Although the contractor should only be paid for work that is completed to your satisfaction, he shouldn’t have to finish the entire job in order to receive payment for what he has finished, especially if the construction will take longer than one month.

WHEN DO YOU PAY YOUR CONTRACTOR?

Tie the number and frequency of payments to the amount of work the contractor completes – not to the passage of time. The average remodeling contractor can earn about $20,000 per month. If you divide the total construction contract cost by $20,000 you can set the number of payments he’ll get. For example, if your contract is for $100,000, he’ll get 5 payments – and you will want him to earn 20%, 40%, 60%, 80% and 100% respectively, before you will release each payment.

If he earns 20% of his contract before 4 weeks pass, good for him. Pay him, and thank him.

On the other hand, if it takes him 2 months to earn that first 20%, too bad. He doesn’t get a check until he’s earned 20%.

The smart contractor will understand that it is to his benefit to stay focused on your job and work quickly.

HOW MUCH DO YOU PAY HIM?

The amount he’s earned is not the amount you’ll pay him. It is standard in the construction business for the owner to withhold some money until the job is absolutely and completely finished.

"Retainage" is your safety valve. 10% of what he’s earned is held out of each check so that if, for some reason, he won’t be able to finish the job, and you had to hire a second contractor to finish the work, you would have the money to pay that second contractor a premium to warranty work he didn’t do himself.

HAS HE HIT HIS MARK?

It’s not just the amount he’s earned, but the time it took him to earn it – his momentum – that determines whether or not he’s going to get a check. If 25% of the construction schedule has lapsed, then he should be about 25% finished with the work.

WHAT HAPPENS IF THE CONTRACTOR GETS BEHIND SCHEDULE?

The reason tracking the momentum is important is that every day your contractor has men on the site he has labor costs. If it takes him longer to finish the job than he planned, he may end up with more expenses than he can bill you for. If you think of this from his point of view, when this problem becomes extreme, he will likely cut his losses and walk off the site, and you’ll be left with an unfinished project. You don’t want that.

If there is more than a 10-point difference between the percent of work complete and the percent of the schedule that’s lapsed, you are in trouble. For example: if 35% of the construction schedule has lapsed, but the contractor is only 25% complete, he has lost enough time that it will be very difficult for him to catch up and make a profit.

MONITORING MOMENTUM

If you walk the job once a week with your contractor and calculate the percent of each task that he’s finished at that point – then multiply the percent complete on each task by it’s total cost, you can easily calculate what percent of the contract he’s earned.

Dividing the number of days that have passed since the start-work date, into the total number of days in the construction contract will tell you what percent of the time has lapsed.

If those two numbers are within a point or two or each other, you’re in great shape. If not, you need to bring this to the contractor’s attention. Early warning is your best defense against an end-game disaster.

MORE INFORMATION

You’ll find lots more information about the home remodeling process in Managing a Renovation: Staying in Charge and Out of Trouble, our friendly and comprehensive homeowner’s guide to remodeling project management. Download the table of contents and a sample chapter, or go to the order form to purchase it.

We offer ready-to-use construction forms, including a complete remodeling contract, in our Bookstore, as well. Have a look.

And, you may want to look at our list of More Resources for some great design ideas.

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