If you’ve ever completed a construction project for your business, you know money is a key concern – and it can be a tricky topic to bring up with a contractor. You most likely have questions about financing a commercial renovation or remodel, such as should I pay for contracting work before it’s done?
In the spirit of transparency, we wanted to unpack this question. In short, a good contractor will require a deposit upfront and smaller payments dispersed throughout the project. But understanding pay structure can be complicated. Continue reading to learn the nuances of contractor payment schedules and the deposit limit in Virginia.
Read the construction bid
Carlton Building Services always recommends getting bids from multiple contractors. When looking at bids, there are two sections that matter to your wallet. The first is the overall project estimate.
All project estimates should be similar to one another. If one is significantly lower, it’s easy to want to choose that option and celebrate how much you’re saving. However, that may not be a prudent choice. If a construction estimate is lower than others, it’s probably too good to be true.
A low estimate means the contractor is either underestimating in order to win the project, won’t do a high-quality job, doesn’t intend to finish the project, or a combination of all three.
The other part of the construction bid that impacts finances is the general conditions clause. Along with outlining important parameters around how a project will go, this clause estimates fees for any unforeseen expenses. Not all contractors include this clause, and it may make their contract bid seem pricier, but it’s a sign of a transparent contractor who had a plan, no matter what comes up.
Paying the deposit
Most contractors require a deposit, though this deposit shouldn’t be for the majority of the project’s estimated cost. In Virginia, there’s actually a 33% cap on construction deposits. If a contractor requires more than the legal limit, they may be a bad contractor.
Few, if any, contractors will not require a deposit. That’s because the initial deposit helps contractors purchase materials, pay their workers, and provide project oversight. It’s also a goodwill gesture on the part of the business, indicating they have already invested in the project.
A reasonable deposit
A reasonable deposit depends on the project scope, including the materials a contractor needs to buy. As we’ve stated, it shouldn’t be more than 33%, though that amount can vary. Reputable contractors are also willing to negotiate on scope. If you have any financial concerns at the beginning stages of the project – or at any point during the project – bring them up with your contractor. Money questions are always easier to address sooner rather than later.
Creating a payment schedule
After a deposit is paid, work will commence. Most likely, your contractor has provided you with a construction timeline at this point. A good contractor will also provide businesses with weekly updates, which will include any proposed budget changes and reminders for upcoming payments.
The exact frequency of payments can differ from contractor to contractor. Some invoice monthly, some quarterly, and others weekly. They also may have different deadlines for payment. Net-10, net-15, net-30, and net-60 are common ones. On these payment cadences, businesses must pay for invoiced construction work 10, 15, 30, or 60 days after receiving an invoice.
Budget may change
Construction is an extremely volatile industry. Subcontractors pull out. A client decides they want a different material for a product. Supply chain issues mean a certain flooring type is no longer available. Like in life, expect change when working on a construction project.
As changes crop up, the budget may have to be adjusted too. For example, our team partnered with Two Maids and a Mop on a renovation project. We applied for multiple permits and all were approved, except the plumbing permit. Getting permit approval required working with their landlord on putting in a new water meter, which added unforeseen time and costs to their project.
While these changes are often unavoidable, that doesn’t mean you have to navigate them alone. Our team helped Two Maids and a Mop understand how the new water meter impacted their overall project, and we walked them through options. Any good contractor would have done the same.
Your contractor shouldn’t go ahead with the budget change before consulting you. Remember, you are a partner in the construction process and should be in the loop on all budget and timeline concerns.
If you’re in Hampton Roads, Virginia Beach, Norfolk, Chesapeake, or surrounding areas and are in need of a commercial contractor, consider Carlton Building Services. Our team specializes in quality renovations, repairs, build-outs, and remodels. Plus, we’re committed to working with our clients as partners, and the aim of that collaboration is to finish on budget and on time.
Frequently Asked Questions
Should I pay a contractor before the work is done?
Typically, a contractor requires a deposit before they get started on your project. Most states have limits on how large a construction deposit can be. In Virginia, for example, the limit is 33%.
Is it normal to pay contractors upfront?
It is normal to pay a portion of the construction estimate upfront. Typically, this is done through a deposit which gives a contractor some capital to buy materials and hire workers for the project. Along with a deposit, a contractor should provide an estimated fee for the entire project upfront too.
What are typical payment terms for contractors?
There aren’t typical payment terms all contractors use. Most work on payment schedules where smaller payments are made throughout the construction project. Contractors should be upfront about what their ideal payment schedule is and reputable contractors will be willing to negotiate on the schedule if needed.
