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Question DetailsAsked on 7/19/2017

What is a fair retainer to pay a contractor during the quote process and before a contract is signed?

I am wondering what is a fair retainer to pay a contractor. We've had a contractor come in to our house, put together an estimate and request a $5,000 retainer to hold space in his schedule. The money would be applied to the job if we signed the contract. The contractor made several visits to the house and didn't want to waste his time if we weren't going to sign a contract with him. At first, it seemed fair. He then charged us for five hours of "discovery" research at the house on top of the retainer. In the end, his quote came in very high and we chose not to use him.

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2 Answers

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Zero if you mean "retainer" in the legal sense - meaning a non-refundable payment you make for the contractor's service (generally used with lawyers where a lawyer "on retainer" gets a fixed fee for whatever services he is called on to perform - more a corporate arrangement than consumer) - because generally (though you should ask first) bids are free.


If you mean retainer in the sense of a "retaining fee" in the legal sense, that is a refundable deposit against the job cost paid when the contract or service agreement is signed as a "deposit on account" to be applied to future billings. That is normally what contractors want for larger jobs to lock in the scheduled date, and what it sounds like you are talking about. You would need to have a contract stating exactly what the fee is for (or that it is defined as a deposit on the account), and what happens to it if the job is not done for various reasons.


Once you put a deposit down, that would generally, in lieu of other provisions, be considered earnest money on the contract - and should not be paid until the contract is signed (usually trading signed/dated contract client's copy for the deposit check). The deposit check may be nominal (a few hundred, or maybe 10% commonly), or if work is to start very soon may be more to help pay for the initial materials payment. In rare cases can be more substantial, though that should only be if paying for required up-front payments for special-order items. But should NOT be paid until the contract is complete and being signed. It would be applied to the bills as the job progresses, presumably with other progress payments also being made along the way for longer duration jobs.


What happens to that money if the job does not go ahead with that contractor (for any of several reasons) would have to be established in the contract, and could be the basis of a legal claim on it by him for his effort on the job if you bailed out on him after paying it.


If you did pay the deposit, or if you signed a contract or signed acceptance on a bid from him, then you probably have at least an implied contract and should be getting legal advice on this situation.


Several visits to the house by a contractor would be unusual unless this is a major remodel or addition or such - normally for smaller jobs only one visit for introduction and to get a quick eyeball of the job and to discuss the scope and materials, then maybe then or maybe at a second visit bringing samples/catalogs (like of fixtures or tile or flooring or woods or such to be selected from) and measuring and doing takeoffs to prepare the bid.


It sounds like you were asking more of him (his input, opinions, some research into aplliances or fixtures or materials or such, etc) than he (and probably most contractors) would want to put into planning a job during the bidding stage. Sounds like you probably do not have plans and specs from an architect, so were maybe asking more from the contractor. For some types of jobs this is fine, and if you do not have an architect then many General Contractors will include getting an Architect to do the minimum needed plans for building permit issuance and for construction - but as part of their scope of work, not as part of the bidding process.


The fact he charged you for "discovery research" is pretty clear indication he felt you were taking more of his time than was reasonable during the bidding phase. This sort of charge is not common but definitely occurs at fairly rare times and would be considered "normal" in some cases, like where detailed research is needed to locate particular unusual items or you want, or sometimes where some tearing into things to ascertain the existing conditions or what the extent of insect or rot damage or such situations. Of course, the larger the job (especially new construction or significant addition or total remodel) the more up-front effort he would be expected to do without direct charge - but still, all but initial concept discussion would come during the work phase, not the bid preparation phase.


However - unless he gave you advance notice that there would be a charge for his bid prep or for his "research" time and you agreed, or continued to ask for his input after that notification without telling him you did not want to pay him anything, then it looks like you (presumably - expecting free bid or estimate) had no expectation of paying him, so there was no contract and you would not have to pay him the "research" cost.


So - you did not choose him for the job - if you had paid the retainer at that time you may have a legal problem, because paying the retainer at least formed in implied contract that you were going to use him - though if you did not have a contract at that time and the bid had not been given to you, there would be no legal contract because the job price had not been agreed to yet. However, in a court action his effort beyond normal bid prep time would likely be awarded to him.

If the retainer was not paid, then the issue is just the 5 hours of his "discovery research" - which if nothing had been said about payment for his pre-contract time you would not legally be bound to pay due to lack of an agreement or contract regarding it. To be "fair" about it, if he spent a lot of time on your project development or conceptual discussions, I would say you should pay his reasonable charge for the time, becauee it sounds like you were maybe using him for preliminary design or project scoping input similar to what an architect would do early in a design job. Reasonable rate depends on the type of contractor and local rates of course, but something around $30-50/hour for a Handyman type or one-man General Contractor, or more like $50-75/hour (maybe $100 in very high-cost area) would be common for a full-capability General Contractor.


Your call on whether that time was spent basically on preparing his bid (so not something you would normally pay for without prior agreement to pay for bid prep, which is unusual), or if he was contributing to the project development and you are going to use his thoughts or solution in the final project, in which case compensating him is only fair and reasonable, and he might have a legal footing also because that work would be beyond the scope of normal bid preparation effort, and he might also have ownership rights (common copyright) in what solutions or ideas he came up with.


Your call also on whether he really was working for your benefit (in which compensation would be fair), or if he is one of the rare contractors who commonly bids high but charges for his bid preparation time, basically running a low-level scam of trying to get a few dollars for his contact time and maybe not able to get real "do the work" jobs. Rare, but I have seen it. There used to be one guy in our area who charged $250 to do an "assessment and bid" for HVAC system optimization/ replacement - but it turned out he never did any work, just the "assessments", and made sure his bids were so high they would never be taken or that if they were, he could have the work done by another contractor as a sub. Turned out he was not legally licensed - his license evidently had been permanently revoked by the state and him banned from ever getting a license again because of fraud.


One other thought - especially if he is only asking a couple or few hundred $ for that time - is the risk of not paying it, then having him file a lien against your property to recover it (which wrecks havoc with your credit rating and also possibly affect any construction loan you have), plus if he files a lien for payment and your selected contractor orhis bonding company runs a UCC check on you and a lien comes up your contractor may walk on the basis you are an nunacceptable credit risk. Or possibly badmouthing you and having that get to your selected contractor, thereby making him uncomfortable with you or not trusting you and messing up your relationship with him right off the bat. If a small amount, might be worth paying the first guy just to avoid that sort of situation, regardless of what you think is fairest.

Answered 1 year ago by LCD

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Votes

Thank you to LCD for your answer. It is a major renovation and we gave the contractor money to hold space in his schedule. He then prepared a contract and we decided not to sign because we realized his quote was way out of line with other contractors. We paid him $3500 after he gave us a quote plus $350 for discovery. Our feeling is that it was fair for him to charge for his time, since he made a few visits to the house and put in time on the quote, but something closer to $2000 makes more sense to us. We may have no legal basis to challenge him, since we agreed to the amount, but it seems like it was excessive. I don't think this is someone who gives high quotes and charges for the quotes but doesn't end up doing the work. I think this is someone who is just very expensive and we didn't appreciate it until we saw the quote. A costly mistake on our part, but probably saving us tens of thousands in the end.

Answered 1 year ago by benploni




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