Payment schedules and MONEY transactions

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Let’s assume that you are in a position where you have managed to arrange all the necessary things to make a start on your build, you have appointed a contractor and it’s all systems go. Before you proceed with your plan of attack, you need to think about how you are going to manage funds, at which intervals to pay up and what to consider if things don’t go to plan. Regardless of the fact that you are carrying out your build using a Contract Administrator or by yourself, it’s imperative you have some necessities in place:

  • The contract value should be clear and excluding VAT
  • VAT number to be requested from the contractor and verified by an accountant or online (Call the HMRC VAT Helpline on 0300 200 3700. This line is open between 8am and 8pm during the week)
  • Provisional sums must be identified and marked, however these may vary depending on the final decision and preference from yourselves
  • If a deposit is requested which is reasonable, this must be justified and guarantees given such as a written letter, terms and conditions if you decide to pull back and bank details confirmed to make sure the money goes to the correct recipient
  • If you decide to pay in stage payment, i.e. on finishing specific tasks such as ground works, foundations, drainage, walls, roof etc then you will need a programme of works with values where you can see well in advance how much you will owe by the time something is completed. This assignment might be less frustrating if you have basic understanding about construction, otherwise you will have to take their word for it which is not advisable
  • Another way is to use a CA to carry out valuations every 2-4 weeks (depending on the project’s size) which will involve a site visit, quantifying works completed and in progress, number of materials on site, which orders are already placed and quality of work to date. Following this, CA would issue a certificate for payment to the employer which is binding. The contractor then issues his invoice to the client for payment which should be settled within 5-7 days as standard
  • It’s been a well-known fact for as long as the trade exists that a small minority of customers prefer paying in cash to avoid paying 20% VAT, which is very illegal as well as foolish. The reason for this is that if the work is of low quality or issues arise months later, you will need to call them back and this might prove difficult as you have no leverage. A portion of these people would come back and put whatever is required right, but it’s far from the overall majority. In the long term, it makes sense to pay all your taxes and VAT as it will give you grounds for a case if nothing else works and proof that this has been done by this or other contractor.
  • Don’t pay in cash, use BACS or cheques. This is a secure way to pay anyone with digital proof of payment or a slip from your cheque book.
  • Card machines are fine, although not that many construction companies accept these as the payments are normally substantial and the banks tend to block accounts when this happens and then ask you to verify transaction after which you can finally pay it. A lot of unnecessary hassle for something very simply.
  • Make sure these is a clause for retention within the contract. This is typically 2.5% of the total contract value which is held from 30 days to 6 months subject to the contract you are using. This amount would be paid at the end of this period of time but before this happens, it’s common practice that the builder would need to attend the site to do minor snagging and putting right any defects such as loose connections, silicone replacement and settling cracks.
  • Liquidated damages sound quite ominous but actually it’s just an incentive for the builder to stay on track and not to overstay their welcome. There will be a clause in the contract that is for example, the term of the contract is 20 weeks and they are not able to finish within this timeframe due to negligence or not showing up daily, you would be entitled to anywhere between £250-1000 per week after the term finishes. Obviously, this should not be pursued if the delays happened due to other events, as it will likely spoil your relationship.

In conclusion, take reasonable steps to get prepared and avoid making mistakes that are easily avoidable. A little preparation goes a long way!

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