Paying Contractors

We have paint and texture on all drywall at Blue Ridge, but we seem to have lost a week in the process somewhere.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-01-23.

The Blue Ridge project is taking longer than expected. Don’t they all? But the texture is on the walls and painting has commenced.

As best I can tell, we are about a week behind schedule without having encountered any serious delays, just a series of small ones. But, as with pennies, small delays add up.

This situation is an example of why you should pay your contractors on completion of tasks, not on a time-based schedule—no matter how good they are or how much you trust them. Unfortunately, we agreed to weekly payments on this project, mainly because we had too much going on, had our primary contractor back out of bidding because of too much work already booked, and urgent relief at having found a recommended GC who was willing to start two weeks earlier than anyone else. Not to mention the distractions of the Christmas season.

All of that now leaves us in a situation where we have to renegotiate the payment schedule at the end of the project.

When you pay on task completion, you risk having your project become a lower priority than “more lucrative” projects. On the other hand, paying on completion guarantees you won’t be paying for undone work, but it doesnt guarantee timely completion. Either way, delays increase your holding costs during a project.

Here are some lessons we’ve learned over time:

• Have your contract written so you pay on completion of a task rather than on a schedule.
• If the contractor is furnishing the materials, keep the upfront payments minimal, but reasonable.
• Keep tabs on the work as it progresses, and don’t be shy about asking questions.
• Always plan on paying at least 10% more than the bid. There will always be things you didn’t know about when the project went out for bid.
• Plan for at least six weeks of holding costs beyond the scope of the project. There are almost always delays in the renovation and sale processes.
• If you plan for a longer, more expensive project, you’re in good shape if it comes in on time and on schedule. The inverse is not true.