If you've never taken on a build project before, you may not know how to pay a builder. Even if you have, any process that involves money has the potential to become contentious, so making sure you know the best practice for paying builders is important for your peace of mind.
The key to a harmonious relationship with your team is to find a builder who communicates well and is professional in their approach to the project's finances. Paying promptly when required and understanding that certain issues can arise during a build is part of your role, but it's also important to understand your rights and when payments shouldn't be made.
Here, serial self builder David Snell offers his insights on how to pay a builder.
1. Draw up a Formal Contract
When considering how to pay a builder, consider the implication that most homebuilding projects are undertaken without a written contract. Most rely on a simple offer and acceptance: the builder writes to the client offering to do the work at a given price, who in turn writes back, accepting the quotation. In the case of most builder quotes, this works out just fine. In some cases, however, either or both parties rue the day they didn’t have a contract.
A contract doesn’t have to be a huge legal document. Some are just five pages long with simple questions. None are worth much until things start to go wrong, then they become worth their weight in gold.
The essential parts deal with when and how the money is to be paid and the critical section deals with how any disputes will be sorted out. All else is largely negotiable and may vary due to site conditions.
(MORE: Find a builder in your area)
2. Pay Subcontractors on Time, After Work Has Been Inspected
There are two types of subcontractor: ‘labour only’, such as bricklayers and carpenters, and ‘supply-and-fix’, including plumbers and electricians.
Labour only subcontractors often require payment in cash at the end of each week. If it’s not there, they may well de-camp to another job.
If possible, leave an incentive for them to finish. For example, you could divide a 10-week job’s wages by 12, saving a triple payment for the end, when you’re satisfied everything’s been done correctly.
The supply-and-fix trades may want paying in two stages:
- on completion of the first fix or carcassing (when they’ve put in all the background wire and pipe runs)
- on completion of the job.
The written contract with the builders should detail the stages of the build when they should be paid and the amounts. Make sure that each stage has been reached before paying, and that the work has been passed by the building and warranty inspectors.
3. Avoid Paying Builders up Front
It's not common for reputable builders to ask for payment up front, and demands for large sums before the work has commenced is a sign you have a cowboy builder on your hands.
Most builders’ merchants require their accounts to be settled at the end of the month following the month of invoice, so any requests for payment prior to the goods’ delivery must be questioned.
There may be times when, for example, a plumber will ask for money upfront to pay for a special item such as a boiler. This is fair — but it’s better to eliminate any risk by purchasing it yourself.
If goods are made bespoke to order, such as a timber frame, then it’s reasonable for the manufacturer to ask for a large payment upfront. Here the safest option is to pay the money into a client’s or escrow account, where it can’t be withdrawn until the goods are delivered.
4. Paying Builders in Cash
It's perfectly legal to pay a builder in cash if it benefits either party. This may be because some banks have administrative fees that they're looking to circumvent, for example.
It's the builder's sole responsibility to declare this income to HMRC — if they don't that may be considered tax evasion, which is a criminal offense.
However, you should be wary that paying in cash doesn't mean there's no paper trail for the work being done. It's worthwhile still instating a contract, and requesting work or VAT receipts to keep for your own records to ensure you have the required documents should any disputes arise.
5. Keep it Professional
It’s a sad fact that the contractor you know often comes in at a higher price than all of the rest. Why is that? It’s because they feel that you’re a certainty — and they don’t feel the need to minimise their prices. They will even convince themselves that they’re doing you a favour.
You may well end up lifelong friends with the tradespeople who work on your site (or lifelong enemies if things go badly or you terminate a contract). But first-name terms should evolve as the job progresses. When they’re just people quoting for the job, using first names may lead them to believe that they’ve got you on a hook.
Keep it fairly businesslike in the early and pre-engagement stages.
On the other hand, self-employed trades can pick and choose where and who they work for — so you’ve got to be likeable. You want tradespeople who are going to be helpful. But if you are too needy, then don’t be surprised if that’s reflected in the price.
6. Be Prepared for Every Eventuality
You can’t remove every uncertainty from a building project. However carefully you plan, things will go wrong but you can minimise the damage:
- A full site survey giving you accurate levels will determine the amount of underbuilding needed
- A soil investigation should determine the precise nature and type of foundation you must use — but even here, it’s not foolproof.
Make sure you have clear and precise plans together with a full specification. Loosely drawn plans lead to ambiguities in pricing and nasty surprises on site. Making changes to plans without providing everyone on site with the latest version, and removing old plans, will lead to mistakes.
The lack of a proper specification can result in:
- material overruns
- the wrong choices being forced on you if you’re going to maintain that all-important continuity on site.
Iron out most of the problems by thinking ahead. Make sure that you’re fully aware of the sequences of events through a building project and that you know what happens when — and can plan for the event.
7. Accept Things Will Take Longer Than Quoted
“It should take about three weeks,” can be roughly translated into, “It’ll take just over a month.” That may or may not be the contractor’s fault. Bad, and especially cold weather, can put a stop to all activities on site.
Many builders and subcontractors underestimate the time the job will take. If they’re on a fixed price, then it shouldn’t cost you more. But you will need to make sure that any payments reflect the progress and that if things are slowing down, the payments reflect this.
“We’ll be there on Monday morning,” may well mean later in the week or even the following week. Why? It may suggest a contractor with a poor sense of responsibility. But it could be that they were unavoidably delayed on their previous job by, say, bad weather, and rather than leave that job unfinished, they’ve delayed starting yours. One day, when they’re finishing off your home, you might be glad of that trait.
Actually it’s what you say that counts. Left to their own devices, many builders and subcontractors will do what’s quickest, cheapest and easiest for them.
So you need to make clear from the outset your expectations and specifications for each task. But you need to check them out first of all and then tie them down to a clear price and as precise a timetable as possible.
The author of Building Your Own Home, David is a serial self builder and has been building homes for 50 years. He has just finished his fourteenth self build project.
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