Contract Payments
DEAR TIM: You and other people constantly write about how homeowners need to protect themselves from contractors who take their money and perform shoddy work or no work and disappear. What about homeowners who don't pay for work? I have had several customers who nit pick a job to death and withhold tens of thousands of dollars until several small items are completed. I have bills to pay just like everyone else. What is a fair way to solve money problems between homeowners and contractors? Robin S., Kansas City, MO
DEAR ROBIN: Touche! Years ago, I was in a similar situation. I am convinced that hundreds and thousands of homeowners torment contractors for all sorts of reasons. Some of them are legitimate while others are based on past bitter experiences, lack of goodwill, and distrust of contractors as a whole. Unfortunately, there is a small group of very bad homeowners who simply wish to cheat contractors out of money just as there are deceitful contractors who abscond with hard earned homeowner dollars.
When I perform autopsies on these problems, I typically discover a common flaw. The contract between the parties is very vague about the payment terms and conditions. In some instances, wording allows contractors to get too much money in advance. In other instances, homeowners advance money to contractors in a spirit of good faith. Unless these homeowners are working with a contractor who has the highest level of professionalism and honor, the advancement of money before certain things are complete can be a recipe for disaster. The incentive to continue to work at the highest level of efficiency and quality has been removed once the money has been paid.
Contractors routinely present contracts to homeowners that contain loopholes. Imagine language that states, "Payment is due upon completion of work." Well, if I were a homeowner, I could feel justified in holding back the monies if the job were not completely finished. Imagine the nightmare of a job where $100.00 worth of exterior work can't be completed until the spring thaw yet $80,000.00 or more is due upon the total completion of the job. If both parties agree to the terms of a contract, then I maintain that they should abide by what the contract states.
There are countless ways to solve payment problems. Several have worked well for me no matter how large or how small a job might be. One element missing in almost every contract I have seen is a tiebreaker clause. It is wise for the parties to agree up front on an independent inspector who is willing to give a ruling as to the quality and completeness of work. In the event of a dispute between the parties, the inspector issues a written ruling that goes one way or the other.
I have found that it is very effective to state that progress payments are made on given dates for the work that is in place and completed to the satisfaction of the homeowner and/or independent inspector. A job cost breakdown that assigns a fair and real number to each aspect of a job is invaluable for this to happen in a fair way for both parties.
The homeowner has a given amount of time to make the payment after the bill is produced. Since the homeowner knows when monies are due, all inspections would have to be scheduled in advance. This allows the homeowner to feel confident the work is satisfactory as he writes the check to meet the deadline. The contract could contain language allowing the contractor to pull off the job if the money is not paid on time. No contractor really wants to do this for any number of reasons, but it limits the amount of financial exposure to a fixed sum of money. It also gives the contractor some leverage as very few homeowners want their job to be at a standstill.
Set standards in the contract, if possible and reasonable, with respect to work meeting the building code or more importantly set forth manufacturers' specifications. A benchmark of quality must also be established or you may never meet certain homeowner's expectations. The independent inspector may come into play in this event as well.
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