Contractor "down payment" - Labor only

[AlM]

Hi Folks -

It's been a while since Shae and I posted updates - mostly as tearing down is easy and fast - rebuilding is much slower and harder (well - for us).

We're hiring some of the work out to speed things up, and have a question for both the contractor's here as well as any homeowners that hired labor to help. Our question is:

The guy we like the most, want's 30% of the total job price up front. I've paid this in the past when dealing with roofing, etc, where materials are incorporated into the payment. In this case, we're providing all materials so this is truly labor only. Yes there needs to be trust on both sides - and we like this guy - but it leaves us truly lopsided in the equation as he'll have a substantial payment up front.

Any thoughts? You can always PM us/me if you don't want to put an answer here.

Thanks!!!!

Al & Shae

[GraceNC]

Don't pay a down payment for work not completed.

Here are some things I found...

Contractors do not have to wait for the entire job to end before being paid. A "schedule of progress payments" should be included as part of the contract to insure that the contractor - while fronting the materials and labor - is not strung out financially. Never sign a contract that does not have a detailed progress payment schedule.

Other sites I found say 10% labor as a down payment is sufficient.

[JD]

Each state's Contractor License Board (or the equivalent of) sets the maximum deposit amount that a contractor can ask for. Most states, like here in California, is 10% or $1000.00, which ever is lower. So $50 for a $500 job and $1000 for a $15,000 job. So there is a legal limit and if that limit is 30% in your state, then he has the full right and should charge the 30%. But that sounds like a high deposit percentage. The contractor's license board does not want you to be invested more than the work you received, except for that initial deposit. When a contractor sets up a partial payment schedule to get paid as they are working the job, the total of payments is not supposed to exceed the amount of labor and materials already performed and/or delivered to the job site.

That being said, you might want to find out what that legal deposit amount is with a quick google and then just ask him. The state's deposit amount is 10% but you are asking for 30%. Is it just that you need the cash now for something else other than our job? Maybe offer him the legal amount and tell him he can get a partial payment halfway through the job, or X amount at the end of the first day or something like that.

Many contractors in my area ignore that minimum deposit amount. Seems like half down and half when we are done is common. I have had jobs that were bid at $10,000 and the materials cost was over $7,000. I really don't like having $6000 of my money hanging out there for a month or so waiting for product delivery and scheduling. But in your case, the contractor has no investment, so I don't know why he is asking for a 30% deposit. But if you have a good contractor that you can trust, work things out to where you are both comfortable.

[AlM]

Thanks to both of you for responding. JD, we looked and read through (believe it or not - took an hour+) the contractor laws in SC - and don't seen anything about a maximum on the deposit. Regardless - although we really like this particular contractor - we just can't get past his requirement for that much up front for labor. We've offered a lessor amount (10%) - with increased payments tied to progress points - but he's holding firm on the 30% up front. I hate to have to pass on him - but - no other option I think at this point. Talking to him again today so we'll see. We simply didn't know if it was common practice or not for labor only jobs....

Thanks so much!!!

Shae & Al

[JD]

I did a quick search on some contractor forums and the best I can tell, S.C. does not regulate the amount of down payment, which in my opinion is not being very protective of the citizens. I guess there was a bill or earmark that tried to correct this, but it did not pass.

So, if he is a good contractor and you trust him, it may be best to give him the deposit. I have done pretty well through these bad economic times and that is because I have a very loyal customer base. I know if I was not available to some of my customers, they would feel pretty lost when they need work done. I hate to say it but, there are a lot of substandard and/or unethical contractors. When people have received sloppy work or worse yet have gotten ripped off by a contractor, they tend to really hold on to a good one when they find one.

Good luck to you on this project and please update us on how you end up contracting the job and how it turns out.

[Dean3]

I find it amazing(or maybe odd)that during these tough times this contractor isn't chomping at the bit to get the work and willing to take 10% and draws(payments) as the work progresses. If you like him because he made a good impression I'd be leery,if you like him because he worked for and treated you right in the past then that might be ok.

Often,not always,I ask for nothing up front,but,I explain that when I'm done I need to be paid. For my best/biggest customer things are a bit different,I can get a nice chunk of change when I need it whether working hourly or not.

[flcruising]

Have you recieved any referrals from him?

[ponch37300]

Just out of curiosity how much is the total job? Did you get more than one bid? Was this contractor the lowest bid, if so by how much?

I would not have a problem paying a 30% downpayment for a good contractor. I think the beggining of the job is in the contractors favor but you should set up the pay schedual in the CONTRACT to end up in your favor. By this I mean you should pay the 30% up front and then make 10-20% draws to the contractor but make sure you hold 10-20% of the contract price till after the job is done to your satisfaction. Or if you want tell him you will pay the 30% up front but then you are going to hold 30% until the job is done to your satisfaction.

[JD]

I think a small deposit is appropriate when contracting work. It helps bind the agreement. But the 10% or $1000, whichever is lower, is the proper amount imo. The license board here feels that if a contractor cannot cover the cost of materials (either cash or bank loan) he should not be taking on that big of a job.

[flcruising]

I agree JD. And this guy isn't supplying any materials either. 30% for labor that hasn't even begun seems like alot to me.

[AlM]

Some more facts for you folks. Yes, we have multiple quotes, he's close the the bottom in terms of price - and has referrals (for whats it's worth) - and advertises locally a lot. He presented himself well - said all the right things - and we grew to trust him the most. Having said that - he won't budge from his downpayment requirement - but look below for his "justification". Total job is $7800 (in labor).

When pressed for why the large downpayment on a labor only job, we got this:

Insurance 340
Bond 780
lodging 290
wages 1200
meals 400

total expense $3,010

So, he's asking us to cover his upfront insurance costs, bond cost (in SC you need to have a bond for work over 5k), food, lodging (he's 2 hours away from us) wages.... Doesn't make sense to me - and while I am flexible (I would pay the first week's wages as a deposit, then make progress payments based on completed work) - I can't understand why we'd be asked to front everything else...

So, we've decided to pass on him - which - makes us kind of sad.....

[JD]

Well, I hope you find a contractor that you are equally comfortable with. That really is a shame since in the end it is all the same amount of money for both of you. But the 2 hours travel aspect makes things a little more understandable. If he is like me, I don't want to travel to a job and stay in a motel. So at this point he is dictating terms that he is comfortable with.

Still, your point is very valid. 30% is saying he does not trust you but must trust him. Then his mentioning a bond and insurance really stretches that trust, because these are yearly responsibilities for the contractor, not job costs on any one job. Labor charges is a part of doing the business. How can you expect to have employees if you cannot pay them. Seems to me that a $780 deposit should cover his hotel and food allowances. With $340 in hotel and $400 in food, he must have 4 guys in one room or they are eating very well.

As a contractor I would like to point something out here. I don't know the process in every state, but I am sure all states are similar. In order for me to get a license, I have to be fingerprinted and pass an FBI background search. Of course there is passing the contractor's mechanical and law exams, but then before issuing a license, I must post a $12,500 bond. The license in connected to a physical business and home address. While this is certainly not a 100% guarantee that someone is not lying to you about their license status, it does give the customer facts to match up to be sure their contractor is legit and in good standing. So the surety bond and possible license board fines and imprisonment laws gives the customer a certain amount of safety when contracting without doing anything at all. You can also get a history of all license board actions taken against the contractor as well as their insurance history. But on the other end, if a customer refuses or cannot pay the bill, there is a long legal process to go through to just get a settlement, be it a mechanic's lien or law suit. Then collecting on a lien can be fruitless if the customer has no assets or has them well hidden.

[Lorne]

Maybe, just maybe, he has had problems getting his full payment from other jobs in the MH repairs, but doesn't want to insult you by fully explaining.

There are a lot of deadbeats around, both on the contractor side and customers.
You sound like the good folks. This is a hard one to decide on.

[AlM]

Lorne, yeah, we thought of that also - there had to be some trust on his side that we actually had the cash to pay. So, we offered to give the full amount to a third party (lawyers where we live are super cheap - imagine that - LOL) so he could see we not only had all the money - but all he had to do was do the work - and get it. He wasn't interested in that arrangement - and held fast to his down paymnet requirments right to the end...

If nothing else, it's taught us a lesson (or two).

Can't thank you folks on this site enough for the quick advice (as always).