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Rawls007

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I went to sign a contract for an eight thousand square foot home and when we started talking about a draw schedule he threw a curve ball at me. He said he wanted to hold 10% of the contract price for a YEAR after final inspections were passed while I warrantied the electrical system.:confused: I told him I have never heard of such a thing and wasn't willing to wait a year on my money. His reasoning was that he let his last electrician wire 8 houses before he realized the guy was a flake. Now every one of the houses have problems and he cant get the electrician to come back and fix them.

I explained to him that we are a quality oriented company and are here to stay while maintaining a good reputation. I told him that I don't ask for my final draw until the entire house has been walked with the homeowner to verify that everything works. Finally after a little negotiating I agreed to let him hold 10% for 3 months to make sure all the bugs have been worked out. I didn't really like it too much but figured it was a decent compromise.
 
everything is negotiable, personally I would have told him to go jump in a lake, wanting to hold 10% for a year, lol..... You should just increase your price by 10% and then you will get a bonus in a year instead of waiting on what is owed to you.....
 
That just sounds all wrong to me. I've never heard of this either. Make sure that you get it in writing and signed.

If his last guy gave him a warranty and then bailed on it, thats hardly your fault.

If his last guy didn't give him a warranty, thats his own fault for signing a contract without a warranty.

We give a one year warranty from date of completion.
 
Rawls007 said:
He said he wanted to hold 10% of the contract price for a YEAR after final inspections were passed while I warrantied the electrical system.:confused:
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Many commercial contractors will want to hold 10% for a year to make sure you honor you warrenty. If they are not up-front with it then it's a good idea to put a clause in the contract stating that there will be no money held out ( payment in full ).

If they tell you up-front then you just up the price by 10% and if you ever see the money it's a nice surprise. :grin: :grin:

People find out about this quick when doing gas stations and some restaurants and other retail type jobs.
 
That's called a hold-back. I would never go for that unless I knew upfront and could charge that 10% on top of my bid.
 
Dennis Alwon said:
Sure-- tell him at 18% interest that would be fine....:grin:
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I like the interest idea. Maybe something like an interest bearing escrow account.
 
Chamuit said:
That's called a hold-back. I would never go for that unless I knew upfront and could charge that 10% on top of my bid.
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I agree, he can hold back if he is willing to pay the intrest. Typical GC tricks do anything to hold back the final payment.

Who is to say he will be around after the job is finished, we had plenty of GC's that once you finish, you can't reach then again for payment they are the ones that should bond, not you.

In our state we must give a one year warranty from date of completion, it's the law, and if we don't uphold the warranty, we can loose our license.

Is your state a non licensed state?
 
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mivey said:
I like the interest idea. Maybe something like an interest bearing escrow account.
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That may be the best, safest way for both of you to go. Set it up that you draw the interest because its YOUR money that is tied up for x# of months. And who can guarantee this contractor will still be around when its time for you to draw YOUR money?
 
It does not sound like a good idea (or legal in Texas), perhaps you can sell him on a completed operations endorsement policy instead. In reality its a good thing to have anyway because legally you are on the hook for 10 years against faulty workmanship and materials, in which case the COIP would cover you.

Imagine buying a car and telling the dealer you are going to hold back 10% for the first year in case the car is a lemon.

Here is another thing to think about. What guaranty do you have he will be around a year from now to pay you?
 
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DO NOT DO THIS!!!

Although I've never heard of this request before, I certainly don't want it to start catching on! It's just one more way for someone else to keep our money. So what if his last EC screwed him...that's not your fault nor your problem. The 10% he wants to hold back is probably more than you make in profit. If this became standard practice, does that mean we should wait a year to actually make any money? That is absurd. Tell that jerk to get real, or suck....eggs.

If somehow you are "forced" into doing this, ABSOLUTELY place a lein on the home as soon as you are complete and have not been paid in full. I would bet dollars to doughnuts that when they get the INTENT TO FILE LEIN, you will get your money.

Also, all contracts should have a clause regarding interest on past due amounts. Even if the payment terms are "pay when paid", the money is still due and you should collect interest for all payments after 30 days.
 
How about this? Why don't we stop letting contractors walk all over us. Do you really think this doofus is going to remember you, or how much he owes you a year later? After several months, let alone a year, it becomes almost impossible to collect a debt. Also, if they still have your money, they can demand that you jump through hoops to make repairs on "defective" material or installation, and you will do so in order to get paid...hopefully.

Ok, so I re-read the OP and understand that you agreed to a 3 month delay in payment. That still stinks! Ask him if the owner of the home is waiting 3 months after completion to pay him. I don't think so. Why must we be the lap dogs of every carpenter that turns into a "GC" You are trying to run a BUSINESS, not a side job. If he is not confident about you, tell him to use someone else. Remember, he chose you use you for some reason, be it a lower price, or can't find someone else, so he has vested interest in using your company. Put him on the defensive, "why did you choose you use our company"? Use that information to your advantage. Just because you are a sub contractor, doesn't mean that they get to make all of the rules.

Last word...in many places, you must file an INTENT TO FILE LEIN within 90 days of the last substantial work being done...such as a final inspection. So get it filed!

good luck with that project. You are going to need it.
 
we have never engaged in anything like this. as soon as someone goes over 90 we raise the flags, and after 120 we let everyone know we plan to lien. If they are going to hold your money for a year then what exactly is the point of a warranty to begin with. This is a bunch of crazy BS. You might as well kiss that 10% goodbye. You will probably be lucky if you get your 2nd to last draw. I don't know of any contractor in the DC area that does business like this. We do work with out of state contractors, and the gov. Like previous post said, how do you expect to be able to sue since you will be giving away your lien rights ? We have worked with penny-anny gc's, and we have worked for the largest gc in the world, and I have never heard of an agreement like that.
 
The fact that he threw this curveball after you hashed out the price shows his intent.. He wants a 10% discount. Isn't he getting 100% from the customer at closing?
 
In South Carolina, you would be out the money if he chooses not to pay. You only have 90 days to collect/file a lein. Past that to bad for you. I would run the other way. Besides, here at least you are on the hook for a year anyway. 2 cents worth...

c2500

On anothjer front, the GC/Builder signs a document at closing saying there are no outstanding bills. He would have to lie to get by with a hold back.
 
satcom said:
I agree, he can hold back if he is willing to pay the intrest. Typical GC tricks do anything to hold back the final payment.

Who is to say he will be around after the job is finished, we had plenty of GC's that once you finish, you can't reach then again for payment they are the ones that should bond, not you.

In our state we must give a one year warranty from date of completion, it's the law, and if we don't uphold the warranty, we can loose our license.

Is your state a non licensed state?
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Most jurisictions in Mississippi a require master license, which I have, to do electrical work. However I don't think there is a law requiring you to warranty the house for a year.
 
romexking said:
How about this? Why don't we stop letting contractors walk all over us. Do you really think this doofus is going to remember you, or how much he owes you a year later? After several months, let alone a year, it becomes almost impossible to collect a debt. Also, if they still have your money, they can demand that you jump through hoops to make repairs on "defective" material or installation, and you will do so in order to get paid...hopefully.

Ok, so I re-read the OP and understand that you agreed to a 3 month delay in payment. That still stinks! Ask him if the owner of the home is waiting 3 months after completion to pay him. I don't think so. Why must we be the lap dogs of every carpenter that turns into a "GC" You are trying to run a BUSINESS, not a side job. If he is not confident about you, tell him to use someone else. Remember, he chose you use you for some reason, be it a lower price, or can't find someone else, so he has vested interest in using your company. Put him on the defensive, "why did you choose you use our company"? Use that information to your advantage. Just because you are a sub contractor, doesn't mean that they get to make all of the rules.

Last word...in many places, you must file an INTENT TO FILE LEIN within 90 days of the last substantial work being done...such as a final inspection. So get it filed!

good luck with that project. You are going to need it.
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I guess I'm probably bending over a little bit on this one, but I've been trying to get hooked up with this contractor for a long time. He's a well established contractor in my area doing multiple million dollar homes, apartment complexes, and plenty of commercial work. I'm going to do this one for him but on any future work I'm not going to. I have a feeling that once he sees how we operate and gets comfortable with us he won't ask to hold my money on any future jobs.
 
Rawls007 said:
I guess I'm probably bending over a little bit on this one, but I've been trying to get hooked up with this contractor for a long time. He's a well established contractor in my area doing multiple million dollar homes, apartment complexes, and plenty of commercial work. I'm going to do this one for him but on any future work I'm not going to. I have a feeling that once he sees how we operate and gets comfortable with us he won't ask to hold my money on any future jobs.
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I hear you, but there must be another way. I hope his 10% idea doesn't catch on. :mad:
 
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