Making Payments

Paying a Contractor

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Most disputes that occur on small building works are related to money and the timing of payments so it is important that there is a clear understanding with the contractor before the work starts on how much and when the payments are to be made. There are three main ways of paying for building work: up front, by stage payments or on completion.
Payments up front are not recommended! It is hard to imagine any circumstances where money should be paid out before the work commences. Some contractors or tradesmen may ask for an advance payment but it should nearly always be refused.

If a firm is so financially insecure that it can't to afford to fund the early stages of a project, it should not be in business. It would be extremely difficult to persuade such a struggling firm to return to the job later to carry out some remedial work!

Perhaps an advance payment could be made to a tradesman operating a one-man business who is well known to you and completely trustworthy. But even then you should not make a payment by cash or cheque. Most requests for advance payments are based upon the need to buy materials to start the job so, if you decided to help, open an account at a local merchants in your name and give the tradesman the authority to order materials on the account.
Place a ceiling on the account to match the value of the materials needed to carry out the work. The benefit of this arrangement is that if things do go wrong at least you would be the legal owner of the materials.

Paying by stages is the normal method when the value of the work is over say, £4,000. But there is a right and a wrong way to pay for work this way. The wrong way is to make the payments on a time basis. For example, if a house extension is worth £12,000 and the period for construction is three months and it is agreed that you will make three payments of £4,000 on the last day of each of the three months.

But due to the builder's inefficiency, bad weather and the late arrival of materials, the work is only half completed after month two. So the valueof the work done to date is £6,000 but £8,000 has been paid producing an overpayment of £2,000.

If things continue at the same pace only two thirds of the work will be completed by the end of month three, the value of work will be £8,000 but the payments will be £12,000, with an overpayment of £4,000. The situation then is that the builder has been paid in full but there is still a third of the work to complete! Can you imagine the energy the builder is going to put into finishing the job knowing that there is no more money to come!

So never arrange stage payments based on time. Never divide the contract sum by the contract period and pay the resultant figure monthly. Only enter into an arrangement that relates payments to progress.

Here is the right way to pay by stages. The work should be broken down into clearly defined sections and values placed against each one. Here is a typical breakdown for a house extension worth £12,000.

                               %           £      

Foundations               10        1,200
First floor joists           15       1,800
Wall plate level           15        1,800
Roofed in                   20        2,400
Plastered out              15       1,800
Completion                 25       3,000       
                               100     12,000

Contract Variations and Extras

Disputes over the payment for variations are common in the domestic construction market. It is not always how much should be paid but whether any payment should be made at all. You should appreciate that builders generally do not like variations to the work they originally contracted to do because they cause disruption and delay progress.

Three different contract variations.

First, you want your front door renewed and accept a quotation based on the type and size you have chosen. Just before the work is complete, you tell the builder that you want gold-plated door handles instead of plastic ones. You changed the specification so you must pay for it. You may even have to pay more than the difference between the cost of plastic and gold-plated handles if the builder has to make a special journey to change them.

Second, if you ordered gold-plated handles in the first place but the builder fixes plastic ones, it is obviously his error. He must either offer you a reduction for the difference in cost between the two or comply with your original specification.

The third type of variation is more complex. It involves the builder having to carry out work that is different from that originally envisaged and the argument is based on whether an experienced contractor should have foreseen the problem and allowed for it in his quotation.

For example, you want a couple of extra radiators fitted and you accept the quotation. When the contractor comes to do the work he finds that the floor under the fitted carpet is solid but he allowed in his quotation for laying the pipes between softwood joists. He asks for extra money for cutting chases in the concrete floor. Should he be paid?
Depending upon other circumstances, probably not. His experience should have told him to inspect the floor before he quoted. But what if he was replacing a bath and found that the joists under the old bath were rotten and needed renewing? Experienced or not, the builder could not have reasonably foreseen this and he should be paid for the extra work.
Some of the variations that occur are not as black and white as these examples and a sensible compromise must be reached. Try and avoid taking up an entrenched position because, if the dispute turns serious and lawyers become involved, guess who will be the winners in the end!

The valuation of variations can also be a source of disputes but a detailed quotation can help to reduce this problem. But there are bound to be occasions when the extra work cannot be valued by referring to the quotation or any other documents.

The only possible solution then is to ask the builder for a quotation for the extra work before it is carried out. You will be able to decide whether to accept the quotation or not beforehand. Unless you have complete faith in the contractor, insist on knowing the cost of extra work in advance. Don't accept ‘...we'll sort the money out at the end...' because that approach usually ends in tears.

You don't have to pay until the work is complete, of course, but you should know the likely cost in advance.

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