Building and Construction - What is progress payment? How are bids done?

Author

What is progress payment? How are bids done?

sabinblack@gmail.com

2007-06-08, 5:25 pm

Hi,
I just started a business as a plumbing contractor and I was
wondering what the normal procedures on sending in a bid and signing
whatever needed contracts. Currently, I just looked over the plans
for the job site and I figured out how much it will cost for materials
and labor. Now that I have that done, what else needs to be done?
What is this whole concept of progress payment? I understand you get
paid for the work progress you make, but do I have to pay for the
material expenses up front?

The construction company that I'm working with is saying that I have
to pay for all the materials up front (without getting any money from
the construction company, either a deposit or funds for the
materials). Before I entered into this business I assumed that I
would get paid a deposit and the cost for materials once the materials
arrive (this is even before I start doing physical work), and the
progress payment is only pertinent to the amount of physical labor I
put into it. Is the company trying to take advantage of me since I
just started out in the business? What are the normal procedures?

I checked online to see how it's done and I couldn't find that much
information. I found some sample contracts (not about plumbing) and
there were at least 3 stages to the deal.

1) Initial deposit
2) Cost for materials once the materials arrive (pipes, etc) + any
damaged materials
3) Progress Payment for labor
(then repeat 2 & 3 if it's a long job).

Is this the normal procedure? If not, how can you protect yourself
from the construction company from not paying you? I heard of horror
stories from a friend that's also a plumber who put in $20,000 up
front into the job (for materials alone, so basically the plumber is
paying the construction company to work for them), and the contruction
company never paid the plumber and just used the excuse that the
company that hired the construction company is stalling their
payments. In the end, the plumber had to file a lawsuit that can take
up to 2 years to be settled.

I thought that the construction company is in charge of paying their
subcontractor whether or not the company that hired the construction
company is paying them. Is that just an excuse that the construction
company is using?

Please help me clarify this because I really do not want to fall into
the "horror" stories you hear about.

So to summarize. Is this the normal procedure:
1) Plumber purchases all materials and works for 1 month
2) After the month is over, the plumber files in an invoice with the
construction company
3) Then a month later, the construction company pays you for that
invoice

and the process is repeated?

Thanks a lot. Your help is very much appreciated.

---Paul

CWatters

2007-06-08, 5:25 pm

vMike

2007-06-08, 8:25 pm

vMike

2007-06-08, 8:25 pm

hawgeye

2007-06-08, 8:25 pm

"vMike" wrote...
>
> <sabinblack@gmail.com> wrote in message
> news:1181329973.587194.138400@q19g2000prn.googlegroups.com...
>
> Whoop forgot the text! I am speaking from the customer side. I just
> signed a contract for the plumbing on a home. The deal is no money
> upfront. 30% at rough in 40% at top out and the balance at completion. I
> am in Florida so contractors can put a lien on your property if they are
> not paid, even if payments are made through a GC the owner is still
> responsible if the GC does not pay the sub. So if the owner pay the GC and
> the GC runs off with the money the owner is screwed. So the rules here in
> Florida are the subs have the rights not the owners, BUT you need capital
> to be a sub.
> mike

There are different ways to handle contracts depending on if you are a sub
or the GC or hired directly through the owner. If done correctly everyone
has certain rights and should all be spelled out in the contract. One
important thing is to make sure there is a payment bond in place especially
if you are a sub. This sort of acts like an insurance policy so that the GC
pays the sub.
Starting out as a contractor can be a tough learning process.

--
hawgeye ©

Art

2007-06-08, 9:25 pm

vMike wrote:
> <sabinblack@gmail.com> wrote in message
> news:1181329973.587194.138400@q19g2000prn.googlegroups.com...
>
> Whoop forgot the text! I am speaking from the customer side. I just signed
> a contract for the plumbing on a home. The deal is no money upfront. 30% at
> rough in 40% at top out and the balance at completion. I am in Florida so
> contractors can put a lien on your property if they are not paid, even if
> payments are made through a GC the owner is still responsible if the GC does
> not pay the sub. So if the owner pay the GC and the GC runs off with the
> money the owner is screwed. So the rules here in Florida are the subs have
> the rights not the owners, BUT you need capital to be a sub.
> mike
>
>
In Virginia, once the owner pays the GC, the sub cannot put a lien on
the property. The sub has to go after the GC for his money. This is to
protect the homeowner from having to pay twice.

--
Art

Matt Barrow

2007-06-09, 8:25 pm

<sabinblack@gmail.com> wrote in message
news:1181329973.587194.138400@q19g2000prn.googlegroups.com...
> Hi,
> I just started a business as a plumbing contractor and I was
> wondering what the normal procedures on sending in a bid and signing
> whatever needed contracts. Currently, I just looked over the plans
> for the job site and I figured out how much it will cost for materials
> and labor. Now that I have that done, what else needs to be done?

Before you even respond to an RFP, you should be doing research into the
company submitting the request.

Look into the BBB records, as well as any outstanding or past legal actions
against them.

> What is this whole concept of progress payment? I understand you get
> paid for the work progress you make, but do I have to pay for the
> material expenses up front?

That depends on the contract stipulations.

> The construction company that I'm working with is saying that I have
> to pay for all the materials up front (without getting any money from
> the construction company, either a deposit or funds for the
> materials).

That's pretty much standard, but that's why you should be doing the research
mentioned above. Your #1 question should be, "How reputable is this bunch
and what is their history?"

Do not rely on referals...dig, dig, dig. (No pun intended).

> Before I entered into this business I assumed that I
> would get paid a deposit and the cost for materials once the materials
> arrive (this is even before I start doing physical work), and the
> progress payment is only pertinent to the amount of physical labor I
> put into it. Is the company trying to take advantage of me since I
> just started out in the business? What are the normal procedures?

You seem to making a lot of assumptions, and by this, you're setting
yourself up for a beating. I must say, too, that you seem fairly naieve
about the industry. There's a lot of people have specific skills but NONE
pertaining to running a business (and that entails much more than just doing
paperwork).

>
> I checked online to see how it's done and I couldn't find that much
> information. I found some sample contracts (not about plumbing) and
> there were at least 3 stages to the deal.
>
> 1) Initial deposit

That part might be included if you're contracting directly with an owner.

> 2) Cost for materials once the materials arrive (pipes, etc) + any
> damaged materials
> 3) Progress Payment for labor
> (then repeat 2 & 3 if it's a long job).
>

> Is this the normal procedure? If not, how can you protect yourself
> from the construction company from not paying you?

If some protection (for you) clause is not in the contract, walk away.

>I heard of horror
> stories from a friend that's also a plumber who put in $20,000 up
> front into the job (for materials alone, so basically the plumber is
> paying the construction company to work for them), and the contruction
> company never paid the plumber and just used the excuse that the
> company that hired the construction company is stalling their
> payments. In the end, the plumber had to file a lawsuit that can take
> up to 2 years to be settled.

I'd be willing to bet that's not the first time such a state-of-affairs has
occured with that construction company.

> I thought that the construction company is in charge of paying their
> subcontractor whether or not the company that hired the construction
> company is paying them. Is that just an excuse that the construction
> company is using?

It depends on the contract terms, and in it's absense, state law.

> Please help me clarify this because I really do not want to fall into
> the "horror" stories you hear about.

You're doing your research on step two, but you've missed step one: know the
state laws and find out about the company history.

> So to summarize. Is this the normal procedure:
> 1) Plumber purchases all materials and works for 1 month
> 2) After the month is over, the plumber files in an invoice with the
> construction company
> 3) Then a month later, the construction company pays you for that
> invoice
>
> and the process is repeated?

A GC or IC that works for me must provide materials. I pay GC's and IC's at
completion of phase (usually no more than 7-10 days) and accpetance by me or
one of my inspectors. This includes all material used up to that point. I
stipulate in my standard contract that I will inspect within 3 days of phase
completion and pay that segment within 48 hours thereafter.

> Thanks a lot. Your help is very much appreciated.

You need to do some study on contract law and business process. Also, you
need to find where, in your area, you can delve into a businesses
performance and legal history. Companies _typically_ have either a very good
track record, or an abysmal one - seldom in between.

Don't get too anxious to get some work and be willing to walk away (reject)
from a job that sounds fishy.

Good luck!

Matt Barrow

CWatters

2007-06-10, 9:25 am

"Matt Barrow" <mbarrow@performancehomes.com> wrote in message
news:0vHai.542426$2Q1.63762@newsfe16.lga...
>
> <sabinblack@gmail.com> wrote in message
> news:1181329973.587194.138400@q19g2000prn.googlegroups.com...
>
> Before you even respond to an RFP, you should be doing research into the
> company submitting the request.
>
> Look into the BBB records, as well as any outstanding or past legal
actions
> against them.

and ask other trades if they pay on time.

Matt Barrow

2007-06-10, 1:25 pm

"CWatters" <colin.watters@turnersNOSPAMoak.plus.com> wrote in message
news:4669b689$0$8737$ed2619ec@ptn-nntp-reader02.plus.net...
>
> <sabinblack@gmail.com> wrote in message
> news:1181329973.587194.138400@q19g2000prn.googlegroups.com...
>
> Not if you open an account with a materials supplier that offers good
> payment terms.
>
(i.e., 30-45 days same as cash)

dpb

2007-06-10, 5:25 pm

Matt Barrow wrote:
> "CWatters" <colin.watters@turnersNOSPAMoak.plus.com> wrote in message
> news:4669b689$0$8737$ed2619ec@ptn-nntp-reader02.plus.net...
....
[color=darkred]
> (i.e., 30-45 days same as cash)

If he's just opening a new business, getting that kind of a credit line
is probably going to be tough initially unless he can back it w/ his
personal credit. Even that may be tough a a jobbers...

--

bambam@nospam.tnx

2007-06-11, 1:25 pm

On Fri, 08 Jun 2007 19:12:53 -0000, sabinblack@gmail.com wrote:

>Hi,
> I just started a business as a plumbing contractor and I was
>wondering what the normal procedures on sending in a bid and signing
>whatever needed contracts.

If you are just starting out ... you might as well get it right.
Likely, you will be astounded by the hoops you have to go through.
But, if you do not go through them, you will have no standing --
if you ever end up trying to collect through the courts.

The two best friends any small businessman has are his lawyer and
his accountant. Get ones who specialize in small construction
businesses.

Yes, they seem expensive, especially starting out. But their good
advice can save your butt many times over.

Ken

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