If you are the director of one company. You have signed an agreement with a contractor for a new building. The term is 50% cash up front and 50% upon completion. During the construction of the building, the contractor decided to request the extra 50% cash and threaten to stop work. You have no choice since your financing is limited. in your opinion, how you will tackle this management situation.
Why is the contractor requesting and extra 50%? Did he go over budget? Were change orders requested by you? Those change orders add to the cost of building. It depends on where you live, but I believe in California that the contractor, under contract as you described above, is obligated to complete the project as described otherwise the contractor is in breach of contract.
Do you know why the contractor requested the extra 50%?
Firstly, to even consider a fifty percent advance payment is ludicrous. At the most, any forward mobilization payments should not exceed 10 percent and not be transferred until an executed contract is in place. This contract should include at a minimum, a construction completion date, construction progression schedule (CPS) and a schedule of values (SOV) contractually tied to the completed milestones of the CPS.
However given the conditions of the question, negotiation is a limited option depending upon the percentage of completion of the project. If the project is less than fifty percent negotiations cannot be entertained in that once you agree to “negotiate” you have basically agreed in a form that the request has validity and the basic meaning infers compromise. The only option here is to force the contractor to either abide by the agreement in place or as “compromise” postpone addressing the contractors' request until he attains the 50% completion milestone.
If at this point the contractor complies, by mutual agreement, set in place a schedule of values for the remaining 50% tied to construction milestone completion. Be sure to culminate this SOV with three very specific points of completion:
Substantial Completion: (Typically 5 -10 %)
Contractors Certification of Completion including all Inspections
Owner Acceptance (5 - 7% of Total Contract):
The owner inspecting and approving of all construction
Retainage : ( 3 - 5% of Total Contract)
Released following an agreed upon initial warranty period typically ninety days
Option Two: Legal intervention
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