Abandoning your progress payment schedules can be risky
Don’t want to pay your contractor? You may have ground to stand on
In a perfect world, when a home upgrade or home renovation job starts, the goal between the property owner and the contractor is to get the job done well, efficiently and both leave pleased with the end result. In the real world, that contract job may not be as seamless. But what happens when a job is abandoned or done so poorly that property owners challenge releasing funds from the progress payment schedule?
The first issue to assess is not whether the contractor wants to be paid. It is whether the contractor is entitled to be paid. Whether the contractor should be paid will depend a lot on the terms of the contract. The default rule in Illinois is, “Work first, then paid.” What that means is that if your contract does not provide for progress payments, you have no duty to pay the contractor until the job is complete.
Can you opt out of paying your contractor progress payments?
As the name implies, as the project progresses toward completion, such progress entitles the contractor to be paid upon successful completion of each particular stage of the work. This progress schedule can take various forms.
For example, a contract for building a new house may provide that one-third of the contract price (contract sum) is to be paid when the house is under roof, another one-third of the contract sum is to be paid after the house has been drywalled, and the final one-third is to be paid when the project is complete. Of course, the contract should contain clear definitions of what it means, for example, for the house to have been “drywalled” or “under roof.” If a particular milestone has not been met, then the owner should not pay.
Other progress payment schedules can be based on percentages of work. For example, when the project is 15% complete, then the contractor would be entitled to be paid 15% of the contract sum. Then, after another 15% will have been completed, the contractor would be entitled to a second payment of 15% of the contract sum.
Note that there is nothing that would require all the payments to be of the same percentages. A payment schedule could be 10%, 15%, 15%, 10%, 20%, 10%, and 20%, or any other such combination according to the particular requirements of the project. These kinds of schedules for progress payments require that the owner and the contractor verify and agree about what percentage of the work has been completed.
Recommended Read: “Another reason to hold off on paying your contractor: No sworn statement ~ Why subcontractors should provide a lien waiver to the property owners”
What happens when the property owner and contractor don’t agree on completion terms?
If the property owner and the contractor don’t agree about whether all of the work has been completed correctly and successfully, the owner should pay the contractor for the work that the owner and contractor agree has been completed. Depending on contract terms, the property owner may withhold payment for the disputed percentage from the contractor until it’s done.
Then comes another progress payment schedule on the calendar. Payments can be made weekly, biweekly, semi-monthly, monthly, or however the parties want to arrange things. Again, this kind of payout requires that the property owner and contractor agree on what work is being done during a particular pay period, and how much the contractor should be paid for it.
Deviate from the progress payment schedule at your own risk!
Sometimes during the course of a project, a contractor will ask to be paid outside of the progress payment schedule. Don’t do it! Never mind whatever excuses or reasons the contractor comes up with, such as “I need to pay my subs” or “They won’t deliver the materials unless we pay now.” These are the contractor’s problems, not yours.
If your dispute with the contractor ever ends up in court and the contractor can show that you, the owner, paid the contractor outside of the terms of the progress schedule, the judge is not likely to look favorably on any defense that the contractor is only entitled to be paid in strict accordance with the progress payment schedule.
Any information within this post is not intended to be official legal advice. This is for general informational purposes only and should not be considered a substitute for professional legal guidance tailored to a specific situation.
Are you interested in reading more Foundations of Construction Law posts like this one? Subscribe to my Substack account today! Check out Defense by Davis too. For immediate needs, click here to contact me directly.