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How to pay for contractor services
May 14, 2009 by admin · Leave a Comment
I know small business owners all over the area are going to hate me for saying this, but I think we have to stop paying contractors up front and putting down deposits for future work. I know it might lead to some contractors being ripped off or jerked around by homeowners. But I don’t think the numbers will compare to the homeowners who get taken by contractors who are paid up front.
This idea isn’t original.
I am a member of a couple of investment groups in the area and I have heard horror stories about contractors walking away from deals they cannot finish. Here is what happens. Homeowner Joe needs a tile job done in his house. Nothing too big, maybe about 2,000 square feet of tile. Joe has called around and tried to negotiate cheaper deals by getting several bids to compete against one another. The guy with the cheaper bid gets the job (nothing wrong with a cheap bid)… Contractor asks Joe for $2,000 upfront to buy the tile and at delivery of the tile wants another deposit. Contractor is scraping by getting side jobs (such as tiling) and does not have money to float the labor cost. The laborers get sick of not being paid ontime and leave your job halfway done.
In the meantime, Contractor has no money to hire anyone else, Joe needs the work done, and Contractor is embarrassed to pick up the phone and call or answer. A two week job turns into a 2 month job and the floor is STILL not completed. Joe now has to call in another contractor to finish the job, pay him from scratch, and now his cost to tile the floor ends up being equivelent to his highest bid prior to selecting a contractor.
The way to stop this is NOT to pay a contractor upfront. A good contractor will have the money to float the project and will have you sign a lein waiver. Now both the homeowner and the contractor are covered. If no lein waiver is filled out, contractor has no leverage. If you as the homeowner pay upfront, you have no leverage on time of completion either.
When looking for work done on your home, ALWAYS, ALWAYS, ALWAYS get a contractor that is in good standing and agree on a lein waiver as good faith.
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