We live in a world where one needs the help of others to get many things done.
There may be a need to repair or renovate the house one stays in, or to fix certain items in the house. Given the manner in which society has evolved, life in the bigger towns can get very impersonal. The parties involved in a transaction are unlikely to know each other. Hence they may approach each other with caution.
Should money be paid first or the work done first?
The employer may be apprehensive that the contractor may take the money and not do the job or do it in an unsatisfactory manner.
On the other hand, the contractor may feel that after he has wrapped up work, he may not get paid. This gives rise to the need for the employer to inquire about and assess the contractor and vice versa.
However, the contractor may be anxious to secure the contract first and think about payment later. Once both parties have reached an agreement, the question is: who starts by trusting the other first?
In most cases of home renovation, the employer is likely to be the owner of the property. This creates a situation where the contractor can start work as soon as possible. However, the contractor needs to be paid because he has to buy materials needed for the renovation and pay his workers on a daily or weekly basis.
Of course, there are cases where the contractor actually shoulders all the payments until the work is completed and handed over.
However, this is only done where the contractor has the requisite financial resources and the employer is known to have the ability to pay.
A more practical approach would be to make progress payments as and when work is done. The work can generally be divided into three or four stages; once each stage is reached, a proportionate amount is paid to cover the work done.
In doing so, it must be remembered that breaking up work into parts may not by itself correspond to the payment percentage because certain stages of work may involve higher cost.
Thus the stages have to be carefully structured to correspond with the amount to be paid. It is also unwise for the employer to pay the entire remaining balance after work is completed. This is because after a few days, certain shortcomings may become apparent. Once this happens and unless a contractor is an honourable person, he may not be interested in coming back to do any rectification.
This is because at such times, he is unlikely to get paid for further work done.
Therefore it is advisable to retain part of the contract amount to cover such eventualities.
This sum is referred to as a "retention sum".
In this way, the contractor would be obliged to make good the defects so that he can collect the retention sum. But what if the contractor does not agree to this arrangement?
In fact, the contractor may even go further and asks that he be paid 10% or 20% in advance before even starting work!
When faced with such a situation, it is for the employer to make his own assessment.
He needs to decide whether he is willing to take the risk of non-performance or unsatisfactory performance on the part of the contractor. Such requests will reflect on the mindset of the contractor.
The fact that he wants payment upfront could reflect on his financial capability. It could mean that he has no funds of his own to purchase the material or pay his workers for any period. Or that suppliers of materials are not prepared to allow him credit facilities.
His unwillingness to allow a retention sum to be held back could also indicate an unwillingness to acknowledge and be responsible for any shortcomings or defects in his work.
All these are possible but not necessarily an inevitable inference to be drawn.
The employer may then have to make a decision on whether to stand by his position or accede to the contractor's terms. Here a decision will have to be made in the context of who is in a stronger position to assert his terms and conditions or who needs the other more.
There is also the aspect that the contractor may have been approached on the basis of an advertisement in a newspaper or a magazine. If the contractor collects the initial down payment and deposit and absconds, is there any right to make a claim against the company that published the advertisement?
The answer is no.
This is because a newspaper or magazine is merely a conduit for facilitating communication. It does not, in accepting and publishing an advertisement of the goods or services advertised, give any warranty.
At the end of the day, it will have to be realised that there are always risks inherent in every transaction. Some risks are small, some are big. This cannot be avoided.
What one can do is to be aware and evaluate the risks, and be ready to deal with them should the need arise
Article by Bhag Singh
