Continuing our discussion on contracts, our previous article talked about the importance of getting a down payment. Now, progress payments.
Progress Payments
Remodeling. Way back when the earth was cooling, we used to get three payments on jobs. One-third down, one-third when the job was 66% complete, and one-third on completion. Then we realized we were financing a significant portion of every job.
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So we started asking for progress payments tied to completion points throughout the project. That created a new set of problems because it’s not easy to say when something is complete. If we stated the next progress payment was due when the kitchen cabinets were complete, if there was a drawer front missing on one cabinet, clients would argue that it wasn’t complete. And we’d end up continuing with the job without getting a progress payment, or holding up the job for a small part.
So we switched to getting paid at the start of the next phase on the job. This works well for many contractors.
Depending on the type of work you do and the way your projects progress, I recommend either getting paid at the start of the next phase on the job, or getting a progress payment every two weeks after job start. Asking for a progress payment every two weeks removes any subjective argument about the status of the job, often put forward by clients who know just enough about construction to be dangerous.
Unless your total job length is less than two weeks, you should break your progress payments into three or more payments. Your payment schedule might look like this for a $45,000 remodel:
| Down payment @ 38% = | $17,100 |
| Progress payment, end of week 2 @ 15% = | $ 6,750 |
| Progress payment, end of week 4 @ 15% = | $ 6,750 |
| Progress payment, end of week 6 @ 15% = | $ 6,750 |
| Progress payment, end of week 4 @ 15% = | $ 6,750 |
| Final payment due on day of job completion @ 2% = | $ 900 |
Notice that your second to fifth payments are all the same and an easy number to remember.
New Home Construction. I suggest at least six to eight payments or more. If you need to, build in a few extra dollars that you’re willing to pay for the lender to make more payments than their standard of four or five payments for a typical new home. Whatever you do, schedule the progress payments to cover your expenses, preferably before they are incurred. You’re a contractor, not a bank. You aren’t in business to finance your client’s home.
Specialty Contractors. Even if you have smaller job sizes, you should get at least two or three payments. Look at your expenses on the job and make sure your client (whether it’s the building owner or a general contractor) is financing the project, not you.
Client springs something on you after you’ve quoted the price for the job.
This doesn’t happen often, but be prepared when it does. Here’s how it goes. You quote a job and your client makes a statement like, “That quote includes a performance bond, right?”
Because they want the job, too many contractors will say yes even though they know the performance bond isn’t included. They give away the store, thinking they need to at this point in order to get the job. How many more surprise requests do you think this client will make before this job is complete?
Whatever they throw at you, don’t answer immediately. Think about it for a minute or two. Consider your cost in dollars or time. If it isn’t in your quote, or they are asking for time you don’t want to give away, tell them “no”.
“No, it doesn’t include a performance bond. A performance bond is not something we talked about nor is it something that I can throw in with my quote for your job. I’ll be glad to add it to the job, but it will increase the job price by $3,000. Would you like me to include the performance bond in the contract?”
If you aren’t sure, try this. “John, let me check on the item and get back to you tomorrow. In the meantime, are there any other questions you might have about this agreement before we get your OK to proceed? If there are any changes with the new information that I get for you on the ___, we’ll simply write a change work order to cover it, is that fair enough?”
Don’t be wishy-washy. If you start to falter on the parameters you’re willing to work under, they’ll push you across the county if you let them.
Now remember, just because they’re asking for more than you originally quoted, doesn’t mean they aren’t nice people. They’re simply trying to get what they consider to be the most for their dollar invested. Give them what you agreed to and what you’ve covered in your quote, then stop. Firmly but kindly.
Comments from Michael
Many contractors call asking for help with cash flow or debt.
If you are struggling with the financial aspects of your company, please consider this. If you have been in debt more than about 90 to 120 days and your money situation hasn’t changed for the better, the odds are that it won’t. You’re trying to fix a problem using the same ideas and practices that got you into debt. The reality is that you are in debt because of the decisions that you and you alone have made. Trying to fix the problem with hard work or longer hours isn’t the solution.
Give me a call at 360-335-1100 and let’s review your situation. I’ll be able to tell you if you can correct the problem, or if I can’t help. Those who know me know I’ll tell you what I think, pleasant or painful as it may be.
We’ve turned around over 90% of the companies we’ve worked with. Give me a call, you may be surprised how easy it is to turn your company around and get back to making a profit on each and every job you do.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.