Some of the contractors want a big deposit up front before the work begins. Should I agree?

The short answer is JUST SAY NO… most of the time.

Here’s the issue: for the average minor construction job (like siding or roof replacement) or other common general remodeling or repair jobs that take only a few days to complete, there is NO good reason for a contractor to demand up-front money.  In fact, you should not have to pay anything until that part of the job is complete and you are satisfied with the quality of the work, and that assurance should be written clearly in the job contract.

There are a couple of legitimate exceptions, but usually contractors who ask for money up front are poor risks.  Here’s why: the most common reason they need up-front money is that they have bad credit with their suppliers, including (but not limited to) a record of skipping out on their debts and not paying for their supplies.  Or they may skip the supplier altogether and just disappear with your money.  Either way the result is bad… whether they have bad credit or no credit, if they have any intention to actually buy supplies, they have to pay their supplier up-front for the materials they will need for your job.

The better companies (the ones that actually pay their bills on time) don’t have that problem, because having good credit means they have worked out deals with their suppliers where they don’t have to pay for their materials until several days (or even a few weeks) after the materials are delivered, so they can afford to wait a few days for you to pay them.  If they are able to complete their job in less than a week or two, there should be no need for working capital to fund it.

Now, lets look at those two exceptions to this rule that you need to keep in mind:

(1) If you are buying a customized product that has to be special ordered with non-standard specifications (such as replacement windows, custom doors, cabinetry, shelving, blinds, etc.), then the contractor is required to put down a deposit to his supplier just to order the product, and that comes straight out of his pocket.  In that case, contractors have the right to protect their investment by asking for some form of deposit from you for those special order items, and you can usually provide adequate security with a credit card or a deposit of no more than 30% of the value of the items.  In rare cases, some high-end suppliers may require a larger deposit, but the contractor should be willing to provide documentation from the supplier to justify the request.

(2) If your job is going to take longer than 10-14 days, then it is okay to pay a little as the job progresses so the contractor can pay his bills. But be careful to maintain the upper hand and not pay too much.  For example, if the job is 50% complete, you can give the contractor no more than 30% of the contract price of the job, but only if you are happy with the work so far.  For large jobs that will go longer than a month, a payment schedule should be negotiated beforehand, but NEVER agree to pay the full contracted price before the entire task is finished, including cleaning up and hauling away all job-related debris.  Always leave the last 20-30% of the contract price to be paid only after everything is done and you are satisfied with the quality of the work.

Remember, the more you pay before the job is totally complete, the less power you have to make sure the job is completed to your satisfaction.

 

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