Question
I’m looking for some feedback on some typical subcontractor payment terms. As a subcontractor do you receive a deposit upfront? What are the usual terms for final payment upon job completion? Payment when services completed? Is there net 30 days? What’s the payment when the contractor gets paid?
Forum Responses
(Business and Management Forum)
From contributor B:
For residential work: Jobs under $20,000 we receive half at start up and the balance at completion. Jobs over $20,000 we receive 1/3 at start up, 1/3 when cabinet boxes are set, and balance at completion. Any add-on work is paid at the end of the job also. We will not cut any material until a deposit has been paid – no exceptions!
I'm just looking for typical payment contracts for subcontractors for commercial jobs. If I had a $20k plus job say for a hospital to do cabinets I would hire another company as a subcontractor to do the doors to the cabinets. What are the standard or typical payment processes that would be in a contract agreement for the subcontractor? Does the subcontractor get a deposit? When does the subcontractor get his final payment? Is the final payment when he completes and delivers the doors to me? Is it a net 30 from when he delivers the doors? Does the subcontract have to wait till the entire job is complete to get paid? I get paid then the subcontractor gets paid? I'd just like to know what the average fair business practice is.
We simply consider everything that goes into the product we are supplying as supplies. What our terms are with each supplier are different for each. Some are net 30, some net 10, and some we pay C.O.D., but none receive payment based on our progress payments.
I can’t think of a time that it happened but I guess if we were subbing for another contractor and part of our project scope involved another trade (say an electrician who was working under us) we would simply negotiate terms with that individual. The terms would likely be based on the size of the project and would fall under something similar to what has already been posted here, 1/3-1/3-1/3 for large, perhaps 1/2-1/4-1/4 for a high material cost, or small jobs may just be paid when they complete their end. We of course would have to cover that amount as a part of our terms with the general.
It started as a one small job that turned into a fast growing ongoing contract which is still on going. It is good work, especially in this economy. Unfortunately due to speed that the jobs are coming no formal written contract was produced, only verbal understandings that are far from understood as of now.
The job went from a deposit and paying a net 10, to no deposit, and net 30, to now no deposit “we'll pay you when we get paid.” which is up to seven weeks now. This is the first time I've been put in this type of situation and I was just wondering how other businesses operated so I can prepare my case.
There is a lot of misinformation on GC's. The good ones are paperwork driven with contracts and change orders. They withhold money and payment for the sub's that don't submit the right documentation such as prevailing wage reports and proof of payroll. Commercial work is very lucrative and pays well, you just need to learn the business side of it.
We honestly will not start a job without a contract or purchase order and I don't care how big the job is. I turn in the shop drawings, and bill for them. I send an invoice and a G702 and 703 AIA documents and ask for a material draw. It's important to note that you will most likely have to name them as a loss payee insurance wise, make darn sure your agent has sent them a certificate of insurance and worker’s comp.
Whatever you do, contract or no contract, document in a daily diary of what you did or get a file going and have a daily contact sheet that plainly details what you and the client talked about and what was agreed upon. Some GC's are not snakes, but the lowest bidders will get money out of you to make up for their low bids. Remember this, you are one of the last one's in and it is imperative they pay you and they know it.
I had a serious meeting with him this afternoon. He showed up with more work for me and a check in hand to cover 70% of what he owed and assured me that the balance would be taken care of by next week, explaining that the client is way behind on their payment so I will wait and see.
We had an understanding and agreed on a contract with a payment schedule. 50% down at the start and the remainder a net 30 when services are completed, with assurance of plenty more work. For a small new business he is doing a heck of a job pulling in work. It has been keeping me working for six months which looks like it will continue on through the next year.
Unfortunately the client has not paid him for ten weeks now. It’s a very tricky business when dealing with these big corporations. They keep giving you work yet they are slow on paying. If you piss them of this early in the game they could just go somewhere else. He is trying to land a long term contract with them, and which he wants with me. I guess what I've learned is no matter how small the job you should always have a contract of some sort that way all parties involved understand each other. I will just wait and see if they follow through on our agreement.
