What Is an Appropriate Pay Schedule for Construction Contractors?

Down Payments

• If you are hiring a contractor for a small job that will take a day and requires no custom materials, you should not have to pay a down payment for the work. Contractors usually do need down payments on larger projects or if you need custom materials, such as cabinets, to be ordered, since these are costs they will incur at the start of the project. Some states limit how much a contractor can request as a down payment. For example, Massachusetts limits the initial payment to either one-third of the total estimate or the cost of custom materials, whichever is highest. Check with your state's attorney general's office. In most cases, 10 percent of the estimate is a reasonable down payment.

Due Dates or Work Completion

• Although you can schedule payments to be made to the contractor on specific dates, as the homeowner you may want to protect yourself by scheduling the payments to be made after certain work has been completed. For example, if you are adding a room to your house, you might agree to pay another 10 percent of the estimate after the drywall and plastering work have been completed. With this approach, you can ensure you are not paying for work that is not being done.

Tiered Payments

• Your specific pay schedule will vary depending on what type of work you are having done and how long the entire project is supposed to take. If your contractor provided you with a detailed estimate, you can probably find what you need to know by reading through it. Look for major milestones in the building. For example, if you are having a room added then these milestones might include installing the HVAC system, putting in the flooring, installing windows and painting the room. Once you have decided on the milestones, agree to a payment of 10 to 15 percent for the completion of each. Make sure you leave a balance of 10 to 20 percent for the final payment after the work is completed. Alternatively, you can agree to 10 to 20 percent payments every week or every two weeks during the project.

Final Payments

• You should never pay the total amount of the estimate until the work is completed. As soon as the contractor receives payment in full, his motivation for finishing your home decreases. Plus, you lose any power to have problems corrected. In the contract, make sure you get to do a final inspection of the work before paying the remaining balance. If you are unsatisfied with any of the work, do not make that payment until the problems are rectified.