A good portion of my client base is made up of real estate investors, and real estate investors often use contractors to do work on their properties. That could mean a $2,000 rental "turn" or a $50,000 rehab project. Lately, I have received an increasing number of inquiries from potential clients who have advanced money to a contractor (sometimes large amounts like the $50,000 rehab project example) only to have the contractor not finish the job, not perform the job up to acceptable standards, or even disappear without doing anything at all. In almost every instance, it's not worth pursuing the contractor (in a civil lawsuit, anyway), because the contractor is judgment proof, i.e., even if the client wins in court, they aren't likely to collect a dime. Paying me to pursue the matter would just be throwing good money after bad.
The lesson here, of course, is DON'T PAY BEFORE THE JOB IS DONE. "Yeah, but I have a contract." Contracts do two things - they set expectations and they give you a basis to sue if one of the parties isn't doing what they are supposed to do. That's not going to be of much help when a judgment proof party walks off with your money. "My contractor needs the money to get started / requires a deposit." Okay, I can dig that. But HOW you go about it matters. Use some common sense. That guy that has done HVAC on all of my houses for a few years now and ALWAYS does what he says? Yeah, I'd probably be okay advancing some funds to him. But he never asks, because he doesn't have to. Same for my contract maintenance guy who is reliable as the day is long. But again, he never asks... (Bear in mind that I make a point to pay IMMEDIATELY when the job is done, too - treat your contractors well, as the door swings both ways!)
I don't expect contractors to front money for materials, especially on large projects, but look for ways to get them the materials that they need without just handing them a big check (be careful buying materials for independent contractors, but that's another post for another day). Will the supplier accept payment upon delivery? Some will, especially if you're playing in the true commercial business sandbox. Does the contractor need ALL of the materials right now, or is there some reasonable amount that they can obtain to get things started? Is there a demolition component that can be done first, where payment for that part of the work could at least in part go toward materials?
I also don't mind paying a small, reasonable deposit to get started. But again, common sense is required. Who are you hiring? Someone with a great reputation and track record that you're familiar with, or that guy who bid your painting job 20% lower than everyone else and wants to be paid in cash (why are you hiring that guy anyway)? Someone with workers comp insurance in place (they should have this anyway, again, fodder for another post) who took the time to form a company and shows up looking (reasonably) professional with the right tools? Granted, appearances aren't everything, but they often say a lot, especially when they suggest that something is OFF. I also don't mind paying for work in increments as it is completed (in fact I would expect to on a large project). This has the added benefit of enabling me to gauge how the project is coming along in terms of staying on budget (both in terms of money and TIME).
But don't just hand someone a check for $30,000, $40,000, etc. up front. Because when you call me to see what your legal options are when things go sideways, it's probably too late.
Please remember that these posts are for informational purposes only and should not be considered or relied on as legal advice. If you are ever in doubt about your rights under the law, you should consult an attorney familiar with the law in your area.
Ben Bauer is a Cincinnati-based attorney who writes about things in law and life that he finds interesting.