When to Withhold Payment From Your Contractor

Repairs are expensive and troublesome. The average renovation budget these days is closer to $20,000 , but even a modest bathroom renovation is a major investment for most of us. But money is only one reason home improvement projects stress us out, and another is the contractors we hire.

Somehow, despite checking licenses, connections, and a strong network of reviews and recommendations, hiring a contractor to work on your home often feels like a roll of the cosmic dice. Sometimes you get an amazing professional who amazes with his skill and never deviates from expectations – someone who always shows up and leaves the site cleaner than when he arrived. However, sometimes you meet a sociopath who acts like you are paying them not to complete a project.

It really can’t be stressed enough: the only direct leverage you have over a contractor is money. But it can be difficult to judge when to pursue the nuclear option and stop paying them, especially if they are still working and making gradual progress.

Reasons for stopping payment

Assuming you’ve signed a contract that includes a reasonable down payment for the work and a clear payment schedule tied to project milestones (you did that, right?), there shouldn’t be any surprises. When the contractor completes a certain phase, you release a percentage of the total project cost and your contractor moves on to the next phase.

When this orderly progress is disrupted, money becomes your main tool to get things back on track. Here’s when to delay your payment:

• Requests for surprises. If your contractor suddenly asks for more money so he can buy materials or pay subcontractors, don’t agree. As former contractor Tim Carter noted , reputable contractors never have to pay their suppliers upfront for materials, and they don’t pay their subcontractors upfront either. Requests like this indicate that they either accepted a small down payment and are now trying to quietly change the terms, or they are not very good at business and need cash to stay in business. Either way, it’s time to insist that they reach the next stage before you pay more.

• Delayed start. You signed the contract and made the down payment. After several months, nothing or only minimal work has been done. If the deposit you paid to your contractor was large – 50% or more – your contractor may lack motivation since they have already made a profit without lifting a finger. You may have to take other steps , but at a minimum, refuse to pay any further scheduled payments until they are back on track.

• Disappearing act. Associated with delayed start is the pleasure of having your contractor disappear on you for long periods of time. If you go days or weeks without hearing a peep from them and then they suddenly show up at random times, withholding money will be your most effective tool for insisting they stay on schedule. If they demand extra payment every time they come in to do a small job, you should definitely withhold payment, as that is likely their main motivation for coming in at all.

• Inflated expenses. Part of what you pay a contractor for is their experience in the field, which should include knowledge of what materials and labor will cost. While there can always be surprises if everything on your project starts to cost more than you were originally quoted, it’s time to at least temporarily hold off on paying and talk to your contractor about revising the estimate and perhaps getting concessions from them; It’s not your fault that they don’t know how to calculate costs correctly.

  Remember: it is not your responsibility to ensure that your contractor makes a profit from your work – he should have given you an accurate price from the very beginning.

• Crappy job. This may seem obvious, but it is vital that if the work being done is not to the expected standard, your only option is to refuse to pay for it until it is fixed. Even if your contractor seems reasonable and pleasant and promises to make fixes, don’t pay them a penny until those fixes are implemented.

• End. Finally, when negotiating a contract at the very beginning, make sure you have a “holding” final payment that will not be released until everything is 100% complete—checked, signed, bugged , and cleaned up. This will be your last lever to ensure that there are no problems that your contractor promises to deal with someday. Do not make payment until you are absolutely sure that the work is completed and you are happy with it.

Considerations before withholding payment

When withholding payment from a contractor, it is important to keep a few things in mind:

• Make sure you understand the contract. Contracts protect both parties, so don’t focus solely on what your contractor needs to do for you—make sure you understand what you’re agreeing to, too. If you are late on payment, understand what contractual arrangements your contractor may need to make in order to make it happen, which could result in a lien against your home .

• Be ready. If things get really bad and you decide your best course of action is to keep all the money and fire the contractor, do your due diligence first. Read the contract to understand the exact termination process outlined therein, as well as review the work completed and note anything that remains to be completed. Then get an estimate of what it will cost you. You may not be able to get back the money you already paid the original contractor, so simply firing them might just let them walk away while you end up paying twice for the job.

More…