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Up Front Payments

So you find a builder. You agreed a start date and then he points out that, in his estimate, he stipulated the payment terms, which includes a percentage up front. He says it is perfectly normal, most builders work like that and it is for "materials", or to organize machinery, or whatever.

So you think, well I suppose if that is normal, better pay up. After all, it seems reasonable that he should not have to buy your materials.

Well, back up a little and let's think about this.

If he is a reputable builder, presumably he has some continuity of work, i.e jobs under way and jobs due to start. It may be only one job if he is a small builder but the principle applies. Which means he has a workforce and a pool of reliable subcontractors that he uses for all his work. Even a one man band will have the subcontractors.

Now all these people, whether directly employed or on call as subcontractors, must get paid on time - otherwise they wouldn't work for him. So they have a good relationship - the builder knows he can rely on them to turn up on time, do a good job for him and charge a fair price. In return they know that if they do the work needed, they get paid.

In order to do this work, your builder needs materials. Again that means he has a pool of preferred suppliers. He should have trade accounts, or a payment arrangement with them that gets him the best prices and the suppliers trust him to pay for the materials supplied.

So, on the basis of these mutual relationships, there would seem no need to have any money up front. He can get the materials on his trade account and his workforce get paid either weekly or monthly, regardless which job they are working on, while any subcontractors get paid for the work they do.

So it is reasonable to assume that a good reputable builder, with a good regular run of work should not need any money up front. He should be able to get started and make at least initial progress, before he gets his first payment.

If he is not able to do this, and really cannot get started without money up front, the alarm bells should ring out loud. Because if he doesn't have the workforce, or suppliers, or subcontractors, you should ask yourself why. Now it may be perfectly legitimate. It may be a start up business, or he may have been stung by a client that did not pay on time, or he may be fully stretched on other jobs. The best case scenario is that you pay him the money, he buys materials, pays for machinery, gives a start up payment to his subcontractors and gets started on your job.

But why should you take the chance? Because the worst case scenario is that he is in trouble. Maybe he owes money to suppliers or subcontractors. Even if he doesn't actually owe them, perhaps he needs your money to pay outstanding accounts. So your money is not used to fund your start up, it is used to pay for the last job. Which leaves him with no money to fund your job. So guess what? Very soon he will be back for more because he is always playing catch up.

So what should you do? I will come back to this very soon.

More later.

The Project Master