Payment structure for new garage

[MRCLUNKER]

To anyone who can offer some advice.

I am currently in the process of getting estimates for a new garage addition. I have never been involved with paying for a project this size. I have pretty much decided on a contractor but he says he can not start this year because it is too late in the year, which I understand since I live in Michigan and winter is just around the corner. The garage will be built next spring. My problem is we are going to sign a contract in the near future and he wants 50% when the contract is signed and 50% when the job is finished. The total cost is about $26000.00 so that means $13000.00 upfront and about 5 months in advance.

I can come up with the money with relatively little problem but this seems like a lot of risk for me to have to take. I plan on offering $1000.00 when we sign the contract as a good faith commitment to the contract and 2 weeks before breaking ground, the contractor call me, and I will pay an additional $4000.00 when he actually breaks ground I will pay an additional $8000.00 for the total $13000.00 or 50%. My question is which payment structure is fair or would you recommend a different payment structure.

My concerns are 5 months in advance anything could happen, bankruptcy, death or any number of other things and I am out a substantial amount of money or at the very least a difficult time getting it back. I want to be fair with a limited amount of risk. What is the proper way to pay for a construction project like this?

Thanks in advance to anyone out there with some advice.

[pushkins]

50% is way too much, especially with a 5 month delay in the project start date (even then that's not guaranteed). There is a need for a deposit as it allows the GC to block out a time frame for your project and allows some measure to start the ordering process for supplies and other sub contractors. In my case I collect a deposit for the above reasons (never 5 months out...ever) but it's more to block out the start date, clients don't understand that as a contractor we block out a time to start work, if at anytime prior to that start date the client decides not to proceed or changes their mind and goes with another contractor, then now there is a blank hole in the schedule, hence the small deposit.
What I typically do in projects like yours is as follows (again 2-3 months out is reasonable, 5 is excessive but that will depend on the demand of contractors in your area.
10% deposit on contract signing
20% at ground breaking
20% at framing
30% at roofing
Balance on completion (and CO from the building department. CO being Certificate of Occupancy).
There can be variations on the payment schedule due to type of construction for example a brick finish is more expensive than siding so I would adjust the payment schedule to cover the extra costs, for example it might read 20% at cladding and 10% at roofing.

What were the other contractors payment schedule requests ?

[MRCLUNKER]

That was about it, just 50% down and 50% when complete. I also want to get a start and completion date in the contract as well. I know contractors need some leeway here but I am not certain how to word the start and completion dates in a way that gives me a reasonable time frame but also gives the contractor room to schedule etc. Any thoughts on that.

Note; the percentages you mentioned above for payment make a lot more sense to me. I just did not want to be unfair to the contractor as far as having sufficient funds to schedule the work. When this subject of payment came up when we first met to discuss the project the 50% down and 50% when complete is what he said and I balked a little bit and he said we could work it out. So this has really been the only discussion so far. He has submitted a quote and we have hashed out a few changes and are now ready to sign a contract so I am just trying to work out specifics. Hence, the question on this forum.

[pushkins]

The start date is pretty easy to word in there, you both pick a date and set it, leeway can always be given by (for example in the contract), two weeks prior notice if there is a delay to the projected start date.
Completion dates are much harder, weather can lead to delays of weeks sometimes, so a "projected completion date" should be estimated with the caveat regarding unforeseen circumstances like weather.

On the payment schedule, sit down and talk with your contractor, a good contractor should always be willing to understand a clients hesitation on paying out so much money so far in advance, perhaps suggest a small retainer now (to show intent and good will) with a larger payment as the start date gets a little closer (inside a month or two). Your GC is NOT going to order product months in advance, about the only thing done this much in advance would be plan drawing, the plans are submitted and permits applied for maybe a month in advance. materials are ordered in staggered deliveries as building progresses.
So an example of a mutually agreeable payment schedule might be:
10% on contract signing
20% at plan approval and permits obtained.
20% at slab stage
30% at roofing completed (dry in)
Balance on completion.

[MRCLUNKER]

Pushkins
As usual your advice is a great help. I just have a couple more things to ask about. First, I read about sub contractors going after homeowners when they are
not paid by the GC. Is this something I need protection from? I have read a little about lien releases and such but I do not know if this is something that is quite
prevalent or is overhyped.

Second, some people have told me that I should ask the GC about workman's Comp coverage. I plan on getting my homeowners insurance updated for the
new garage before construction begins. Does this protect me in regard to workmen related injuries during construction? I have verified the License for the general
contractor and it is valid since early 2012.

Thanks in advance for any help or comments.

[pushkins]

Some of your questions are going to be dictated by your state laws but as a rule....

Any supplier of product to your property most likely has on their invoices/statements to the GC that "they retain ownership of such property until such time that the invoice/statement is paid in full", this is a very prickly issue I know personally people who's GC filed bankruptcy during construction, the supplier of goods then sent invoices to the clients demanding payment (they obviously couldn't take back concrete or installed roofing materials for example), as strange as it seems the courts will side with the supplier and demand you pay them, even though you have in some way paid the GC. Liens are common place in the construction industry in cases of a GC that doesn't pay his/her subs.

I doubt your insurance company will cover any workers claims on site, almost always they will toss the ball back at the GC. Workers Comp. Ins. is only required by your GC if he/she has three or more full time staff, he/she IS responsible to make sure that any subs that work under him/her to have WC (if they have three or more full time staff).

[MRCLUNKER]

Pushkins
Thanks again for the info. I Appreciate the Advice.