Escrow arrangements for building work deposits?

Doozergirl

@Chris_The_Ninja_Pirate. I wanted to say thanks for bringing this up again today as it's given me some food for thought.  We have a lead time on the manufacture that we don't have on the footings, so I've actually had a chat with Mr Doozer and we've decided that we will put footings in much earlier than the building, and potentially make a start on the electrics too.  

It helps us to be organised and not so reliant on everything happening at one time - but it also shows clients that we're committed much earlier on in the process, so can build a bit of additional trust.   

Chris_The_Ninja_Pirate

Doozergirl said:

@Chris_The_Ninja_Pirate. I wanted to say thanks for bringing this up again today as it's given me some food for thought.  We have a lead time on the manufacture that we don't have on the footings, so I've actually had a chat with Mr Doozer and we've decided that we will put footings in much earlier than the building, and potentially make a start on the electrics too.  

It helps us to be organised and not so reliant on everything happening at one time - but it also shows clients that we're committed much earlier on in the process, so can build a bit of additional trust.   

Thanks you for your input, it's been very helpful.

Bricks

Sandtree said:

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).

Can you link to me an example of one of these freelancing websites - I’m interested to see how they work. When you say developers I assume you mean software developers.

When a ‘milestone’ is reached, is there a human working for the website who makes the call on whether or not the milestone has actually been reached? That’s the tricky bit. I can see with software that maybe it would be possible to examine the work done, but it’s a bit different with building work. Really someone needs to physically visit the site and look at the completed work, and also have enough knowledge to judge whether it’s been completed satisfactorily. Perhaps this could all be done with photos but you still need someone who knows what they are looking at, which means that such a service would come at a cost. There are further complications if there are variations or delays.

I sometimes act as the ‘contract administrator’ on small building projects run under traditional contracts - so am aware of the amount of work involved. In that role I can issue certificates that say that in my opinion X amount of work has been completed, and give a valuation which the contractor can then invoice against. This has authority under the contract (in other words if the client doesn’t pay they are breaking the contract and in theory the builder could take legal action) but the money itself is never under my control.

I can see that an escrow service could perhaps work in conjunction with someone acting in such a role. The escrow service wouldn’t need to make any judgement on anything other than whether or not a payment certificate had been issued by the person acting as contract administrator.

I wonder why it is that no such service seems to exist. The problem of upfront payments at the beginning of a job is one that comes up time after time.

Chris_The_Ninja_Pirate

Business opportunity there for someone!

Sandtree

Bricks 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).

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.

Simply paying the supplier itself isnt sufficient, you have to make sure the contract (ie invoice) is in your name and not the builders. An example is https://www.financial-ombudsman.org.uk/files/269201/DRN6277414.pdf where they bought insulation material for £5k via the builders account with the supplier. Materials never showed up but the S75 claim fails as he was not in contract with the supplier

Sandtree

Bricks said:

Sandtree said:

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).

Can you link to me an example of one of these freelancing websites - I’m interested to see how they work. When you say developers I assume you mean software developers.

When a ‘milestone’ is reached, is there a human working for the website who makes the call on whether or not the milestone has actually been reached? That’s the tricky bit. I can see with software that maybe it would be possible to examine the work done, but it’s a bit different with building work. Really someone needs to physically visit the site and look at the completed work, and also have enough knowledge to judge whether it’s been completed satisfactorily. Perhaps this could all be done with photos but you still need someone who knows what they are looking at, which means that such a service would come at a cost. There are further complications if there are variations or delays.

I sometimes act as the ‘contract administrator’ on small building projects run under traditional contracts - so am aware of the amount of work involved. In that role I can issue certificates that say that in my opinion X amount of work has been completed, and give a valuation which the contractor can then invoice against. This has authority under the contract (in other words if the client doesn’t pay they are breaking the contract and in theory the builder could take legal action) but the money itself is never under my control.

I can see that an escrow service could perhaps work in conjunction with someone acting in such a role. The escrow service wouldn’t need to make any judgement on anything other than whether or not a payment certificate had been issued by the person acting as contract administrator.

I wonder why it is that no such service seems to exist. The problem of upfront payments at the beginning of a job is one that comes up time after time.

Humans working for the website deal with disputes, the parties are supposed to agree amongst themselves in the normal flow of things. So if you were doing a website you may charge £5,000 total and say £2,000 is for the design (ie when its still a picture) and £3,000 for the coding so once you've done the design, you upload it to the website the customer reviews and says ok or they want changes etc once its agreed the freelancer requests the funds for that milestone are released and the buyer says yes or no. If they say no they have to give a reason, it goes back to the supplier and they can either agree with what more needs to be done or escalate it to a dispute. 

I haven't used any for donkey's years so not sure which still operate in the same way (can't even remember the name of the one I used to use) but UpWorker and Freelancer.com seem to be big ones at the moment and the former mentions escrow and freelancer.com bought escrow.com so assume they do. This structure works for fixed price jobs... something that simply by the hour is different

When you are talking about physical production of something the upfront payment however also is a cashflow consideration for materials needed... plus to a degree credit risk as many may not be returnable etc if the client can't/won't pay though escrow fixes this as money is held.

Bricks

Sandtree said:

Bricks 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).

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.

Simply paying the supplier itself isnt sufficient, you have to make sure the contract (ie invoice) is in your name and not the builders. An example is https://www.financial-ombudsman.org.uk/files/269201/DRN6277414.pdf where they bought insulation material for £5k via the builders account with the supplier. Materials never showed up but the S75 claim fails as he was not in contract with the supplier

Sure. To be even clearer then, when I said "pay directly to the supplier" what I meant was that supplier invoices the client and the client pays it. But your point is taken, it's clearly an important distinction.