What is the best way to structure payment in a remodeling/construction project?

Disclaimer this question is about larger remodeling projects that can take several months.

When it comes to payment, the challenge is reconciling the homeowner's risk of making sure the project is completed properly, with the contractor's risk of getting paid in full.

We've seen several different models:


	50% upon project start / 50% upon project completion.

	1/3 up-front / 1/3 half-way through / 1/3 upon completion.


What have you found to be the most effective and fair ways to structure payment?

The two models mentioned in the question simply aren’t legal in California, where for almost all residential remodeling projects, the law does not allow contractors to accept payments in advance of work or materials delivery, except for an initial down payment of 10% or $1000, whichever is less. And the payment schedule is required to describe clearly the work for which payment is made. So payment schedules in California - at least those that follow the rules - tend to be more detailed than in other states, with references in the payment schedule to specific work items completed and materials already delivered to the site. Some contractors invoice more frequently and in smaller amounts, others less frequently and in larger amounts, but both can only bill for work already complete. It often depends on the relationship between the homeowner and the contractor.

Yes, if you are in Ca., Robert Cram has given you good advice.

I am a Ca. Contractor and I always bill for the $1,000 or 10% upon acceptance of proposal. Then I structure my draws depending on the size of the job. Larger jobs may have 8-10 draws due as progress is completed. Most of my jobs are more in the 4-6 draw range with the due payments very clearly spelled out .

If you have a good lawyer they should be able to tell you the best/most commen way. How ever its up to the company what they want down and when, That is in only states that don’t have rules on that or that are more open, I would think the most common is 50% on materials being dropped then 50% at completion.

In PA, I usually get 50% down and the balance at completion but jobs that are over $10,000 I try to spread out the payments based on how far we get in the project. The customer is usually okay with the 50-50 split in my experience.

The best way that I’ve noticed to be fair not only to the home/business owner but contractor as well is to get 50% up front at the time of contract signage. That will most likely cover materials and some labor for the start of the job. Then another 25% after a pre-wire and/or structural work is finished ie. framing and sheetrock. Finally the last 25% at completion of the project. This method allows both parties payment timeline to be at about the same point so neither party has too much money layed out at any point during the project.

There’s really no “One size fits all” answer to this question.

As every job has it’s variables, I structure my draws acordingly to ensure I can cover material and labor costs throughout the job while sprinkling my profit and overhead into each draw. Most larger jobs are broken up into 6-8 draws with the last being a 5% retention due when all work is complete and all inspections have passed.

A payment schedule based upon completed inspections is a good model to follow. This would probably work in any state. A construction schedule should show where inspections for various trades will fall. This way, the contractor is assured of payments to cover his costs as the project progresses. No full payment for any part of the project should be paid until all inspections for the project to that point have passed. When the job is completely done, you should still owe the general contractor enough money to be leverage for him to return for any immediate call backs. Stipulations for Final Payment (and consequences for non-payment) should be a separate clause in the contract.

Wes O’Dell Contracting

Colorado Springs, Co.

I’m a contractor in Florida and the best results for me have been to receive 10% down and then 50% once the project is half finished and then 20% once one third of the work is done, and finally the balance of 20%. This is fair and balanced throughout the project with not only the homeowner, but also the contractor.

First of all most projects and contractors should ask for no more than 20% down. The balance should be paid as work is done based on a specific schedule . For example $20,000.00 price for a pool . Deposit would be $2,000.00 Balnce of $18,000.00 would be paid 30 % at excavation 30% at gunite 30%at deck delivery 10 % at finish.

The bigger issue here is the issue of trust and the contractor’s integrity. I highly recommend talking to your contractors references. If possible, ask to get the names and contact info of the contractors last two completed projects. Like the other responses, each contractor works differently. We explain that we ask for a down payment so we can purchase as many of the materials up front…this helps us keep the project moving smoothly and within the time line that we communicated with the home owner. Typically we ask for 1/3 down and have a detailed payment schedule outlined in our contract. For smaller projects that will take less than two weeks, we may ask for a 50 % deposit. Do you home work on the contractor and if you are feeling uncomfortable with the contractor and/or his depost request, listen to your instincts and talk to them about your concerns. We feel that communication is paramount in establishing trust and are commited to working out every detail with our clients. Call us to discuss your project!

We take 10-15% deposits on labor. The rest of the payment schedule is based on progress payments. Either the payment is due upon completing a task or, if the task is larger, there is a payment due upon starting that particular task and a payment upon completion. Most customers really like this way of paying because it is comforting for the contractor and the homeowner since noone is ever really ahead of the other. You write more checks, but its worth the peace of mind!

One example - where a project that takes a month to complete - I normally recieve 30% upon signing a contract, 30% by end of first week, 30% 2/3 of the way to completion and 10% upon completion. I also don’t ask for the deposit until the project is 2 weeks from starting.

In the event that I sign a contract months prior to project starting, then I will ask for 5 or 10% down and when the start of the project is 2 weeks out, get the balance to bring deposit to 30%. At 30%, that deposit doesn’t cover all material or any labor.

Being an air-conditioning contractor in Arizona 70% does not cover the costs for a new system. I have a performance bond but most people don’t feel good about more than 50% and that dosen’t cover even the out of pocket costs for materials. On repairs it is after the job is done and their up and running.