When you ask legal questions on here, you are getting one sided advice. And from very few with legal credentials. Looks worse for you since your contract had no cancellation language. Talk to a lawyer unless you want to go to court latter. It sure would make a bad situation worse if you violate the law and they can sue you latter. Have the lawyer help you with contract language permitted in your state while you are in the office.

There are a lot of good replies here, so this is obviously something that happens. I would suggest you have an honest conversation with the contractor. I would want to know if the project is cancelled or did they find a cheaper source. I had a situation where we did drawings and jobsite visits only to have the contractor tell us that the project was not moving forward. Later, we learned that they had gotten their cabinets from an Amish shop. We had done all the drawings and site visits and we did not get paid anything. If you have a situation similar to this, you don't want to do business with this contractor.

You have gotten $10,000. For that money, I would not be too concerned about being sued. If you itemize your costs, you should be able to reach an amicable conclusion. Most lawyers will charge about $250 per hour if not more and it is not logical to sue for $7,000 or so.

Good luck, at least you go a deposit.

I found myself in this situation back in 2008, not long after the crash. We had been working on a highly custom kitchen job for almost a year. About 6 months prior, the customer put the job on hold because he ran into problems with the GC doing sub-standard work that didn't meet code (our contract was with the owner, not the GC). We had approved drawings and were days away from ordering materials and cutting parts when the owner pulled the plug. Our terms were 20% on acceptance, 20% on start of fabrication, progress payments thereafter, so at that point, we had been paid for the work we had done, so I told him "Fine, let me know when you are ready to start again". After the crash, he got nervous that we would go out of business, so he asked us to refund the deposit, and promised that he would resume the job once things were settled with the GC, who at this point he was suing. I told him that we could maybe refund some of it, but that we had expended a lot of time on shop drawings, meetings, field measurements, cnc engineering, etc., and that any refund would have to be made in payments over time. His lawyer sent a demand letter the next day.

I get a lawyer, there is a back-and-forth, and we eventually wind up before a panel of lawyers in a pre-trial non-binding arbitration. At the time, I was using a paper calendar/organizer, and I had listed in there every meeting, every site visit, every day where I had set aside time to work on his drawings. The panel concluded that I didn't owe him anything, and that in addition, he was instructed to cover my legal fees.

They contacted my lawyer after to ask if I would still consider completing the job, since they already invested 20% in it. In the end, we completed the job and got paid in full.

The moral of the story is, don't take too much money in advance, and document the work that you do.

Louie,
When we take deposits ,we do progress billings against it for materials purchased and work completed. That keeps our financial statements accurate.

IRS requires about 33% for overhead when we carry inventory and work in progress over year end. Once that 33% is recognized and tax paid on it that's money the customer owes on top of actual work.

We attached standard rates to every proposal so we have a system for changes and costs. Some company's don't like paying "manufacturing" overhead in shop rates so we bill them for machine time and part movement. We also have a set of steps we bill for if they don't accept manufacturing overhead.

a) Cost to receive and store materials
b) Cost to move materials to equipment
c) Cost to use each piece of equipment based on the published rates.
d) Cost to move parts between each piece of equipment.
e) Cost to store completed goods because the site was not ready
f) Cost to deliver each delivery
G) Charge for each field visit related to a change order.

there is a separate steps for office including receiving samples, labeling samples, sending samples, verifying materials are Carb II compliant.

It costs a lot of indirect labor to complete a job.

We were in one of the Arbitration rooms for over 13 hours once. We ended up paying about $.1 on the dollar they were looking or because we didn't have a signed document from a corporate executive advising of them of the risk.
If we had we gone to trial we would have won but not been without any fault because of the lack of a single signed letters so we would have had to pay the GC's legal fees which is what the 10% of what they were looking for was.

The go see a lawyer when there is not money spent or very little is a waste of time and energy in my opinion which is completely different than your situation where you had costs.

Click the link below to download the file included with this post.

Sample_Labor_Rates.pdf

If it were me, if give the builder back his money. First I would give him the option to let me keep some of it.

1. If he's fair, he'll understand you have some cost and the two of you can come up with something.
2. It tells you something about his character if he tells you to pack sand.
3. If you eat it and wish to do business with that builder again, it's a in olive branch to extend. If he's worth anything, it'll be worth something to him that might curry favor in the future when you inevitably have something go sideways on you on one of his jobs.

I would prefer to go the route that Karl E.B, suggests.

Have an honest discussion with teh contractor and come to a compromise for your expenses and refund him the difference. I know its easy to say and hard to do , but i think the value of a client far outweighs the $10,000 deposit you have .

Thanks for all the feedback regarding the post.

Here is how I handled it: I added up all the time I had in the project as well as my drafters time. It added up to just over $1,500.00.

I then thought about the discussions we had with the shop re-arranging of our production schedule because they wanted to install the work before the snow starts flying.

So in the end, I decided to charge 20% of the down payment and wrote the contractor a check for the remaining down payment he paid me.

I was concerned about the relationship with the contractor, however they never used our services before this and they were located 3 hours away. They also don't tend to perform work that utilizes a lot of our products. I felt this was a one-time instance.

In the future, I will be putting something into our terms and conditions that the down payment will be forfeited if the project is cancelled. This has not happened to me a lot, but enough that the customer needs to know they have skin in the game when they committ to the project.

Oddly enough - we had a commercial project recently that was 2 weeks from being completed and a fire completely destroyed the building. It was a 6 story building being renovated into apartments and commercial space on street level. Luckily we had received progress payments throughout the project, but we were left without payment of $18,000. We are still trying work with the general contractor to get paid for the remaining amount. It could take a long time to get this sorted out with the insurance company. Point of this story is that you never know what can happen on a project - make sure you get paid and on a timely manner!!

Thanks again for all your opinions. It helped me make a decision on how to handle the situation.

Chad,
You should have an installation floater that would pay you for your goods in this case.

Its pretty typical in commercial that you are responsible for insurance and care until the owner accepts it.

Then your insurance company chases his insurance company depending on the contract.

A-

I am going to be honest - I don't know what an installation floater is but I will check into it.

We were the manufacturer/supplier of our product and did not provide installation on our bid.

The owner had everything in his possession with the exception of the last couple units that we were working on in our shop.

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An installation floater insures goods in transit until ownership accepts the goods. You do not need to be installing the work.

If you do a common carrier delivery to another state and the load is damaged the floater will pay the difference between the pennies on the dollar from the truckling company and the cost of the goods.

It will also pay you for these circumstances. If they issued you a purchase order without any reference to their contract (the owner or contractor) without a sub contract or any requests for certificates of insurance then the owner may owe you if the contractors insurance doesn't cover you.

Construction contracts are all about eliminating risk, one way owners and GC's do this is require sub contractors to insure the projects and for the sub contractors insurance to step in and pay (waiver of subrogation) in circumstances that are not 100% the owner or 100% the GC's fault.

An installation floater would also increase your limits so if the most you had in your shop was 500k at one time but you had 3 500k jobs in the same building for different tenant you would be covered for 1.5M if the policy was the right amount rather than a max of 500k.

Part of the price of doing commercial work is assessing how much risk you are taking on (longer warranties, odd terms and conditions) and what you charge to take that risk.

I think everyone who responded will stay small .A construction company like Ellis Don would give a list of expenses lost profit time lost maybe give back 100 dollars.
There a big difference between what a construction company makes per employee than a cabinet shop cabinet guys are to honest I'm a cabinet guy

Generally you aren't going to get lost profits in a construction contract unless the work is underway. so if the GC built most the building but none of the finish contractors had started the contractors that hadn't started might get $3000 or $4500 as lost profit, but they would not get the money for the work they didn't do ($35,000) in this case..