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Glossary of Construction Terms

How you handle payments makes a big difference in your relationship with your contractor. The best payment method is equitable for both sides. There are pros and cons to each type of payment method, and it’s vital to use the best type for your particular situation. Keep in mind that 90 percent of the time, your contractor stipulates payment terms. Payments are done in phases and include noticeable milestones, such as inspections or completion of a significant portion of your project. There’s always a small portion held back until everything is finished.   

Phase Breakdown

Let’s look at a typical $30,000 bathroom remodeling project as an example. Payments are broken up into two to three phases, like this:

• Phase 1 - Permits, procurement (purchasing materials) and demolition - $9,000.00
• Phase 2 - rough plumbing, rough electrical, rough HVAC, rough framing - $9,000.00
• Phase 3 - Flooring, installation of fixtures, painting and finishes - $9,000.00

You make your last payment of $3,000 after final inspection and testing of all systems.  

While that’s the basic phasing, you’ll usually have two common methods to pay for all this: Labor and materials, or time and materials. 

Labor and Materials

When it comes to labor and materials, the most common payment method involves paying the contractor without differentiating between labor and materials per se. You might also opt for paying for labor only, especially if you’re not yet sure what type of cabinets, fixtures or materials you want. Many clients think they will save money by purchasing the materials themselves and saving the extra 10 percent markup. They might save money, but any savings they realize is likely eliminated by all the time and effort involved. That includes dozens of trips to the hardware store to pick up items that the subcontractors need to work on the project. For most folks, it’s really easier and probably not more expensive to let the contractors handle materials.

Time and Materials

Used primarily for repairs, such as HVAC and plumbing, the time and materials payment method also works well when used in conjunction with other payment methods. If you have a contract for labor and materials and you run into an unforeseen issue, your contractor doesn’t necessarily know how much time the repair will take. In that case, he’ll use the “time and materials” option for this part of the project. Often, this is the only fair practice for both client and contractor, since neither knows the exact amount at this point. Payment is generally expected upon completion of the work.

Payment Protection

Many clients pay contractors via checks, or even cash. Other options offer the client more protection if something goes wrong. If your contractor accepts credit cards, your credit card company should protect you against bungled projects or fraud. PayPal is another possibility, offering some of the same safeguards as credit cards. Once the project is underway and you see it is well-managed, trust develops between you and the contractor. At that point, the payment method can change.

Things to Remember

Make sure to also complete payments to contractors at each particular milestone. Never pay a contractor early unless there is a good reason for it. You want to ensure the work is completed, and the payment becomes the only hold you have. One final note: The majority of contractors are trustworthy, but there are some bad apples who give contractors a bad reputation. Keep in mind this is a reputable contractor’s bread and butter. They want to complete your project so they can get a final payment and move on to the next job.