Payment agreements with contractors

[Brady D'Hont]

Hello,

What are most peoples terms with contractors regarding payment plans/schedules? Obviously they vary, but from an investor side of the table what do people shoot for? 

Thx

[Stuart Udis]

@Brady D'Hont  I see many investors focus singularly on payment agreements, but the payment terms should be incorporated into a broader agreement that covers insurance, independent contractor status, scope of work, indemnification, parties to the agreement and notice procedures to name a few. Specific to payments, try to push for net 30 payment schedules for your GC. I regret not using this to qualify who I worked with when I relied on 3rd party GC's.  If they are cash needy, it tells me they are not operating a properly funded business. This should be viewed as a red flag as they are often the GC's who are taking from one job to cover another and that's when everything tends to blow up. Also, when it comes to payment, you want to be mindful not only of your payments to the GC, but also the subcontract payments the GC is, or should be making. When I relied on 3rd party GC's, another mistake I made was failure to keep track of the sub contract agreements my GC should have been executing with the sub contractors. You will want to see the same net 30 pay schedules on the sub contract agreements as well. Again, if subs are balking it could lead to the same issues I noted above. Another reason to be mindful of how the GC is paying the sub contractors has to do with mechanics liens. The laws and procedures vary depending on your location, but in many jurisdictions the laws are very favorable towards both labor and material suppliers and can be costly to untangle. From a strictly operational standpoint, longer net pay periods allows you to operate your business more efficiently. Especially when you are relying on construction loan draws that pay in arrears. The projects become increasingly capital intensive if you are always fronting the GC and waiting for your draws. My last piece of advice is to recognize you have greatest leverage before payments are made. This means, make sure your contracts are signed and you collect your insurance certificates not only from the GC but also the sub contractors where you are listed as additional insured before you make payments. It's much more difficult to collect on these important items once you've released funds.