So, I’m in the process of gathering bids for a major project – we’re talking a second-floor addition plus a full-house renovation up in Northern Virginia. One of the general contractors on my shortlist has this payment system he calls “benchmark-based” instead of the usual milestone-based approach. Basically, instead of waiting for each phase to be completely done, payments get triggered at the start of each phase. Makes sense, right? His argument is that the next phase can’t kick off until the previous one is wrapped up anyway, so it’s kind of like hitting those traditional milestones we’re used to.
To keep things simple, he groups phases together – like combining excavation and concrete work, or lumping all the MEP (mechanical, electrical, plumbing) stuff into one payment. And when it comes to big-ticket items like windows, cabinets, HVAC equipment, and appliances that need to be ordered in advance, he collects separate deposits for those. It’s all about managing those lead times smartly.
Now, here’s where it gets a bit tricky. In his payment schedule, the last two items are what he calls the “Compile Punch List” and the “Final Payment,” which act as a kind of holdback. But on a project sample he shared with me, those only added up to 4% of the total cost, while I’d feel more comfortable with a 10% holdback until everything’s completely wrapped up. I mean, it’s a half-million-dollar project we’re talking about here, so I want to make sure I’m covering my bases.
On the flip side, this guy has been in the game for over two decades, has a couple of solid references that vouched for him when I checked, and his responses to all my queries were spot on and professional. So, I’m not really worried about any shady business going on – more like just wanting to make sure I’m following the best practices to protect myself and my investment.
So, here are my questions for all you folks who’ve been down this road before. Is a 4% holdback at the end normal, or should I really push for that 10% I feel more comfortable with? Do you think this start-of-phase billing method is truly as safe as the traditional completion-based approach, or is it a bit of a stretch? And for those of you who’ve dealt with material deposits on big projects, what kind of safeguards did you put in place to make sure