a lien. So we have them sign the scope of work and draw schedule then the best way to solve the lien problem is each time you pay them have them sign a lien waiver. It's annoying but don't give them the check until they sign it each time. 

[John Mathewson]

@Anwar Shabazz 

yes but like plumbing you would even want to break that down between like rough in phase and fixture phase. Big time difference in the two but you have the idea. 

[Rob Harris]

@Anwar Shabazz - Trying to keep this short as possible; If they have the money to perform you should not have to pay anything up front. If they are a "broke" contractor, they really have nothing for you to obtain if you have to take recourse against them.  Also obtain a standardized contract and add specifics to performance task and exactly how payments will be made.  At each stage make the contractor and EVERY subcontractor sign a "Conditional Lien Release" for each progress payment made.  This way if they try and file a lien after the fact you have easy legal recourse against them and to support the immediate removal of any liens on the property in question. 

I would  I do this until I have a solid history with a contractor.  Once they have proven themselves reliable, I give them a bit more rope.... That's just how "I" work things....

Get all their license, bonding, and insurance information up front and have yourself added as an additionally insured to their policy to cover yourself.

Break the job down into "chunks"....  Each stage of completion must meet inspection standards and again, they receive payment and sign the proper lien release.....  At the end of the job, when final payouts are due... all work, again, must meet muster and then EVERY SINGLE CONTRACTOR on the job must sign an "Unconditional Lien Release" to be paid...... If you don't get one from every single sub as well as the prime contractor, you are leaving yourself open to a problem.... The trigger for lien releases to take affect is when the check is negotiated.  If they cash the check, they have no legal right to file a lien... All the lien releases I have seen have a section to write in any disputed or outstanding payment amounts.

Not, every state works the same, but should have a similar process available to consumers and contractors to have mutual protection from the other.  

Lastly, if you are using a new contractor you have no history with, ask for references.  Ask to view other work he has in progress and then 'make your way' over to the owner during that visit or later to do a simple interview with them to get the real scoop in regards to the contractors performance.  How is he managing resources, payments, problems with inspections, punctuality, etc....  Also check on their license and the licenses of any subcontractor and see if they have had any complaints against them...

Hope some of this helps! - Rob H 

[Peter Tverdov]

You could also do it based on inspection.

X amount as a deposit (10-25% IMO)

X amount when first inspection is done

X amount when second inspection is done

Etc...