Flipping and Giving Contractor a Percentage of Profit?

[Account Closed]

Has anyone hired a contractor for flip and as part of the pay give them a percentage of the profit. This would incentive timeliness and good work. Thoughts?

[J Scott]

Yes, lots of people do it.  But, that doesn't make it a good idea.

First, it sends the message that you don't expect timeliness and good work...so you're willing to pay extra for it.  This is the wrong message to send to your workers.  Instead, you should be sending the message that you always expect timeliness and good work.

If you'd like to pay a bonus for beating deadlines, coming in under budget and/or exceptional quality, go for it.  But, I don't think a profit split is the way to go in any case, for several reasons:

1.  I assume you don't want to give them the ability to audit you to verify your profit numbers?  If you contractually agree to paying a part of the profit, they might expect this.

2.  What happens if there is a disagreement over the timeliness or quality of work?  Do you want to go to court to fight over whether they get the percentage of profits?

3.  Once you go this route, there's no going back. 

I like to give my contractors bonuses when I do better than expected (or when they do better than expected).  But, I like this to be at my discretion, not in the contract.