Ensure Work Is Up to Par Before Final Payment

August 11, 2017
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Paying a contractor up front to do work for your association isn’t a good idea. If it does a shoddy job, your only recourse would be to sue the contractor for not living up to the agreement. But this can be costly. And it’s avoidable—if you protect yourself from subpar workmanship or a failure to finish the job. Having the contract state that the association can make “progress payments” as the contractor moves ahead with the work, and including a “retainage” clause, is a way to encourage a contractor to complete the job to your satisfaction.

What Are Progress Payments?

Progress payments are exactly what they sound like: Payments spread out over the course of a job. The association can make a progress payment only after it’s satisfied with the work done up to a specified point. Consider three things on which to base your progress payments:

Time period. You can base progress payments on equal chunks of time with payment amounts allocated for each time period. For example, for a two-week job, pay half the contractor’s fee after the first week and the other half after the second week.

Percentage. You can also condition payment on the percentage of the job that has been completed. For example, when a job is 25 percent, 50 percent, and 75 percent completed, and upon final completion.

Tasks. You can make payments when specific tasks have been completed. For example, if various parts of the community are being painted, partial payments can be made after the old paint has been stripped, everything has been primed, and when all the painting is finished.

Create Further Incentive

Progress payments alone won’t guarantee that the job has been done to your satisfaction. To ensure this, use a retainage clause as a bargaining chip. A retainage clause allows the association to withhold and retain a percentage of each progress payment until the association reviews the entire job and determines it’s satisfied. Including such a clause in contracts can prevent lawsuits in many instances. For example, suppose a contract allows an association to retain 10 percent of each progress payment. If the association is dissatisfied with a job and can’t get the contractor to satisfactorily finish it, a 10 percent retainage will help cover expenses the association will incur to get the job done right. But, more than likely, it will give the association leverage with its own contractor to finish the job.