Contractor Pay Schedule

[Michael Moikeha]

Last year I had a contractor walk in the middle of a job with a few extra thousand dollars we had paid them, and it cost more than that to get another contractor in there to complete it.

I have a $150,000 project right now, and I am wondering what clauses, or what payment schedule people use to ensure that contractors are finishing projects and are motivated to do so through a draw schedule that ensures they are never being paid for work that hasn't been completed.

Thanks in advance for any advice.

[Eric Downs]

Michael, 

(coming strictly from my experience in commercial construction) 

I would suggest starting with a schedule of values (SOV), which will clearly define the pay schedule and allow the contractor to submit a percentage complete for each scope of work he has completed (at the end of the pay period). At the end of the month when the contractor submits his pay application you can review his work and confirm the percentages are accurate and make payment (or have him revise it based on the real percentage complete).  Just google "AIA-G703 template", and you will find plenty of excel spreadsheets that you can modify with your company and project information and incorporate into your contract as an exhibit or addendum. 

Retainage is another tool that you may consider if you have not worked with the contractor before. This allows you to hold back a percentage of the payment until the entire contract is complete. For example, if the contract is for $150K and the retainage is 10% and pay application #1 is for $50K, you will retain $5K of the $50K as part of the retainage. 

Hope this helps