Tips for Managing Contractors and Subcontractors Payments

Tips for Managing Contractors and Subcontractors Payments

When hiring the services of a contractor or a subcontractor, commonly referred to as a sub, there is one important factor that you need to consider, that is payment terms. Often times the only leverage that you have on them to get the job done well and on time is their good name and the pay terms. If the professional you have hired is not popular or is new to you, then the only hold at your end is the pay terms. Therefore, it is important to understand how and when you will make the payments.

But before you determine the pay terms, you need to first understand the legal aspects of this process. In the event that you fail to make payments on completion of the project, they can file a lien against the house. And if you continue to fail in paying them, they can even initiate a foreclosure, which will prevent you from reselling or refinancing your home. Therefore, it is essential that you retain your own interests when it comes to making timely payments.

There are instances where you hire a general contractor, and he in turn hires subs to complete your project. Often times you will pay him for the completed work, but he might fail to pay the subs. In such instances, there is a possibility that the sub can file a lien against you. The best way to avoid this situation is to pay the subs directly. While signing an agreement, you need to state these terms clearly. In this way, you can demand a release for each completed portion of work and inspect the quality of the finished job before you release the payment. The release protects you from any liens from the subs.

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Another possibility of a lien arises from the material suppliers, whom the contractor would have failed to pay. Ensure that your agreement has a provision wherein you directly pay the suppliers. Further, ensure that you have several milestone payments instead of a lump sum advance. This gives you the benefit of releasing the payments after inspection of finished work. It also keeps them motivated to complete the work on time. And in the event you end up with an incomplete project for whatever reason, your budget is still intact to allow you to hire a new professional.

You will need to do a lot of homework and screen several professionals before you hire one. Checking references, analyzing past projects, and reviewing their work history will help you avoid frustration and disappointments at a later stage. Although the general contractor would supervise the work of subs on a day-to-day basis, it is important that you perform periodic checks to ensure the smooth progress and quality finish of your project. In short, signing an agreement with all these terms clearly specified and making payments after obtaining a release are essential for the successful completion of your project.