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What’s the best way to pay a contractor?

Steve Maxwell

ARTICLE HIGHLIGHTS:

A homeowner asked about how to pay a contractor so the pros and cons of two payment models are weighed by Steve Maxwell, casaGURU's home improvement guru.

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Q: What's the best way to pay a contractor? I'm planning to build a new home, and feel uneasy about the various payment options I've seen.

A: Many homeowners overlook this issue, leading to costly nightmares and quality disasters. There are two main ways to go: time and materials, or a fixed price for the entire job. Both have pros and cons.

Time and materials is your agreement to pay for all materials and whatever labour time the building crew clocks in. It’s like handing a blank cheque to your contractor. If he’s completely honest, time-and-materials offers the leeway to take as much time as necessary to do a good job in an unpredictable situation. If your contractor is less than honest, he can milk your building budget, with no incentive to work efficiently. I don't recommend time and materials for new buildings, though it’s reasonable to expect a contractor to insist on it for complicated renovation jobs. There’s so much that’s unknowable until you start cutting into old walls and roofs.

The fixed price approach requires the contractor to come up with a legally binding cost for the entire job (materials and labour), and stick with it. This is a 'contract', hence the name contractor. Fixed price may sound like it reduces your risk, but not necessarily. There are a thousand-and-one ways a contractor can save his skin of he's under-bid a job, none of which leads to a good house for you. That's why contracts must include a very detailed list of specifications for the job. You’ll need to include exact specs for construction approaches, insulation, wiring, plumbing, flooring and a bunch of other things. The homeowner has a responsibility under a fixed price approach, too. You must not change your mind on any details once the work has begun, unless you're willing to pay for the added expense that changes always involve.

Regardless of which payment model you choose, you’ll also need to settle on a payment schedule. Three or four milestones need to be identified beforehand, with payment due when the project is completed up to each particular stage.