Escrow arrangements for building work deposits?

Chris_The_Ninja_Pirate

I am in exactly this situation - I am looking to have some work done by a recently formed company. I think reasonably they want a part deposit (around £10k) to book the work but also quite reasonably I would like that money to be held safely. I can't find an easy way to enable this it seems. With regards to the contract mentioned above I can't see an obvious way to set up a joint account with an unknown party for a single transaction.

Doozergirl

Chris_The_Ninja_Pirate said:

I am in exactly this situation - I am looking to have some work done by a recently formed company. I think reasonably they want a part deposit (around £10k) to book the work but also quite reasonably I would like that money to be held safely. I can't find an easy way to enable this it seems. With regards to the contract mentioned above I can't see an obvious way to set up a joint account with an unknown party for a single transaction.

What work?  Why is a £10k deposit reasonable? 

As a contractor, there's not a chance I'm setting up a joint account with anyone and creating a financial link or our credit files!  I think that would be lunacy for anyone.  

Chris_The_Ninja_Pirate

Yes, I can see the issue with a joint account.

I think asking for a deposit is reasonable because of the commitment on their side for materials for the project - I can see they don't want to be exposed to me changing my mind about the work being done.

I just can't see an easy way of protecting both parties? If there are any suggestions that would be very helpful.

Doozergirl

Chris_The_Ninja_Pirate said:

Yes, I can see the issue with a joint account.

I think asking for a deposit is reasonable because of the commitment on their side for materials for the project - I can see they don't want to be exposed to me changing my mind about the work being done.

I just can't see an easy way of protecting both parties? If there are any suggestions that would be very helpful.

I am that other party and I don't take deposits other than for a bespoke product. Usually, in the course of something like an extension, those items come at a point where work is ongoing, trust is established and money has already changed hands.  

 

If it is a bespoke product then most fabricators/manufacturers/suppliers of those items have a credit card or finance facility that provides you with 100% coverage.  

So what is it that requires £10,000 upfront to a new company?  

Chris_The_Ninja_Pirate

Thanks for the response.

It's a 'bespoke' garden building. The contractors need to have the various parts cut/fabricated for this project. The contractors are then building on site.

Doozergirl

Chris_The_Ninja_Pirate said:

Thanks for the response.

It's a 'bespoke' garden building. The contractors need to have the various parts cut/fabricated for this project. The contractors are then building on site.

Okay, that's what we're moving into.

Off site manufacture is an issue because that labour isn't happening in front of your face and on your property.  But much like fitted furniture or window products, many already have credit or credit card facilities that will also support you.   

How much is the total build cost?  How big is it and what is it being made from?  I'm asking to establish whether £10k is reasonable.   

My upfront costs are not that much because we have supplier relationships, however, it is also important with quicker turnover jobs to have dates firmly secured and clients bought in.     

Despite this company being new, do you know that they have a good, ongoing reputation? 

My friend is having one built and their contractor is small and doesn't have a credit facility, but they didn't take any kind of a payment until Day 1, which was also £10,000, so there was at least someone on site at that point.  

I think there are swings and roundabouts.  

Bricks

Having looked at all the options I can find out there, I think that for small domestic projects the only sensible ones are:
1) Agree that first payment will be on delivery of certain materials or products to site. You can see the stuff is there before paying for it. Contractor should have a line of credit that should mean that they don’t actually have to pay the supplier for 30 days or so, time to deliver and be paid by the client. The client paying for the stuff straight away on delivery should demonstrate to the contractor that they are serious and have the cash, and this initial delivery can take place prior to the contractor committing labour time to the job.
2) Client pays directly for certain materials and/or bespoke products, ideally by credit card. They know they will still own the stuff if the contractor disappears. They have some protection if the supplier disappears or goes bust. The contractor can see that they are serious about the job. This method can be used for, eg. windows or other expensive items that the contractor can’t re-use if the client fails to follow through on the job.
3) Agree that payments are made frequently (weekly or even daily) during the first part of the works. So, the client is only paying for work actually completed, or materials actually delivered, but the contractor is never doing more than a week or a day’s worth of work at risk. Later in the contract, when trust has been established (and works are at a stage where it isn’t in the client’s interest to dump the contractor) the payment schedule can be relaxed.

A version of the above, where a job involves scaffold, is for the client to pay for scaffolding on the day it goes up. This often seems to be accepted by contractors as a gesture at the onset of work that the client is serious and has the money. 

Other than these approaches, I don’t think anyone should be paying large deposits upfront really. Certainly not 25%. Probably not 10% or even 5%. At most, a nominal amount as a gesture of good will. Most contracts involve a retention amount of 5%, for good reason, and as soon as you pay an upfront deposit, you effectively render the retention redundant.

Bricks

Chris_The_Ninja_Pirate said:

Thanks for the response.

It's a 'bespoke' garden building. The contractors need to have the various parts cut/fabricated for this project. The contractors are then building on site.

If the contractors insist on something upfront then I think you should pay for the prefabricated parts directly. By credit card ideally. This does introduce some risk for you - if there is some delay or error with that order, the contractors might try and claim that it’s your fault, and say that you need to pay for costs consequential to a delay or error. Or, the contractors make a mistake in providing dimensions etc, something turns up on site that is wrong, and they abandon the job leaving you with the problem. So, you need to have an agreement about who is responsible for what, and check things as much as you can. If it involves measurements taken from site, if there is an option for the suppliers to do this, it places the responsibility with them if there’s a mistake.

NB though that if you do something like this, in effect you are doing some of the contractors’ work for them, and taking on some of their risk. And these are things that would be included in their price. So, if you are comparing two contractors, and one gives you a price that includes sorting out and taking responsibility for everything, without demanding upfront payments, then they may well be offering you a better deal than one who quotes a lower price but pushes risk and responsibility onto you.

casper_gutman

shinytop said:

I just had a significant job done (new ASHP central heating).  I paid 1/4 to book the job, another 1/4 before they started and the rest on completion.  I thought that worked well.  

So you paid half the money before any work was even started? That doesn't sound good from the perspective of protecting the customer.

Sandtree

Bricks said:

Chris_The_Ninja_Pirate said:

Thanks for the response.

It's a 'bespoke' garden building. The contractors need to have the various parts cut/fabricated for this project. The contractors are then building on site.

If the contractors insist on something upfront then I think you should pay for the prefabricated parts directly. By credit card ideally.

I'm not sure what all the mention of credit cards is about... my assumption is that you are talking about S75 protection however there is a problem with this and the previous commenters suggestion that at least you get/own the items if something goes wrong...

In many cases builders will be buying via their trade account with merchants to get their discounts etc and so even if you pay with your credit card the builders name is on the invoice and so no S75 protection and you dont own the goods. Now if you are willing to lose the 10%-20% discount the builder gets to pay by your credit card and the vendor accepts personal customers then fine but this isnt as simple as just paying by CC.


If you ever look at freelancing websites, often aimed at developers but others exist, the supplier and customer agree the project, including any stage payments, and the customer pays the full amount up front to the website. The website only releases the funds to the supplier when the milestones are met.. a basic escrow type service. If there is a dispute the site acts as arbitrator. 

Could certainly see similar systems working for the RatedPeople type sites where there is already a middleman in the relationship. Obvious downside however is that the process also invalidates any credit card protection under S75 plus the slice the site takes from the builder may increase (though I think most of these charge a flat fee for access to jobs rather than a percentage of revenue generated).