What to Request From a Contractor Every Time You Make a Payment

Engaging a contractor for a home project involves a series of payments, and with each one, a set of documents is needed to protect your financial interests. Properly managing this paperwork provides a clear record of the project’s financial life, safeguarding you from potential liabilities and preventing disputes.

Initial Paperwork to Secure Before the First Payment

Before any funds are disbursed, establish a solid documentary foundation. The primary document is a detailed, signed contract that outlines the scope of work, a payment schedule, start and completion dates, and any warranties. Having every detail in writing is a primary defense against potential disputes.

Obtain the contractor’s Certificate of Insurance (COI), which provides proof of general liability and workers’ compensation coverage. General liability insurance covers damage to your property, while workers’ compensation covers injuries to the contractor or their employees. Without this coverage, you could be held financially responsible for accidents, so contact the provider on the COI to verify the policy is active.

You should also request the contractor’s license information and verify its status with the appropriate state or local licensing board. This confirms the contractor is in good standing and can obtain necessary work permits, which should also be clarified in the contract.

For tax purposes, obtain a completed IRS Form W-9 from the contractor. This is only required for payments made in the course of a trade or business, such as for work on a rental property, not for your personal residence. If you pay a contractor $600 or more for business-related work, you are required to file Form 1099-NEC, and the W-9 provides the necessary information.

Key Documents for Each Progress Payment

For each progress payment, request a detailed invoice from the contractor. A proper invoice should itemize the work completed during that specific payment period, breaking down costs for labor and materials. This allows you to compare the progress against the original contract.

With each progress payment, collect a “Conditional Waiver and Release Upon Progress Payment.” This document is a safeguard against a mechanic’s lien, a legal claim on your property for unpaid work. Even if you have paid your general contractor, their unpaid subcontractors or suppliers can file a lien against your property.

By signing a conditional waiver, the contractor agrees that once your payment clears, they waive their right to file a lien for the work covered in that payment. The “conditional” nature means the waiver only becomes effective after payment is confirmed. This process creates a clear record that the contractor has been compensated for each phase of the project.

When the contractor submits an invoice, provide payment only in exchange for a signed conditional lien waiver for that exact amount and period. This ensures that for every payment you make, you close the door on potential lien claims for that portion of the job.

Essential Documentation for the Final Payment

The final payment closes out the project’s financial obligations. The first item is the final invoice, which should be clearly marked as such. This invoice reconciles all project costs against the original contract, including any approved change orders, and details the remaining balance.

Upon making the final payment, you must secure an “Unconditional Waiver and Release on Final Payment.” This document is different from conditional waivers, as it becomes effective immediately upon being signed. It provides definitive proof that the contractor has received full payment and is waiving all rights to file a lien, so exchange it only after the final payment has cleared.

To mitigate the risk from subcontractors and suppliers, demand that your general contractor provide you with final, unconditional lien waivers from all major subcontractors and material suppliers. These documents serve as proof that the general contractor has settled their accounts, ensuring no other party can make a claim against your property.

With the last payment, you should collect all written warranties. This includes guarantees from the contractor for their workmanship as well as manufacturers’ warranties for materials and equipment installed during the project. These documents are important for addressing any issues that may arise after the project is complete.

Organizing Your Contractor Payment Records

Maintaining a well-organized file of all project-related financial documents is a final step. A dedicated physical or digital folder is sufficient to store all contracts, change orders, invoices, certificates of insurance, lien waivers, and proofs of payment in one accessible location. This file will become an invaluable resource if any disputes or questions arise.

How long you keep these records depends on several factors. For tax purposes, if the project is a capital improvement that adds value to your home, the costs can be added to your home’s cost basis. This may reduce your capital gains tax liability when you sell, so retain these records for as long as you own the home, plus three years after filing the tax return for the year of the sale.

Beyond tax implications, these documents are your primary evidence in a contract dispute. The statute of limitations for such disputes varies, so retaining the file for that period is a prudent measure. Warranty documents should be kept for the entire duration of the warranty periods.