Query about deposit for renovation work

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Forums › Finance and wealth management › Query about deposit for renovation work

floydbloke

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#309361 11-Oct-2023 18:34

We’re planning some renovations and we’re a fair way down the track with a construction company.

We’ve got a quote for about $82,000 total including about $16k fixtures and fittings.

Indicative start date is 23 Jan 2024, but they’re looking for a 40% deposit at the beginning of December 2023. I’m a bit hesitant about being an unsecured creditor to the tune of $32k for near 2 months. I appreciate they’ll need some dosh up front so they can order the kit and pay for that (although I assume they’ll do this on account and won’t be paying for it until after delivery) and there’s the Christmas break to potentially slow procurement down.

My question to the GZ community is has anyone ever negotiated the deposit amount with a small business in a similar scenario, and how did you go about it?

Sometimes I use big words I don't always fully understand in an effort to make myself sound more photosynthesis.

Handle9

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#3145471 11-Oct-2023 19:14

There is no way I'd be paying a 40% deposit based on vibes.

Ask for a program and monthly progress claims based on work done and materials delivered to site.

It should be done under the Construction Contracts Act and there is a process for claiming. If they want a deposit upfront for materials then ask for a schedule of materials, vendors and require copies of the payments to the vendors. If you can offer to pay suppliers directly using his discount rather than putting the money through his books. That means you get ownership of the materials.

You need to familiarise yourself with the CCA and the claim process. If you don't follow the correct process for claims and disputes you are pretty much screwed.

You'll need to find a happy medium between your guy managing his cash flow and you not being excessively exposed if he goes tits up.

tweake

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#3145496 11-Oct-2023 20:59

i would keep tight rein on the purse strings and check everything.

very common to get the upsell. some guys are taking deposits to fund other projects, or milking jobs to cover rises in prices on other jobs.

Stu1

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#3145504 11-Oct-2023 21:20

We did a reno just over 200 k the bank required us to ask for a schedule of payments. We wrote it all up in the contract and we did payments as the build progressed. The first payment was a 20k deposit then payments after each stage was completed.

mattwnz

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#3145535 12-Oct-2023 02:14

IANAL but my understanding is that you only pay for the work done if you are doing progress payments. If you pay for more than the work they have done, if they go out of business, then you will likely be out of pocket. Are they a LBP (Licensed Building Practitioner)? https://www.lbp.govt.nz/

Handle9

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#3145536 12-Oct-2023 02:17

mattwnz:

IANAL but my understanding is that you only pay for the work done if you are doing progress payments. If you pay for more than the work they have done, if they go out of business, then you will likely be out of pocket. Are they a LBP (Licensed Building Practitioner)? https://www.lbp.govt.nz/

Being an LBP is meaningless with regards to milestone payments, progress claims or being an unsecured creditor.

floydbloke

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#3145543 12-Oct-2023 07:32

Thanks all. Useful info here.

Mrs Floyd's been mainly dealing with the bloke, via email since his first scoping visit. He seems nice enough and is very responsive. I think it's time to invite him over for a cuppa and a biccie and talk about payment schedules.

It's a privately owned limited company (been around 20+ years). All looks in order on the companies register. Is there any way I can do a 'financial health' check on them, like a credit check? I don't mind dropping a couple of hundy on something like that to gain a little more assurance.

Sometimes I use big words I don't always fully understand in an effort to make myself sound more photosynthesis.

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tchart

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#3145583 12-Oct-2023 09:26

Stu1: We did a reno just over 200 k the bank required us to ask for a schedule of payments. We wrote it all up in the contract and we did payments as the build progressed. The first payment was a 20k deposit then payments after each stage was completed.

For OP I’d just tell them the bank asked for schedule and insisted on progress based payments.

Less likely to hassle you about it.

Otherwise if you are paying cash I’d probably talk to a third party about some kind of escrow account.

I’d also be very hesitant to hand over tens of thousands before starting.

sleepy

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#3145592 12-Oct-2023 09:37

Met with these guys a few months ago a great system to protect both sides of a deal

Ask the builder if they are willing to use them

https://ipromise.co.nz/

Stu1

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#3147111 13-Oct-2023 09:55

tchart:
Stu1: We did a reno just over 200 k the bank required us to ask for a schedule of payments. We wrote it all up in the contract and we did payments as the build progressed. The first payment was a 20k deposit then payments after each stage was completed.

For OP I’d just tell them the bank asked for schedule and insisted on progress based payments.

Less likely to hassle you about it.

Otherwise if you are paying cash I’d probably talk to a third party about some kind of escrow account.

I’d also be very hesitant to hand over tens of thousands before starting.

It’s way easier with the bank , they would only transfer the instalments when I sent them a progress invoice . Keeps builder on track as well with contract . There will also be extras e.g change in materials ect but make sure it’s noted on the invoices. Couple of times we had to explain to bank about changes for example change to cladding due to shortages

heavenlywild

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#3147129 13-Oct-2023 10:57

Don't pay 40%. Like you said the stuff they need can be on account and not payable immediately.

If you do pay 40% I would only recommend you do so into their solicitor's trust account. That way the money is safe and only disbursed as instructed.

Wombat1

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#3147132 13-Oct-2023 11:00

40%, no ways. Negotiate with them, if they are a reputable company they would accept 20% when work starts on day 1 (tradies on site, spades in the ground). The bigger/better/more reputable the company, the less deposit they going to need.

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floydbloke

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#3212266 30-Mar-2024 10:43

This all worked out well. Ended up giving them about 15% at the beginning of December. They started as scheduled on 23 January and I made some progress payments throughout. Work was completed last week, about two weeks later than they said they would, although we did extend their scope a bit. Workmanship is excellent 10/10, project management and comms a 7/10. Still awaiting the final invoice, approx. 20% left to pay.

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Eva888

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#3212267 30-Mar-2024 11:06

We are in process of re-roof and I chose the company that didn’t take a deposit up front after having already been done by heating contractor giving them money up front for materials. Most of the roofers wanted $12k up front.

Half the roof already on and they still haven’t ask for a deposit or progress payment, very impressed with the job and the company.