Feb 23 2021, 08:17 AM
QUOTE(littleants @ Feb 23 2021, 12:16 AM)
To be fair, (commenting from the point of a contractor), it depends on the scope of works as well as the project sum. I personally handled multi-million construction project before as well. Now, I am just running a start-up ID renovation company.
And logically, the bigger sum of a contract, it is more ideal to pay by stages and less deposit upfront. And preliminary is not even the same as deposit.. not sure why you compare them as they are not equivalent. For a big commercial project, even preliminary is claimed by stages according to progress.
On the other hand for a small project (depending on work scope), it is understandable why the renovation contractor will likely request the amount of 20-50%.
For example, if your renovation work is RM10,000 comprises painting and built-in cabinet works only. Without taking a fair share of the deposit, the contractor takes great risk to fabricate the cabinet.
Scenario 1: Owner pay right after the cabinet completely installed.
- Happy endings for both owner and contractor
Scenario 2: Owner somehow refuse to pay a single cents after work is done
- Total loss to contractor. Assume the contractor only earn 10% of each job, it will take another 10 jobs of similar size for the contractor to recoup the losses.
Scenario 3: Owner only pay 80% of the work and delay balance 20% of payment.
- Not the worst case for the contractor... But let's say 3 out of 10 customers delay payment. Can you imagine how much additional cash flow the contractor will need to run the business?
What I am trying to tell is, you have to see the situation from both sides, especially you mentioned that you are working in the construction industry.
For big project, both clients and main contractor are bound by legal compliance and there is form of contract. Those additional legal costs are to be borne by the client. Then, the main contractor will have to get a performance bond and so on.
So, it is like comparing apple to orange. If you are handling billions project, I think you may aware that for certain M&E service like lift, they do take up to 30% deposit before they even lift their finger to put a purchase order of material from China
Renovation works simply don't have the luxury to prepare all these legal documentation, other than a simple quotation that is agreed by the client and contractor.
It is a give-and-take situation.
I do understand from the standpoint of an end-user, it feels very risky to pay the contractor anything before they even start work.
As long as you do your due diligence, communicate with your contractor, you could at least sense whether they are honest. Check their track record, whether they are a properly registered company, are they registered with CIDB etc.
By the way, just to share. For our company, we normally take 30% of the deposit upon confirmation fo work. Then, depends on the project sum, we will either claim by stages or claim by weekly progress.
For a larger sum project, we can reduce the deposit to 15-20%. That just makes sense. 30% of RM10,000 is only RM3,000, while 10% of RM500,000 is already RM50,000. Hope you understand what I'm trying to convey.
And sorry for the lengthy mumbling, I just hope I clear up this contractor vs. client deposit thing a bit.
You made some good points and I do agree that for highly specialized projects (custom made cabinets, non standard automate, etc) the contractor may request for more amount of deposit. 50% may be acceptable if the "product" can't be resold if the customer refuses to accept (for whatever reason not the fault of the contractor). And logically, the bigger sum of a contract, it is more ideal to pay by stages and less deposit upfront. And preliminary is not even the same as deposit.. not sure why you compare them as they are not equivalent. For a big commercial project, even preliminary is claimed by stages according to progress.
On the other hand for a small project (depending on work scope), it is understandable why the renovation contractor will likely request the amount of 20-50%.
For example, if your renovation work is RM10,000 comprises painting and built-in cabinet works only. Without taking a fair share of the deposit, the contractor takes great risk to fabricate the cabinet.
Scenario 1: Owner pay right after the cabinet completely installed.
- Happy endings for both owner and contractor
Scenario 2: Owner somehow refuse to pay a single cents after work is done
- Total loss to contractor. Assume the contractor only earn 10% of each job, it will take another 10 jobs of similar size for the contractor to recoup the losses.
Scenario 3: Owner only pay 80% of the work and delay balance 20% of payment.
- Not the worst case for the contractor... But let's say 3 out of 10 customers delay payment. Can you imagine how much additional cash flow the contractor will need to run the business?
What I am trying to tell is, you have to see the situation from both sides, especially you mentioned that you are working in the construction industry.
For big project, both clients and main contractor are bound by legal compliance and there is form of contract. Those additional legal costs are to be borne by the client. Then, the main contractor will have to get a performance bond and so on.
So, it is like comparing apple to orange. If you are handling billions project, I think you may aware that for certain M&E service like lift, they do take up to 30% deposit before they even lift their finger to put a purchase order of material from China
Renovation works simply don't have the luxury to prepare all these legal documentation, other than a simple quotation that is agreed by the client and contractor.
It is a give-and-take situation.
I do understand from the standpoint of an end-user, it feels very risky to pay the contractor anything before they even start work.
As long as you do your due diligence, communicate with your contractor, you could at least sense whether they are honest. Check their track record, whether they are a properly registered company, are they registered with CIDB etc.
By the way, just to share. For our company, we normally take 30% of the deposit upon confirmation fo work. Then, depends on the project sum, we will either claim by stages or claim by weekly progress.
For a larger sum project, we can reduce the deposit to 15-20%. That just makes sense. 30% of RM10,000 is only RM3,000, while 10% of RM500,000 is already RM50,000. Hope you understand what I'm trying to convey.
And sorry for the lengthy mumbling, I just hope I clear up this contractor vs. client deposit thing a bit.
That said, most renovation work include labor cost and generic materials (and yes that includes paint) that can be reused for other customers. I wouldn't give 50% deposit to contractors as a general practice. There is a difference between customers and contractors: for contractors you don't know where they live so if they are gone you got nothing to find them. For customers you know where they live or at least where their property is. Yes some customers are assholes but they are ways you can find them until you resolve the issue.
Recently I have done my library cabinet. This is custom designed wall to wall and floor to ceiling. This is the only work and the value is less than 10k. My contractor asked for 30% deposit which I think is very reasonable.
Another example. My tinting cost is much more than 10k. The supplier was asking for 50% deposit. I told her 30% and remaining paid upon completion of the work. No problem there as well.
Since we are talking about renovation projects that are without legal contracts, trust is most important. If trust is low contractor may request for 50% deposit. In most cases, that shouldn't be and customers should be well informed to insist reasonable deposit amount. 50% should be limited to special circumstances.
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