Escrow arrangements for building work deposits?

Chris_The_Ninja_Pirate

Doozergirl 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.

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.  

Thanks for the reply - it is very helpful to get an idea of what is considered reasonable.

Total cost is about £30k. Garden office of about 20 m^2 plus deck. Constructed from SIPS panels, plus cladding, roofing, etc.

The reason I am cautious is that there isn't much out there. Website, obviously, but no independent info I can find. Three years of records at companies house but they used to deal with business clients apparently hence little paper train, but they have had to pivot to domestic in the last year.

I would be much happier paying when either materials or labour appear on site.

Chris_The_Ninja_Pirate

Bricks said:

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.

Many thanks for this - option 1 or 2 seems reasonable to me. I might explore these with the company.

Chris_The_Ninja_Pirate

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. 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.

Thanks for the comment - I might see if the company can link me with the supplier so that I can pay for the materials directly (with credit card). Sounds like reasonable commitment to me.

Chris_The_Ninja_Pirate

Sandtree said:

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).

Thanks for pointing out some possible gotchas - that's helpful. I have seen a website (escrow.com) that seems to offer a peer-to-peer escrow service for lower value transactions but it looks to be American based although does have some feedback on trustpilot.uk. Website looks a bit cack though.

A question: could the company prepare an invoice for relevant materials which I pay via credit card? Would that provide me protection from the credit card if those materials were not forthcoming?

Doozergirl

I'd expect my 'upfront' costs to be more than that but it's usually 7 days before delivery, but foundations come before the SIP delivery and the windows will come later again.   I will, however, have contractually committed myself several weeks beforehand.   If I can't afford to pay for something 7 days ahead of delivery though, I'm in trouble.  

I think something like £1,000 is reasonable as a retainer, with a contract, and then a further, big payment either on delivery or 7 days before.  You're going to know about it when SIPs turn up on site!  

There are companies that ask for money upfront but it's that credit protection that they can offer, or their sheer size that provides some reassurance.  

As a customer, I wouldn't be bank transferring over huge amounts of money a long distance in the future to a random company.    How far in advance are they wanting it?  

This is pretty new to me.  We only usually take on 3-4 new clients in a year and that is on a basis of gut feel.  Do we trust them?  It has worked for us so far!  

When your turnover of clients is higher, there's less time spent with them working on that gut feeling and that is a concern for me (and for your company). 

Sensible compromise is needed.  Trust in both directions initially.  

Chris_The_Ninja_Pirate

Doozergirl said:

I'd expect my 'upfront' costs to be more than that but it's usually 7 days before delivery, but foundations come before the SIP delivery and the windows will come later again.   I will, however, have contractually committed myself several weeks beforehand.   If I can't afford to pay for something 7 days ahead of delivery though, I'm in trouble.  

I think something like £1,000 is reasonable as a retainer, with a contract, and then a further, big payment either on delivery or 7 days before.  You're going to know about it when SIPs turn up on site!  

There are companies that ask for money upfront but it's that credit protection that they can offer, or their sheer size that provides some reassurance.  

As a customer, I wouldn't be bank transferring over huge amounts of money a long distance in the future to a random company.    How far in advance are they wanting it?  

This is pretty new to me.  We only usually take on 3-4 new clients in a year and that is on a basis of gut feel.  Do we trust them?  It has worked for us so far!  

When your turnover of clients is higher, there's less time spent with them working on that gut feeling and that is a concern for me (and for your company). 

Sensible compromise is needed.  Trust in both directions initially.  

Thanks again. I have met them on site, they talk knowledgably and seem reasonable but my trust doesn't extend to 10k - seems an asymmetric relationship (we are about 10 weeks out and if I don't proceed they are pretty well off, if they don't turn up I am in trouble).

I would be happy with a 1K retainer and/or paying for groundworks on first day on site, both of which would show commitment on our side.

Doozergirl

Chris_The_Ninja_Pirate said:

Doozergirl said:

I'd expect my 'upfront' costs to be more than that but it's usually 7 days before delivery, but foundations come before the SIP delivery and the windows will come later again.   I will, however, have contractually committed myself several weeks beforehand.   If I can't afford to pay for something 7 days ahead of delivery though, I'm in trouble.  

I think something like £1,000 is reasonable as a retainer, with a contract, and then a further, big payment either on delivery or 7 days before.  You're going to know about it when SIPs turn up on site!  

There are companies that ask for money upfront but it's that credit protection that they can offer, or their sheer size that provides some reassurance.  

As a customer, I wouldn't be bank transferring over huge amounts of money a long distance in the future to a random company.    How far in advance are they wanting it?  

This is pretty new to me.  We only usually take on 3-4 new clients in a year and that is on a basis of gut feel.  Do we trust them?  It has worked for us so far!  

When your turnover of clients is higher, there's less time spent with them working on that gut feeling and that is a concern for me (and for your company). 

Sensible compromise is needed.  Trust in both directions initially.  

Thanks again. I have met them on site, they talk knowledgably and seem reasonable but my trust doesn't extend to 10k - seems an asymmetric relationship (we are about 10 weeks out and if I don't proceed they are pretty well off, if they don't turn up I am in trouble).

I would be happy with a 1K retainer and/or paying for groundworks on first day on site, both of which would show commitment on our side.

Well, that's you and me sorted! 😂

Sandtree

Chris_The_Ninja_Pirate said:

Sandtree said:

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).

Thanks for pointing out some possible gotchas - that's helpful. I have seen a website (escrow.com) that seems to offer a peer-to-peer escrow service for lower value transactions but it looks to be American based although does have some feedback on trustpilot.uk. Website looks a bit cack though.

A question: could the company prepare an invoice for relevant materials which I pay via credit card? Would that provide me protection from the credit card if those materials were not forthcoming?

The term often used in S75 is D-C-S there must be an unbroken chain of contracts and monies between the the debtor (ie you), the creditor (ie the credit card company) and the supplier (the counterparty to the contract).

You can pay your builder £500 for materials by credit card and as long as its not via PayPal etc then you have a S75 claim if they dont supply the materials. You can buy £500 of materials from B&Q yourself and pay by credit card and have then delivered to you and you have a S75 claim if they dont turn up. What you cannot do is have the builder buy £500 of materials from his supplier under his account to get the 20% discount and you pay £400 to the supplier by credit card. This then breaks the chain as there is no contractual relationship between you and the supplier because its ordered under the builders account.

PayPal adds a similar issue as the chain then becomes D-C-PayPal-S for the flow of money and so the chain is broken.

How you solve the problem depends on what you are trying to achieve... if your builder doesn't take credit cards for example then you have to convince them to do so, buy the materials without his trade discount or get the supplier to allow you to open an account and give you the same discount even though its a one off purchase.

There are many stories, seemingly particularly around weddings,  where parent pays for daughter/sons wedding deposit or such by CC to get S75 but when the venue goes bust their S75 claim fails because they only paid for it and the contract was in the name of the daughter/son.

Escrow is much more commonly used in the USA than the UK so not surprised that searches turn up results there... buying a house involves moving the funds into escrow there so awareness is much higher. I've used the escrow type services of freelancing sites many moons ago and have used commercial escrow services for using certain software solutions where the source code is held in escrow and released if the vendor goes bust or material breach of contract etc. Never looked into it for trades people though.

Chris_The_Ninja_Pirate

Sandtree said:

Chris_The_Ninja_Pirate said:

Sandtree said:

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).

Thanks for pointing out some possible gotchas - that's helpful. I have seen a website (escrow.com) that seems to offer a peer-to-peer escrow service for lower value transactions but it looks to be American based although does have some feedback on trustpilot.uk. Website looks a bit cack though.

A question: could the company prepare an invoice for relevant materials which I pay via credit card? Would that provide me protection from the credit card if those materials were not forthcoming?

The term often used in S75 is D-C-S there must be an unbroken chain of contracts and monies between the the debtor (ie you), the creditor (ie the credit card company) and the supplier (the counterparty to the contract).

You can pay your builder £500 for materials by credit card and as long as its not via PayPal etc then you have a S75 claim if they dont supply the materials. You can buy £500 of materials from B&Q yourself and pay by credit card and have then delivered to you and you have a S75 claim if they dont turn up. What you cannot do is have the builder buy £500 of materials from his supplier under his account to get the 20% discount and you pay £400 to the supplier by credit card. This then breaks the chain as there is no contractual relationship between you and the supplier because its ordered under the builders account.

PayPal adds a similar issue as the chain then becomes D-C-PayPal-S for the flow of money and so the chain is broken.

How you solve the problem depends on what you are trying to achieve... if your builder doesn't take credit cards for example then you have to convince them to do so, buy the materials without his trade discount or get the supplier to allow you to open an account and give you the same discount even though its a one off purchase.

There are many stories, seemingly particularly around weddings,  where parent pays for daughter/sons wedding deposit or such by CC to get S75 but when the venue goes bust their S75 claim fails because they only paid for it and the contract was in the name of the daughter/son.

Escrow is much more commonly used in the USA than the UK so not surprised that searches turn up results there... buying a house involves moving the funds into escrow there so awareness is much higher. I've used the escrow type services of freelancing sites many moons ago and have used commercial escrow services for using certain software solutions where the source code is held in escrow and released if the vendor goes bust or material breach of contract etc. Never looked into it for trades people though.

Thanks for your time and comments!

Bricks

Sandtree said:

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).

To be clear - I was suggesting two options. Where the customer pays by credit card, they pay directly to the supplier. So yes they get the s75 protection. As far as I can make out, "builders discounts" are a bit of a fiction and there's no reason the supplier can't offer the same price to the customer directly. If they want to charge more, then it may be time to look into buying elsewhere, or accept the price increase in exchange for a reduction in risk.

Where the builder buys the materials, the customer then doesn't pay the builder until the materials are physically on site and in their possession. So the S75 protection is not needed.