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Question DetailsAsked on 11/29/2011

What's the best way to pay a contractor for a big job? 10-20k?

I'd like to hire a contractor for a bathroom re-model that can take up to 4 weeks to complete. What's the most appropriate way to pay? I'd prefer to pay in 1/3 increments as opposed to 50% up front and the rest when the job is done.

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5 Answers

Voted Best Answer

Use a third party project manager.

If your remodel was designed by a licensed architect, you may be able to use this person if they have construction management experience.

1/3 is pushing it for a deposit, and 50% is too much for a project of this size. The contractor needs enough funds to file the permits, hire the sub contractors and order materials. The payments are to keep up with the work, not get ahead. It isn't fair to have the contractor use their own funds to order supplies & hire people, which is why you start with a deposit. After that, you pay for the work completed, not for future work.

Also it is typical to hold in escrow a specific amount; this is typically the profit from the job. This money is held (by you) to ensure the contractor completes the work. So you do not pay this amount until the job is completely over, all work done including clean-up and debris/tool removal. (Your architect would do this final inspection and make a recommendation on releasing this amount.)

Consider hiring an architect or licensed project manager. Here is why:

A 3rd party manager works to protect both you and the contractor.

They typically will even provide well documented/ proven contracts that you and your contractor will sign. These contracts will stipulate how the payments are made including initial deposit, time lines, penalties, punch lists items and arbitration or mediation requirements should problems arise. A good contract solves many problems; a contractor is going to present a contract that is in their advantage, where a 3rd party won't have such bias.

The architect will also ensure proper permits and inspections have occured to ensure the safety of the project.

Also, by having an architect or project manager who is an expert in construction practices, you don't have to worry about quality of work, pace of work, etc. Your 3rd party person will recognize how long items take to get done, if the work quality is good and if the items ordered are correct. They will also know how to motivate the contractor if they project runs behind schedule, and will have resources to complete the job if the contractor defaults.

As the work progresses, the contractor will submit to the project manager invoices. These invoices will be for materials ordered, man-hours, expenses, etc. The project manager will inspect the job site and ensure the materials ordred are on site, the work is done correctly, etc. They will then recommend you pay the invoice, pay part of the invoice or they will provide you a letter of rejection with a reason you are not paying the invoice. You are still paying the contractor, but you no longer have to know if 50% of the work is done, etc.

Contractors like this because they do not have to 'hold the hand' of the owner; they work with a knowlegable professional who represents the owner and they know they will be paid on time and have any issues explained without them needing to stop work to do it.

You also need protection agaist the sub contractors on your job. You don't want the job to be over, then have a sub contact you a month later stating they were never paid, so you are liable for the cost. An architect would have the general contractor sign lien waivers for each sub contractor. When the subs are paid, they sign the waivers stating they have no further claim to funds. This protects you from additional charges later.

There also is the issue of Change Orders. As the work progresses, there will probably be issues found that were not expected (IE Rotted floor boards, unknown features / pipes found, etc) that will need to be dealt with. Any time a change is needed that will cost the contractor money, a Change Order is issued. This document states the Change from the original contract, the amount of the Change and requires a signature from Owner and Contractor agreeing to the amount of money credited or owed. You do not want Changes to be made verbally or collected at the end of your project; these can equate to thousands of dollars and are impossible to argue after the fact.

Your Project Manager will be able to review the changes and inform you if they are necessary, over priced, etc. You can also take care of their costs with current invoices and not have them add up to the end. Your architect may also be able to provide a less expensive solution or no-cost option to prevent the Change Order. Change Orders can also bring a credit to you, so they will identify when a product is changed, something left off, etc that should be credited to your account.

As you can see, there is a lot to be said to have a professional architector / project manager overseeing they work to give you peace-of-mind and professional guidance. Most firms charge an hourly rate for this service, that often returned in better quality, faster project completion and crucial assistance when problems arise.

Good luck!


Answered 8 years ago by Kenny Johnson


To some extent I agree with Kenny's answer to this question but it isn't always necessary to have a separate manager in addition to your contractor. After all, that's what you are paying him for. Do your homework on him. Check him out until you trust him.

It is not unreasonable to have 1/3 increments on a job of that size but be prepared to pay the first third before he schedules or orders materials. The second 1/3 should come at about the half way point. if he needs a different set-up ask him why and go over his costs with you. He'll likely charge 15-20% overhead from his costs. He'll need to pay his costs as he goes along and make a little of that money to cover his general business overhead not directly associated to your job (licensing, insurance, vehicle payments and maintenance, broken tool replacement, office costs, etc.). Be fair and be candid. He should be as well and if he won't tell you what's going where find a new contractor.

Answered 8 years ago by Todd's Home Services


1/3 is not an unreasonable amount for a project of that size. A payment schedule is the best way to make you and the contractor feel good about the arrangement. Typically the payments are made after major accomplishments are complete. i.e. The plumbing, mechanical, and electrical roughs and finishes. It depends on the project though. The best way to ensure your welfare is to hire a licensed contractor. In AL that means a homebuilder. This varies somewhat from state to state but a business license does not count! References are where I would recommend you start. I own a construction company that specializes in large renovation projects and new homes. We always have an abundant amount of happy home owners who are very willing to give references and provide that information along with our home builder’s license and insurance policy upon initially meeting every prospective client. If the "contractor" doesn't offer those items, you should ask. If he doesn't deliver them quickly, run.

Answered 8 years ago by BuildingConcepts LLC


depends how big is the job .On big project your plan will work but on small projects very common 50% / 40% up on complition retainage 10% If you have to buy something like cabinets deposit 50% after COD.
Serge Construction & Cabinetry (919)295-4160

Answered 8 years ago by Serge Construction


I am a roofing contractor and a $10-20k job is not really a "big job". I have a $45k residential roof we will begin next week.

I structure my payment schedule in any number of ways depending on the cost of the job, ratio of materials vs labor, duration of the project, and how much trust I actually have in the customer.

For a $10,000 or even $20,000 project, if I had trust in the customer, I would require a 33% down payment at acceptance of the proposal. I would then require final payment upon completion of the work, which usually means a few days after the job is done I meet with the customer, inspect to make sure we didn't forget anything, and collect payment.

On larger jobs, I would require 25% down, 25% at material delivery, and final upon completion. Some commercial prefer to pay 30 days net, in which case the price goes up not less than 4.5% to gover interest I will have to pay on my line of credit. I'm Ok doing a job no money down in certain situations, but the price goes up to reflect my added costs of doing business as well as my increased risk.

At the end of the day, there has to be trust. I will walk away from a customer I do not trust, and I encourage every consumer to walk away from a contractor if they do not trust.


Answered 8 years ago by ReliableAmericanRoof


Contact the contractors state license board in your state and determine what the legal requirements may be for the size and specific type of work you will be performing.

Three payments of 1/3 ea (deposit, well define progress payment, completion) are standard for the vast majority of the work we do.

Also, dont be afraid to require that the contractor separate labor and materials in their quote. This way you can conduct apples to apples comparisons with at least three bids and have the option to search for the best prices on fixtures, flooring, etc. and wont be forced to purchase from the contractor at contractor prices based on the contractors vendors.



Answered 8 years ago by HMDhome

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