A Modern Approach to Payment Schedules
Many remodeling and building payment schedules are poorly conceived and written. They undermine the relationship between the owner and the contractor, and they are useless when questions or disagreements arise. One of the most common sources of tension between a homeowner and a contractor is not being able to tell what’s been paid for, and what hasn’t. That question arises when the scope of a project changes, when a contractor has to leave a project for any reason, when an owner needs to stop a project for financial reasons, when the schedule changes, and when an owner and contractor simply need to get on the same page about the status of the project.
Once Upon a Time
In 1990, the payment schedule for a $25,000 bathroom remodel might have looked like this:
June 1 – $10,000 down payment
July 1 – $7,500 progress payment
August 1 – $7,500 final payment
Then, California law outlawed down payments larger than $1,000, and required payments to reference specific items. In 2008, the payment schedule for the same project might have looked like this:
June 1 – $1,000 down payment
June 2 – $9,000 payment to get materials
July 1 – $7,500 for rough and partial finish work.
August 1 – $7,500 final payment
But this really does’t improve things – although it’s a common trick, the next-day $9K payment for materials isn’t allowed, as it’s just a transparent attempt to break the rule about down payments, and California law also only allows contractors to accept payment from homeowners only for materials already delivered to the site and work already completed. And the payment descriptions remain useless.
A Modern Approach
Now, here’s a payment schedule for the same job, a little abbreviated, but similar to ones that I have used with my customers:
|Down Payment||Upon contract execution||$1,000.00|
|Permits||When all permits are issued||$600.00|
|Demolition – remove all existing finishes||Upon contractor’s certification||$1,568.00|
|Repair dry rot in floor and walls, replace subfloor in repaired areas||Upon contractor’s certification||$1,127.00|
|Rough plumbing||Upon passing rough plumbing inspection||$3,400.00|
|Rough mechanical||Pass rough mechanical inspection||$840.00|
|Electrical rough||Upon pass rough electrical inspection||$1,020.00|
|Shower stall rough install||Upon pass shower stall inspection||$1,400.00|
|Building OK to cover||Upon pass building OK to cover||$400.00|
|Vanity Install||Upon pass building final inspection||$2,200.00||See note for payment of allowances|
|Plumbing finishes – WC, vanity, shower||Upon pass plumbing final||$4,800.00||See note for payment of allowances|
|Electrical finishes||Upon pass electrical final inspection||$1,960.20||See note for payment of allowances|
|Shower tile||Upon pass building final inspection||$1,500.00||See note for payment of allowances|
|Shower door||Upon pass building final inspection||$2,700.00||See note for payment of allowances|
|Tile floor||Upon pass finish electrical inspection||$1,200.00||See note for payment of allowances|
|Wall and ceiling finishes, including sheet rock, paint, tile wainscoting to 42″||Upon customer certification of item complete||$1,476.20||Wall tile is allowance|
This payment schedule is long and detailed, maybe annoyingly so, but that’s exactly the point. Additionally, my payment schedules are accompanied by other contract documents – plans and specifications, lists of allowances, etc. – that clarify the meaning of each item.
While harder to read, this detailed schedule is much better for you and your contractor:
- If I’m your contractor, we can walk around the job with a list of payments made, and we can say exactly what’s been paid for, and what hasn’t. We’ll be on the same page.
- The payment schedule is part of the contract, and it therefore represents our agreement about the values of the individual items. My contracts always specify that these are agreed values, not estimates or appraisals. If your brother-in-law says that he could have gotten the shower door for less, I’m not changing my price, because you agreed to pay me a certain amount for the door and the labor to install it. If a vendor has problems delivering an item, and I have to pay much more for the item, even losing money on it, I can’t charge you any more than our agreed value. Both types of events occur, and the uncertainty or risk is why I add a percentage for profit to all my work.
- As I understand it (and I’m just a contractor, not an attorney), California law requires me to write a payment schedule that is detailed and clear. If that’s the case, why not actually be detailed and clear?
- The invoicing part of the schedule explains when I will ask you to pay me for each item. I invoice my customers weekly; the invoice includes all the items whose invoicing events occurred during the last week. This makes the financial part of the project much more predictable, for you and for me.
Question: This type of payment schedule doesn’t have a big final payment that I can keep from the contractor until I’m happy. Everyone, from licensing agencies to my mother, says that I should withhold final payment until I’m completely happy. Why don’t you do that?
Answer: That’s right; this contract doesn’t have a fat final payment. I ask you to pay me for the work I do, in the amount of the agreed value of that work, soon after I do it. If that doesn’t seem fair to you, or if you don’t trust me to finish the job correctly, then I’m not the contractor for you. As far as promising that you’ll be happy, I don’t make that promise, nor will most smart contractors.
Question: Isn’t it a huge amount of work to create this type of payment schedule?
Answer: No, not really.– all the work that goes into a quote is the same work that creates the payment schedule: how much will materials cost, how much labor will it take, what is my profit? If your contractor can’t write a good payment schedule, do you think he or she can estimate the work correctly?
A detailed payment schedule is a sign that the contractor has carefully looked at the work involved in completing your project.