Deposit in Excess of State Maximum

[Steve Murphy]

I've just hired a contractor to replace some French doors on our house. We did due diligence in the bidding process, and hired the contractor that we felt best about. So far, so good.

However, in their contract, they required, in addition to the maximum allowed by State law, another deposit of 36% of the total contract, before they start work. In this case, we're talking about 3-5 weeks before they start work.

This contractor checks out in every other way, and the other bidders all seemed to be requiring the same amount up front. They way they tap dance around the law is buy sending in a two-man crew to "re-measure" the work before ordering the doors. This, they claim, constitutes the start of work.

So my question is this: Is this an accepted way of doing business; and if so, doesn't it completely side-step State contracting law?

I assume that this law was enacted to protect consumers against past abuses.

[Steve Murphy]

in article [e-mail], Colbyt at [e-mail] wrote on 4/4/05 2:35 PM:

in article [e-mail], Colbyt at [e-mail] wrote on 4/4/05 2:35 PM:

The maximum is the lesser of 10% or 1,000 -- on *any* job.

They are getting 46% of the total, and they are getting that about a month before the work is scheduled to begin. This is for a $10K job. We're talking about three sets of French doors.

As I said, everybody seems to be asking for about the same amount up front. What bothers me is that it seems in blatant violation of State regulations. Also, these companies all did a big song and dance about how solid and solvent they are, yet they *need* nearly 50% up-front to cover their risk?

I don't know, it gives me the feeling of dealing with car dealers. And it appears to be the norm in the industry. Oh well...

Thanks for the reply.

[RicodJour]

contract, before

bidders all

regulations.

Are the doors special order? Are they on the hook for the cost of the doors as soon as they're ordered? Is there a several week lead time on the doors?

The start of work, in my mind, is when operations on your behalf commence. Whether that's design work, special ordering materials or the like.

I suppose to illustrate...if the start of work was based on the first day of construction/demolition, and I wasn't allowed by state law to bill until that point, I would open up your house, measure for the doors, order them and go away until the doors were delivered. Somehow I don't think that would make you any more happy than the current situation.

If you've done your due diligence as you said. Gotten recommendations, checked licensing, BBB, etc, investigated references and checked out some of their work personally...my question is, If all of that checks out, why do you feel they're out to screw you?

R

[Steve Murphy]

in article [e-mail], RicodJour at [e-mail] wrote on 4/4/05 3:25 PM:

I don't believe they are "special" order. This is what these guys do.

But there is a lead time for ordering the doors, although I suspect the deposit exceeds the cost of the materials.

Just continuing to do due diligence. I've heard several horror stories, and the fact that their standard procedures appear in violation of State regulations is a red flag. But as I said, everyone else seems to be operating the same way. We took bids from seven different companies.

My main reason for posting the question was to hear from other folks. We've gone ahead with this company, so only time will tell now.

Thanks for the reply.

[Fred]

Sounds like the state attorney general might be interested in your question. They usually have a web site that permits complaints to filed online. JimL

[SteveB]

"Steve Murphy" wrote

Why are you asking on Usenet? Call your State Contractor's Board.

Steve

[m Ransley]

The last guy I hired that "checked out" he demanded 50%. Well his court records didnt check out as I found out to late, He looses 2-3 cases a year and oves apx 10 people 60000+ No I can`t collect. If they are exterior doors you are allowed 1/8 off max in plumb, level and square or warranty is voided for Anderson and Pella. Asking for extra down is always a warning sign.

[Steve Murphy]

in article bUj4e.72056$AN1.44812@fed1read03, SteveB at [e-mail] wrote on 4/4/05 4:15 PM:

Thanks for the reply.

I've been to State contractors' board website, as well as through their phone system, and they only seem to handle complaints, not inquiries for clarification. And I'm not inclined to file a complaint at this point.

Their site is explicit regarding the maximum deposit that can be asked for, but they provide no clarification regarding allowances for materials, etc.

We feel comfortable with this company in general, and as I said, the other companies also wanted a large deposit up-front (i.e., approx. 45% of total), so I was hoping to hear opinions regarding this issue from other homeowners and contractors.

[Colbyt]

If you follow Fred's advice you may lose out on the chance to use the best contractor.

What % may I ask is the "allowed deposit" amount?

35-50% up front is normal on large jobs.

Colbyt

[HeyBub]

Well, then, it's too late to suggest escrow.

[Steve Murphy]

in article [e-mail], HeyBub at [e-mail] wrote on 4/4/05 5:21 PM:

Yes, and it's probably too small an amount to bother.

I was mainly wondering what the norm was here, especially since the State board's website has this issue in several places.

I guess the fact that everyone seems to be violating the regulation bothers me some, as well as the fact that with almost 50% of the payment in their hands before they even start, I have given up a great deal of control over the project. Whatever...

Thanks for the reply.

[Steve Murphy]

in article WOl4e.20706$ [e-mail], Edwin Pawlowski at [e-mail] wrote on 4/4/05 6:26 PM:

California. We're heavily into consumer protection here.

Where in New England are you?

Which is an issue. If that's a pattern, we could easily end up arguing about contract terms and scope of work.

The contract gives him ample protection here.

Thanks for the reply.

[Steve Murphy]

in article [e-mail], John Willis at [e-mail] wrote on 4/4/05 6:37 PM:

No problem with that. Payment after project milestones are reached, when work has been finished and approved.

That is a concern. When making the sale, they continuously harped on how long they have been in business and how many contractors go under, leaving the customer in the lurch. Yet, they seem to have a problem covering materials on a relatively small project.

Anyway, thank you everyone for the input. We are moving forward and we'll see how it works out. This is our first significant home maintenance project, so I'm entirely naïve. We have more work to do after this, so I hope it doesn't turn into a long, painful process.

[John Willis]

On Mon, 04 Apr 2005 15:10:22 -0700, Steve Murphy scribbled this interesting note:

Two comments here:

One: it is "industry standard" to have payment in installments. Typically in thirds.

Two: We don't typically follow "industry standards" on our jobs. In almost all our contracts we state clearly "To be paid upon completion."

Several factors go into this. Do you want to hire someone who can't afford to pay for materials? You usually don't know this person so do you trust him or her implicitly? We (the contractor) have some legal recourse if you (the homeowner) fails to pay (mechanic's lien.) You (the homeowner) have little legal recourse (except civil-like small claims court or similar proceedings) if we (the contractor) fails to deliver full value.

Of course, this being the U.S. anyone is free to sue anyone else, but we've never been involved in anything like that (and even avoided being dragged into an ugly divorce case once where on spouse anted the other to pay for a new roof!)

Like everything else you read here, this is only our experience and worth as much as you paid for it!:~) (and I offer a 100% money back guarantee if not fully satisfied!:~)

-- John Willis (Remove the Primes before e-mailing me)

[RicodJour]

Steve, you seem to be confusing some issues here. The fact that the contractor has been in business for a long time points to his ability to handle the business end as well as the construction end. I'm not sure why you are assuming that he has a "problem" covering the materials.

In general, it's bad business for a contractor to finance a construction project without charging you for the service. Eventually the contractor will get burned. Maybe the Owner (not owner of the contracting company) will lose his job, get a divorce, have a cash flow problem, whatever. When the cash flow for the contractor stops or slows the problems can pile up very quickly. Believe me, you don't want to be anywhere near a contractor that is running into cash flow problems. It's better for you to know that he is charging a healthy amount (not exorbitant) and is able to keep your project rolling. Your other bids seem to bear out that he's not being exorbitant.

Some states prohibit intermingling of funds - the money you pay for your doors can't go to buy the siding on another guy's home. There's really only one way to do that.

New doors is a capital improvement. Not maintenance. Big difference when you're doing your taxes!

When you find a good contractor and establish a relationship, you'll stop worrying about this stuff. The contractor will also stop worrying about you.

R

[Art]

If the doors are expensive and he claims to be using the deposit for the doors, tell him you want title do the door when they are ordered.

[steve]

Agreed. The last time I took on a job with special order items, I asked for the amount to cover the machine. It was a unit that was for a commercial building, and it alone was over $9500 wholesale. When the GC on site said no, he would give 5% of it, I told him that there was no damn way I was gonna get stuck with a unit that would not sell again for a couple of years...it wasnt worth it to me. The OWNER of the business told us to order it, and he would pay for it.

The lesson I learned was when I dropped over $20,000 for another commercial job, and before the job could be complete, the owners of the business took off and left EVERYONE holding the bag....my electrician was out almost as much, and there wasnt a damn thing we could do.

State law here states 5%, unless its a special order item. Then you can get as much as you want, within reason, and all a person really has to do is ask for enough to cover the parts that he will be stuck with otherwise, and no one other than that one GC has ever worried about it. If they do, from an owners perspective, it means that the customer has other motives...its a red flag even if all it is, is an overly cautious consumer.

[Edwin Pawlowski]

What state are you in? I've never heard of those laws here in New England.

It seems as thought he contractor is stretching the interpretation a bit but I can also see that he'd want to cover his costs of material also. Laws aside, it seems to be a regular practice to get 33% to 50% down depending on the type of job. A contractor can really get stiffed if a customer decides to cancel after material has been ordered.

I hope you get the good job you expect. Please report back with your experience.

[Edwin Pawlowski]

Connecticut. Home of the Attorney General that makes sure his name is in the paper at least 5 days a week protecing us from evil.

[bambam]

From a contractor's perspective ... or at least this contractor's perspective ... your situation may mean one of two things: The contractor is fly by night and will run off with your money, or the contractor is stable and solid but wants to be sure he cannot be out of pocket in the event you turn out to be a deadbeat.

I can only tell you of situations here -- custom or special order doors, custom cabinets and the like cannot be returned for credit. If you default, the contractor is stuck with doors he doesn't want and which probablhy cost him 40 percent of the contract price. (A ten percent deposit doesn't do much for him.

I'm a general contractor -- I regularly pay fifty percent up front to subtrades for cabinetry, garden or patio doors, hardwood flooring, fireplaces and such items. This is to suppliers who are quite solvent .... and with whom I've been dealing for years.

You're right to wonder ... you're right to ask ... but unless there is some other concern, it doesn't smell fishy to me.

Ken