Payments during Renovation
If you’re this far into the renovation process you obviously know and have thought about the fact that things cost money, that’s life. It is important to understand that a project cannot adequately run if it is not adequately funded. Contractors want to make sure that the project keeps moving forward and that trades and suppliers are able to be paid for the work completed, makes sense right? So let us educate you on the process of payments that come along with a renovation so there are no surprises.
Making Timely Payments:
A typical payment process for a project will consist of a Deposit at the beginning of a project, Progress Payments throughout the duration and a Final Invoice issued at substantial completion of the project.
- Deposit: Deposit payments can vary depending on a contractor’s process but here is a breakdown of a typical process you can expect:
An initial deposit of 10% – 30% is typically collected before a project is scheduled into production. This is going to insure a spot in the schedule for you in within the timeframe discussed and agreed upon with your contractor. At the beginning of the project the contractor typically has to make many payments and provide the subcontractors with deposits themselves. This will help with making those payments.
- Progress Payments: Invoices are issued periodically throughout the project. If the project is being carried through on a cost-plus basis, invoices are usually issued around every 2 weeks for the work completed and supplier charges issued within that 2 week period. If the project is considered to be taken on under a fixed-cost contract then payments are usually made at certain milestones throughout the project. Contractors will often request that all invoices are paid within a certain amount of business days of being issued. If invoices are not paid within the specified timeline, the contractor and sub-contractors have the right to cease work until payments are completed. If there are discrepancies or misunderstandings of certain items on an invoice, the contractor may ask that the remaining costs are still to be paid while any un-certain items will be withheld from the invoice until the item is clarified.
Final Invoice: A final invoice will be issued, usually upon substantial completion. There may be some deficiencies outstanding at this point but work will be nearly 100% complete. This invoice will cover the final outstanding monies owed as per the construction contract. If the project is based on a cost-plus agreement, there may be residual items from suppliers and trades that will filter in after this final invoice due to their billing cycles and will likely billed separately.
Every contractor operates differently so make sure that you have a discussion about this process and fully understand the payment schedule of your contractor before proceeding with the project.
Stayed tuned to learn a bit about the change order process.