Question about contract progress payments... and what is appropriate...

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Fulthrotl

~Autocorrect is My Worst Enema.~
i'm running into language presented in contracts that goes like this:

i get progress payments based on my payroll hours submitted by
certified payroll, and the direct expenses (material) spent on the
job.

they pay 90% of submitted and approved charges.
no money up front at signing. zip. :blink:

final 10% w/n 14 days of certificate of occupancy.
no payments made with any funds other than owners
disbursements.

how common is this with the contracts you guys get presented?

what i've always seen is percentages at milestones.

20% at signing.
20% at underground
20% at rough walls
10% at fixtures hung
10% at trim out
10% at final inspection
10% at as builts furnished (retention)

the percentages and breakpoints can get moved to suit the job,
this is just an example.

in a 3 month, $50k electrical, you could be awful deep into it before
finding you have a problem.

there's some language in there as well about 72 hour of notice termination,
with corrective action to be solely borne by subcontractor, including contractors
profit. i'll look at that if i can resolve the payment issues, but at this point,
looking at the money first is important.

so what is appropriate and fair, based on your experience...?
thanks for taking the time to reply.


randy
 

JP490440

Member
Location
NW Oklahoma
A company I worked for for years went bankrupt over a contract like you described. Weekly draws on time and material. We were building 7 large hotels for them, if they would have paid the draws like they were supposed to...........everything would have been ok. The reality was between the 7 jobs there were 1000 change orders they didn?t want to pay for and they were always behind on the draws. The prints were crap and didn?t meet I.H.G. hotels standards or Hiltons standards, many changes.
When you get in deep you have to keep going or breach contract. It was a foreign investment group supplying funds and their general was M.O. don?t pay and then try to negotiate a lower price.

I think in the end the owners of my company ( father and son ) were so stressed they never wanted to have anything to do with construction again. The son went to bible college and the father was almost 70 and had an air force retirement anyway so he packed it in and went fishing before he ended up having a stroke.

If they would have been honest and paid the draws on time or at all, it would have worked out. But you are better off with money up front.
 

Rewire

Senior Member
you need a large job trailer on site then you front end load the material. As long as material is on site you should be able to bill for it. AN EC I helped out lost his behind on a similar set up it was also a hotel job must be something about them. His payrole draws were late and it put him in a bind then one was almost three weeks late . Make sure you have enough working capirtal.
 

don_resqcapt19

Moderator
Staff member
Location
Illinois
Occupation
retired electrician
If this is a hard money contract, they don't get your labor hours. They get billed for material onsite and percent of the job that has been completed.
 

cdslotz

Senior Member
Welcome to commercial construction.
It looks like fairly standard way of breaking down a progress payment request. Except they are calling for certified payroll, which is standard for Gov jobs or defense contractors.
On private jobs, I use a standard AIA schedule of values that I break down and fill out, and we agree or disagree on this breakdown before the job starts.
10% retainage is the norm. 30 day billing cycle is the norm.
Your milestone method is just a percentage draw that's typical for resi guys. And everyone has their own way of doing it.

Yes, on commercial or apartments that run months or years, you spend a lot of money before you receive your first check.
You have to be careful on a 3 month $50K job for a retail chain with a GC that travels around doing them. They hire local subs and you can be finished with the job, and the GC has moved on, and you are holding the bag.

This is why it is imperative that you work with reputable GC's that you are comfortable with signing a contract like that.
Also, it's imperative that you have a good line of credit before taking on jobs like that :)
 

GUNNING

Senior Member
You go to the store and get a loaf of bread. At the check out you say I will pay you 10% of the cost 30 days after I consume 10% of the loaf and continue that schedule holding back 10% till I see the final product. Then pay you the final 10%.
What do you think the manager would say?

Why not give the contractor a subcontractor agreement with itemized descriptions and charging them for it up front. I know it is not customary to do this but why not?
Why all the smoke and mirrors? Why not lock them into a contract?
 

cdslotz

Senior Member
This ain't buying and selling bread.
It's not electrical service. It's not residential electrical. It's not Craigslist truck slamming.
It's commercial electrical contracting.
It's the way it's been for the 34 years I've been in commercial.
People who don't have the cajones and savvy to get in should probably stay away.
 

templdl

Senior Member
Location
Wisconsin
Depend upon if you are in the banking business or not. I view myself nor the company that I work for as not being in the banking business and as such I am not interested in financing the cost of the material and labor that are used in a job. The cost of my labor and profit could be a risk that I can afford because it isn't money directly out of my pocket where paying for material and what it costs for labor that I have to hire is.
Considering that paying an invoice in net 30 days is an acceptable standard it is becoming more unlikely that you will get paid in net 30 days. Sometimes it's like pulling teeth as it slides to 60 days. I had one of the well know largest corporations that demands 90days and has the audacity to tell you that if you want your order to have to monitor their web sights to pick it up. They will not Email it to me. This is one of those companies that it has been well published that didn't pay any income taxs. In addition they determine what they price that they will pay, either accept the order take it of leave it, no negotiating.
Being a sales engineer not only was I responsible for handling the initial inquiry, submitting the proposal, negotiating, order entry, working with drawing approvals, expedition, change orders, etc, I was also responsible to perusing the collection of overdue payments. One customer in particulate was on a standard net 30 days term but failed to pay for at lest 90 days. The next order I quoted as 1/3 with the order, 1/3 upon release of the order and the balance paid before the product left my dock.
I guess what I?m saying is it may be based upon the size of the project, the length of time that it may take you to complete the project, the risk that you want to take by acting as their banker which may also be based upon their payment history.
 

Fulthrotl

~Autocorrect is My Worst Enema.~
This ain't buying and selling bread.
It's not electrical service. It's not residential electrical. It's not Craigslist truck slamming.
It's commercial electrical contracting.
It's the way it's been for the 34 years I've been in commercial.
People who don't have the cajones and savvy to get in should probably stay away.

well, balls are one thing. savvy protects them so they don't get cut off.

i've been doing commercial as a journeyman for about that long as well.

that is where my experience with progress payments came from, and they are
usually tied to milestones in the work, not to the hours needed to get to those
milestones. and to significant amounts of material being delivered... switchgear
gets a draw, fixtures on site gets a draw.

housing, on the left coast when i did it as a muppet, was draw for rough,
draw for final.

anyway, when i read thru all the sections of the contract, and interlinked them,
signing it as it sits would leave me zero options if things went poorly. actually,
less than zero.

i like the GC, and he seems pretty trustworthy... my experience has taught me
that i can trust my instincts on that. this contract is another thing. i'll have a
sit down with him next week to go thru my redlines and see if we can work
out something mutually agreeable.

i've gotten some good advice here, and elsewhere. based on that, i'll see how the
GC is at compromising on some of the stuff in that agreement that is pretty
onerous.

as for front loading the job and putting it all in a conex, that doesn't help me
much at all. i generate a liability of $22k in material, get paid $19,800 for it,
and i bear the risk for storing it, for free. no incentive for me to do that.

especially if you saw where the job is. i have no concerns that the bin would
be broken into.

they'd just bring an empty bin in its place, and take the whole thing. it
could be moved a quarter of a mile, and you'd never be able to find it
without a geotagging marker.

thank you all for taking the time to reply. it's helped me a bunch.

EDIT: something i didn't mention. this wasn't weekly draws.
it was monthly draws. so by the time you find out the first draw
is a problem, you are two months into a three month job, and
the fixtures have just been delivered...... slab's done, walls are
done, you have rough walls..... and you are in $35,000 material
and labor......
 
Last edited:

ccrtech

Member
This ain't buying and selling bread.
It's not electrical service. It's not residential electrical. It's not Craigslist truck slamming.
It's commercial electrical contracting.
It's the way it's been for the 34 years I've been in commercial.
People who don't have the cajones and savvy to get in should probably stay away.

check your states lien laws. Progress payments based on milestones can cause your receivables to go beyond the maximum # of days you can file a lien for work performed. Also there should be no payrolls required on a commercial project. I'm wondering, did you take the project?
 

gadfly56

Senior Member
Location
New Jersey
Occupation
Professional Engineer, Fire & Life Safety
This is the first I've seen progress payments against payroll. Did you give them a manpower loading chart for the project? What happens if you're really efficient, and you use less labor on the project than you projected; are they going to not pay the balance of the contract amount, or demand a piece of the action (which, we note, they put nothing at risk for) for you being a project managing wiz? Most GC's are nice guys, until they're not.
 

Fulthrotl

~Autocorrect is My Worst Enema.~
This is the first I've seen progress payments against payroll. Did you give them a manpower loading chart for the project? What happens if you're really efficient, and you use less labor on the project than you projected; are they going to not pay the balance of the contract amount, or demand a piece of the action (which, we note, they put nothing at risk for) for you being a project managing wiz? Most GC's are nice guys, until they're not.

what happens if i'm really efficient, i don't get squat for it till the end of the job.
and if anything turns to poo, i don't get it at all.

it's really simple. i want draws based on what i do. the contract wants
draws based on my documented labor and material costs, without
any profit included. if the job's half done, i want half the money less
retention.

i returned the contract with the stuff i won't sign crossed out, for editing.
ball is in his court. i'm still quoting, still getting work, still installing work.

still getting paid for work installed.

i'd like to do the job, but if the guy and i can't build a sheet of paper
and agree on it, nothing else is gonna work either. waiting to see what,
if anything transpires.

and not slowing down or looking back while i'm waiting..... i have a simple
prayer i use before most undertakings:

"God, if this is for the greatest good of all concerned, make it so, if not,
make it go, right the **** now."

i'd alter the prayer, but god really doesn't care what words i use, only
the ego cares, and it's petty, so i try to disregard it.

Disclaimer: don't use this prayer unless you can handle abrupt changes
of direction without warning. god operates in the present moment.
 

gadfly56

Senior Member
Location
New Jersey
Occupation
Professional Engineer, Fire & Life Safety
what happens if i'm really efficient, i don't get squat for it till the end of the job.
and if anything turns to poo, i don't get it at all.

it's really simple. i want draws based on what i do. the contract wants
draws based on my documented labor and material costs, without
any profit included. if the job's half done, i want half the money less
retention.

i returned the contract with the stuff i won't sign crossed out, for editing.
ball is in his court. i'm still quoting, still getting work, still installing work.

still getting paid for work installed.

i'd like to do the job, but if the guy and i can't build a sheet of paper
and agree on it, nothing else is gonna work either. waiting to see what,
if anything transpires.

and not slowing down or looking back while i'm waiting..... i have a simple
prayer i use before most undertakings:

"God, if this is for the greatest good of all concerned, make it so, if not,
make it go, right the **** now."

i'd alter the prayer, but god really doesn't care what words i use, only
the ego cares, and it's petty, so i try to disregard it.

Disclaimer: don't use this prayer unless you can handle abrupt changes
of direction without warning. god operates in the present moment.

Yes, or as I once read "If you want to hear God laugh, tell him what your plans are".
 

Hv&Lv

Senior Member
Location
-
Occupation
Engineer/Technician
I kinda agree with cdslotz about the contract payment terms. It sounds like a government contract under the CFR.
 
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