PAYING A DEPOSIT: WHY A GOOD CONTRACTOR REALLY DOES NOT NEED ONE

Sometimes a builder or supplier (like a kitchen supplier) will ask you for a deposit - that can range from 5% to 50% of the total value of the work you are having them complete.

 

We know from our 40 years' experience that professional contractors do not need a deposit to provide construction services – they have established relationships with suppliers and subcontractors which operate on credit or trade accounts.

 

The credit has been obtained based on trust and past performance – no track record and no trust results in no credit. That is why good builders do not need a deposit to do the work and that is why you need to ask yourself why your builder or supplier is demanding a deposit from you before they can start the works.

If we put aside the "dodgy builders", there are many well known and respected builders and suppliers who insist on payment of a deposit as evidence of commitment on the part of the owner to doing the building project and as evidence of the owner’s ability to pay for the work when it is complete.

Of course it is entirely understandable that a contractor would want to know that an owner is committed, particularly when that contractor needs to plan work in advance and either accept or turn away other good work to do your work if it has limited resources.

 

If a promised project does not proceed at the last minute, a contractor would be left without work and would inevitably incur costs and losses as a result. The most effective sign of commitment to a building project by an owner is of course the payment of money – a contract deposit.

On the other hand, strangely enough the payment of a deposit does little to ensure that the builder will get paid because at the end of the day it is seldom the first payment claim that presents any difficulty for a contractor. In fact, it is usually subsequent claims and almost always the final claim where an owner will suddenly be unable to make payment. So while in many contracting arrangements a deposit will have been factored into progress payments, by the end of the job the deposit provides no financial security to the contractor whatsoever – yet this is the time when the contractor is most at risk.

It is clear that there is a fair and very proper place for the payment of a contract deposit, but it is the how and when of this happens that is important. BuildSafe will hold that deposit in trust, safe and secure and available for the only purpose for which it was intended – namely to pay the contractor its proper entitlement under the contract.

 

If the contractor does not perform, the contract deposit remains safe and secure and available for the owner.