Labor cost contract payment term

[ifreeman]

Hi,

For a 2 storey house (around 350sqm living area), a contractor has proposed a labor cost of 1.2M bahts. This includes labor for everything, but also the formworks, nails, machines, site cleaning, ...

for the payment term, he is asking
- 200k upon signing agreement
- and then, the rest is dispatched into 7 payment, of quite similar amount, for 7 different steps.

is the front payment of 200k acceptable or should I sugest less and defer a part in the last payment minimize the risks that he can decide to stop in the middle?

thanks for your comments
ifreeman

[thaifly]

its a gidday to ifreeman...its the thaifly from mae rim..its a generally agreed..on the board that more than 10% up front deposit..should be of concern to you..as yours is considerable more..the red flags would be up for the fly...has your builder got some runs on the board..in this regard...in any event the fly would be still looking at no more than 10% up front ..and finger on the trigger.. for the rest of your payments.. when your milestones have been reached to your approval...ITS BE CAREFUL GIDDAY TO ALL ..its the thai fly from mae rim

[pklongball]

I was fortunate with my builder as we had no up front cash. Only 4 payments spaced at stages of the build and completion. When a stage payment was due he would warn me about a week before and say he is close and I would check to see if the progress matched what was stated in the contract.There was only a very few times when I asked for some extra work that he wanted any immediate cash to do that specific thing. Or we brought in a sub-contractor that was not in the plan and I had to pay cash to that sub for the work and material

[dozer]

With labor only contracts the contractor is more likely to negotiate the up front as they have minimal costs to get started, ie. it can be tougher with a labor + materials contract as they need enough budget to buy materials through the first milestone. It is highly likely that if you talk it out with him he will lower the up front to something reasonable, ie. 5 - 10 %.

[Rick B]

I agree with the other posters that 16%+ is on the high side. However, if your builder is planning to buy all new wood for the formworks and some new tools (like a new cement mixer, or some special scaffolding for your two-storey home, etc.) than maybe he can justify this higher than normal initial payment. I suggest you talk to him and ask him to explain why he wants such a high initial payment. His requested initial payment is actually only 5.7% higher than each of the remaining seven payments, which isn't too much more. Also keep in mind the timing of the remaining seven payments. The cumulative percentage of money paid for labor should not exceed the cumulative percentage of work completed.

[jazzman]

It works out at Baht 3,428 per m2, so 1.2 mil is about right, especially if he is including the cost of the formwork which could be anything between 50,000 and 70,000 for new wood. It is reasonable to expect him to be providing his own tools, cement mixer, metal scaffolding, whacker plate, jack hammer etc in the price, but he may be justified in asking for money for expendables such as nails, welding electrodes, cut-off blades, hire of lifting gear for the upper floor slabs or concrete, and fuel for petrol driven tools, and for fetching any materials that are not delivered to the site by the vendor.
Up to 25% initial payment would be reasonable and perfectly normal, but further scheduling should be organised so that payments are paid for work done, rather than up front. Remember that that first payment is going to cover up to three months wages for a team of around eight or ten.
Some labour-only gangs might ask for something on the following lines:

25% on start of work
15% on completion of phase 1
15% on completion of phase 2
15% on completion of phase 3
30% on completion

You'll see that the 30% final payment is enough incentive for them to stay on the job. One factor that can greatly influence the price is whether the labour is truly local, or whether they will have to live permanently on the site during the project. In all cases, you should of course ask to see work he has already dione, and to speak to former customers to see if they were happy with the arrangement. All eventualities should be covered in the contract. If he does not have a standard printed contract with Terms & Conditions, you may need to make one up your self. Bear in mind however, that if it is not a registered company, there will be little recourse for you if things go wrong - with or without a contract.

[thaifly]

Up to 25% initial payment would be reasonable and perfectly normal, .

its a gidday to jazzman ..its the thai fly from mae rim....wow 25%..or 300.000 baht..up front payment..with out a blow being laid.. .. YOU are again in DISNEYLAND.. its a frank lampard gidday to all..its the thai fly from mae rim

[dozer]

Removed a couple of flamish posts.

25% on start of work

If it came down to a labor only contract demanding 25% to get started I would first have him deduct the cost of form wood from the project and buy it myself, thereby reducing the amount of startup costs to be incurred by the contractor. IMHO 25% is just too high and even though the final milestone is usually large, if anything goes wrong the money may disappear (ie. grandmother died, etc.), irrespective of reference checks.

[thaifly]

IMHO 25% is just too high

its a gidday to dozer and all..its the thaifly from mae rim....TOO RIGHT.. 25%.. IS TO HIGH...<slight edit Dozer> anything over 10%... and you are potentially running a high risk of losing it..and what for???..nothing...even 10% in thaifly eyes is excessive..our building contract..was zero baht up front..and the fly has known many people who will not deal with contractors who put in such a clause..they prefer to pay earlier milestones in place of this...VERY GOOD LOGIC..pay for the work done ..or reasonbly close to it....limiting the money risk involved...really there is a number of ways a contract can be executed to both partys satisfaction..not <edit dozer> 25%per cent up front..be interested in FREEMANS THOUGHTS ..now that a number of members have commented on it for him...oh hell ..ITS A 25%. FIGURE .GIDDAY TO ALL..its the thai fly from mae rim

[ifreeman]

I have finally agreed on paying 150k for the first payment. I have 2 payments after the completion of the house. 1 payment of 100k after the completion, anf another payment of 120k 3 months after.

The house is 330-350sqm living area, around 80sqm terrace and 40sqm of garage.No swimming pool but a large jacuzzi of 2m50X1m30

The price of 1.2M includes labor, formwork, machines ... Also includes house demolition(I am replacing existing house, this is why I agreed on a higher first payment) , camp for workers and site cleaning.
It was by far the cheapest I found in Phuket with one contractor, introduced by another foreigner on Thai visa forum, charging 13M bahts for the house. This is when I decided to go for local contractor for labor cost only, but me not speaking Thai and not having Thai wife, I know I am leading to major problems.

I have hired another contractor, whose architect did the drawings to supervise the job. 35k per month. I am aware that it is quite expensive as I was looking for 25k per month. He will have someone on the site 4-6hours 5 days a week, and himself, 3 times a week.

thanks everyone
ifreeman

[dozer]

150k for the first payment.

Good job on getting him to negotiate. It is a good point to try to negotiate on as best a possible. Normally willingness to negotiate is a good sign... ie the contractor is being reasonable. If all they are interested in is a super hefty first payment, conversely, that is a bad sign.

our building contract..was zero baht up front

Nice if you can find it but this again is a rarity. Even on a labor only contract there are up front costs that the initial payment should cover.

[thaifly]

our building contract..was zero baht up front

Nice if you can find it but this again is a rarity. Even on a labor only contract there are up front costs that the initial payment should cover.[/quote]
gidday dozer...its the thaif ly from mae rim... rarity my AR.SE..a minority.. yes ... ...the client holds the money.. and should call the shots..within logical reason...these contractors asking.. for hefty up front fees..such as one posted on this thread at 25%..should be avoided at all costs...any bona fide builder..should have all the necessary tools and equipment etc etc at his disposal .to carry out the job he is tendering for... so his start up costs are at a reasonable level which .... if he is the real deal ..he should be able to cope with ease IF NOT LOOK OUT.. and then put in very early milestones which will be of benefit for him to have a steady cash flow to pay his side of the equation ...its just good business sense. and a safety net..to only pay for work that is done..or close to it...the flys builder went bust during his build...but the fly cleverly ..had the fingers on the pulse ..and never..paid any more then the work excuted so no damage was done.FULL STOP..I again say ...you have the loot..you are the boss..in other words YOU CONTROL YOUR DESTINY..NOT THE BUILDER...he is working for you..remember that....a lot unforunately dont...ITS A GO GO CHELSEA..GIDDAY TO ALL...ITS THE THAI FLY FROM MAE RIM