Remodeling: Contractor Progress Payments

We've run into a bit of a problem with our contractor. It seems that, despite us telling him many times that we want everything done to code and we want all necessary permits, he doesn't like to pull permits. His contract - his boilerplate contract, not ours - says that he will handle all the permits and all the permit costs. So he called us the day before beginning work and asked if we wanted a permit for the job. Of course we do. Say what you will about the government's right to control construction of our house, we feel that the prudent thing for us to do is to comply with the applicable laws. If the law says we need a permit, we want a permit.

So the contractor demanded the permit fees. We pointed out that the contract says the fees are included, and that we agreed on a price in the belief that, as the contract says, permit fees are included. Consequently, the contractor feels aggrieved and has been difficult to work with. If I knew a week ago what I know now, I would have hired someone else. And I'm all the more peeved because we selected the contractor who presented the best quality quote, not the lowest price. In the process of dealing with the "forgotten" permit, the contractor breached our trust. His subsequent attempts to cut corners on the job have further damaged our respect for him.

Today we made another progress payment. We have a big mess, bare wall studs, exposed wiring, partial plumbing, a hole in the floor. Our contractor now has 65% of the contract cost in his pocket. I'm feeling a bit nervous. I made a mistake in agreeing to front-load the progress payments so much. For example, we made a large payment upon completion of framing, not realizing that framing is basically the first task. Now, the job is perhaps 30% complete, while the payments are 65% complete. I have no reason to believe that the subcontractors have been paid; if the contractor doesn't pay them, Mechanics Lien law allows the subcontractors to sue us for their fee (even though we have already paid their fee to the General Contractor), and to place a lien against the house if we refuse to pay. If the contractor quit now, he would have a legal obligation to refund us the excess payments, but we would have the burden of recouping that money from him - not an ideal position to be in when local contractors are going bankrupt.

In the future, I will make sure that we have a more detailed definition of what work shall be complete before a progress payment is due. I will also make sure that the payments are slightly back-loaded; the contractor will have to finish the job to receive payment in full for the work.

I also discovered a neat little website. In Sacramento County, you can look up building permits by contractor name, company name, job site address, etc. So next time I hire a contractor, I will look up his/her permits before I interview him or her. If he/she has not pulled a substantial number of contracts, I will ask why. And when I buy a house, I will search for permits issued to that address. If there are no permits and the house has obviously-new items that require a permit, I would rather know that before I buy than after.