In Construction, money is always flowing every which way.
From the client to the electrician, demolition, general contractor, builder, city hall and the list goes on, and on, and on.
Without proper book-keeping in place, it can be difficult to keep track of it all. Knowing who pays what and exactly what it is that you are paying for. Ask yourself, how do I make sure that I am not at a risk of being at a loss?
Pay someone properly and with a schedule so that both of us leave the agreement with no conflict. What is the easiest way to do this? Contracts.
Contracts are what allow us to make most of this happen. A contract is a legal agreement that outlines what everyone involved agrees to, and the scope of work involved. Contracts are extremely important as they leave in almost all cases, no vagueness that leads to conflict.
What makes contracts so important is that they answer the question “What happens if?”
What happens if my contractor decides to stop working and charge me for the whole project? Well, if you don’t have a contract, anything can happen. You could have to pay the full amount, have a lien against your house until the matter is settled, or you could simply have an unfinished house for several months with all your money lost on legal fees. Who knows? If you have a contract that says payment not in full until the job is done, you can point to your incomplete project and say “it’s not done, so no payment.”
Without proper and legal contracts, disputes take longer to be resolved and the risks to you are higher.
In addition to contracts, all construction and renovation projects need to follow statutory law when it comes to payments. These laws protect all parties involved.
In Ontario it is mandatory that there are two hold-backs when it comes to payments. The hold-backs protect the homeowner and contractor from claims that subcontractors didn’t get paid by the builder or contractor.
What does this mean? So you the client pay the general contractor who hires and pays sub-contractors, like electricians. If the sub-contractor thinks they are not being paid, you would think they would have a problem with just the contractor, and not you the owner. This makes sense to you, after all, you paid the main contractor fully. Not the case though, the sub-contractor can register a lien against your home.
When sub-contractors perform their work, what they ultimately improve is the value of your home. So you are the one who has earned the fruit of their labour. If the general-contractor doesn’t pay the sub-contractor, your home is on the line. If the sub-contractor can’t get the money from the general-contractor they can place a lien on your home preventing sale and a potential court matter.
A hold-back is where you hold part of the money you owe the general-contractor, releasing the outstanding funds when legally required to do so.
In Ontario there are two hold-back periods. The first hold-back you are required to hold 10% all invoices from the builder/ contractor until “substantial completion”. The first hold-back is released 45 days after ” Substantial completion”. If in that time, any sub-contractor makes a claim that they haven’t been paid the court can instruct you to use the withheld money to pay them. Of course the first thing is to determine whether the claim by the sub-contractor is warranted.
This second hold-back is 10% of the total cost that is still left to be completed after substantial completion.
Down payments, deposits, everyone wants them. How much to give? Generally deposits should be minimal and not cost more then the deposit for the materials. It is important to know what is reasonable for different various trades in the industry.
Always get the invoice before payment. You should always know exactly what it is you are paying for. Get as much documentation as possible. This way in the event of any dispute you have something to reference. This should always be as detailed as possible. If your invoice doesn’t have that much information on it, you don’t know where your money is going.
Similarly to invoices you should always get the receipts especially when paying with cash. Without a receipt you have no proof of payment in the event of a dispute. If you give the contractor $500 to buy tiles for you then you have them give you a copy of the receipt.
Always verify the HST number on invoice. This is important for tax purposes. Businesses without a valid HST number represent a risk of having to pay HST to the government further down the line.
Valid WSIB Number
Don’t forget before making payments to be sure to check valid WSIB clearance. This is important to know that they and their workers are covered in case of accidents. You shouldn’t be making payments to businesses that are working on your property without a valid certificate or a or an exemption letter from the WSIB.
Be sure when making progress payments that you have a good sense of the value of remaining work so you don’t overpay. This one can be very difficult to gauge if you do not have much experience in construction. If you get an invoice for the installation of a light that comes to $4000, something is wrong. Do not be afraid to ask questions. It is your right as a consumer.
Ask questions, and get things in writing. Trust your feeling and be open to discussion with contractors, but never get pushed one way or the other. You can come in on budget and have fun the entire time. Its important to “Just Do It” (the right way) !
Till next time.
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