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Question DetailsAsked on 12/22/2016

How much should I pay my general contractor before the job is complete?

My general contractor wrote up a contract for our job. In it he specified that the estimated cost would be over $150,000. He asked for a $1000 deposit. Then 4 progress payments of equal amounts and a final $2500 payment. The progress payments were due upon completion of various events. We have actually given him three out of four and in fact in at least one case we gave him the payment before the work was actually completed. Our last payment is due upon "kitchen completion". He has asked us for that money before the granite was even templated for the tops of the cabinets. Currently we have no heat in our kitchen the oven is not completely hooked up and the electrical is not ready yet either. He is now telling us that he has no money to complete my project. i have paid 81% of the contract. What more can I pay? If he is out of money now, can I trust to keep giving him my money?how much should be held till completion?

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If you have paid the progress payments needed to date, I certainly would not pay any amounts not called for in the contract before they are due - partly because he has not earned them, partly because once he is paid that money you will likely never get it back if he does not finish the work it covers but you will still need that money to pay another contractor to finish up if he abandons or fails to complete the job, partly because with only a $2500 (1.67%) final payment if you make the fourth progress payment prematurely you have almost no "hold' over him because the final payment amount is so small. Right now you have the final $36,625 progress payment PLUS the $2500 final payment holding over his head to make him complete the work. (And hopefully, except for minor punchlist items, the kitchen is all that is left to be done, if completion of that invokes the final progress payment)

It REALLY worries me that you said the contract stated the estimated cost would be over $150,000 - was there no definitive scope of work and set contract amount ? Because "over $150,000" could mean $200,000, $2 million, - the sky is the limit. And because he says he does not have the money to finish the fourth 1/4 of the work and he had/has not earned at leat one of the previous payments (or maybe has done so by now), I wonder how much cost overrun he has had and has not told you about ? Is there a massive change order request coming, or is he maybe just going to present you with a final bill of $100,000 or more - running way over the contract "estimate". [And courts commonly will not quibble about a 10-20% overrun on an "estimate", as opposed to a contract amount or firm bid where, without good justification, a contractor cannot go over that amount).

Check your math - 3/4 of the $150,000 minus the deposit and the final payment is $110, 875 in progress payments plus the $1000 deposit = $111,875 you should have paid so far if you have paid 3 progress pauyments - 74.6% of the total amount, not 81%, as I reckon it ? If you have paid 81% of the total job cost ($121,500) that would mean $120,500 in progress payments - 3 out of 4 - meaning the total you would pay with 4 progress payments plus $1000 deposit plus $2500 final payment would be $164,166.67 total job cost - so does not add up. Looks like you have paid more than 3/4 of the progress payment amount. [4 equal progress payments should be $(150000-1000-2500)/4 = $36,625 per payment, not the $40,166.67 it sounds like you have been paying].

If you have been told by him that he does not have the money to complete your job, bear in mind you are not in the business of financing contractors.. Giving him a premature final payment is MIGHTY risky - not only because it implies you agree he is due more money than the contract states, but also it could well mean he is behind on other jobs too, or used the money you paid him on other jobs that he was behind on - which could mean he is behind on supplier and subcontrator payments for YOUR job (maybe far more than 1/4 worth, too). And worse, most states do NOT have trust account requirements, requiring contractors to put deposits and payments into a trust account and pay thos funds out of that account only for the job the money was paid for - so many contractors use deposits and progress payments to fund OTHER jobs, hoping there will be payments from some other job to pay the bills accrued on your job - not something uyou want to count on.

Sorry to say this, but you have not only the final payment amounts at risk, but potentially additional costs if you have to bring in another contractor to finish the job - which almost always takes a good deal more money than what the original contract called for to complete the same work, especially if any rework or reinspection has to be done. But you are also potentially looking at a major cost overrun change order request (no way at this time of knowing how close to being "on budget" he is), possibly unpaid vendors and subs who might be about to put mechanic's liens on your property, etc. And yes - even though their contracts are with the general contractor, if materials suppliers or subs are not paid by him they can put a lien on your house even if the GC has already been paid for their work, so you can end up having to pay twice for their materials/work to get the liens released. Several of the below links go into more depth about liens and the havoc they can wreck on your credit rating and possible accelerated payment demands they can gaenerate on any other loans you have - car, student loans, etc.

I would say time to call an attorney (and not here is no Angies List category for that) specializing in residential and small construction contracts and contractor defaults and liens before this gets more out of hand. He/she can discuss the issue and risks with you, and likely the first step will be a contractor meeting with you and the attorney discussing his budget status, completion status, how up to date he is on vendor and sub payments (including independent verification by the attorney with them of their payment/completion status), and if he is behind on his vendor/sub payments as I suspect, quite possibly putting in a claim with his bonding company to pay for the completion of the job. He is bonded, right ? Course, sometimes that does not help , if he is behind on a lot of previous jobs before yours the face amount of the bond may be committed to other previous claims, so your protection there can be less than you think. Ditto if he has more work on the books than the bond face amount, which unfortunately is not illegal in many states, so he might be substantially underbonded - meaning getting your claim in before others in the same boat as you might be important.

If the total project cost was not firmly tied down in the contract (as a firm amount, not an estimate), it should be amended to do so now - including negotiation (or denial) of any overruns he has incurred or change orders he desires, so he is not running on an open-ended checkbook. Lot harder to do now than before the job starts because he has you partly over the barrell with the unfinished job, but should be done otherwise he has carte blanche to keep coming back for more and more added costs prior to completion.

Also - if you have a home improvement loan out on this job (though sounds like not if he has gotten ahead of you on payments) the lender's building loan officer would get involved too - likely shutting off further access to the loan until he is caught up. If you allowed a progress payment prior to completion of the required progress criteria for that payment, YOU could be in trouble as well, for certifying to a payment that was not properly due - so discuss that with the attorney too if that is the case.

Here also are a few links to similar situation questions, with responses which might help -

Answered 3 years ago by LCD

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