Paying Your Building Contractor — A Guide for London Homeowners

Most domestic building contracts in London use one of three payment structures:

Stage-based payments: Payment is tied to the completion of defined stages — for example: deposit on contract signing, payment at completion of foundations, payment at completion of structure, payment at completion of first fix, and a final balance on practical completion. This is the most common structure for domestic projects.

Interim valuations: The contractor submits a valuation of work done at regular intervals (usually monthly), and the client pays the assessed amount within a defined period. More common on larger or longer projects.

Fixed-price with retention: The client holds back a percentage (typically 2.5–5%) of each payment as retention, released at practical completion (or half at practical completion, half at end of defects liability period). This incentivises the contractor to complete snags promptly.

It is standard practice in London domestic construction for contractors to ask for a deposit before work starts. Typical deposit amounts:

• Small works (under £15,000): 10–20% deposit
• Medium projects (£15,000–£100,000): 10–15% deposit
• Large projects (over £100,000): 5–10% deposit, sometimes staged into two initial payments

A deposit is reasonable — it covers material procurement, labour booking, and early preparation costs. However:

• Never pay a deposit of more than 30% of the total contract sum
• A contractor asking for 50–70% upfront before work starts is a warning sign
• Confirm what the deposit covers in writing before paying

Warning signs that a payment request may be problematic:

• Request for a very large upfront payment before any work is done
• Pressure to pay cash with no paper trail
• Vague or non-existent contract before payment is requested
• Requests to change payment to an individual's personal bank account rather than the company account
• Requests for additional payments before agreed stages are reached without a written variation order
• Contractor claiming materials have already been ordered or paid and asking for reimbursement without receipts

Written contract: A signed written contract is the most important protection. It should specify: the scope of work, the contract sum, the payment schedule, what triggers each payment, the defects liability period, and dispute resolution procedure.

Do not pay ahead of stage: Pay at or after the agreed stage is reached, not before. If a contractor asks to be paid for a stage before it is complete, get a specific, agreed reason in writing.

Retention: Retention provides leverage to ensure snags are resolved after practical completion. If your contract does not include retention, consider negotiating it in.

Check work before paying: Before releasing each stage payment, walk the site and confirm the relevant work has been completed. For larger projects, ask your architect or project manager to certify each stage.

Joint names account (for very large projects): Some homeowners and contractors use a joint names account or escrow for large sums. Money is only released when both parties sign off. This is not common for standard domestic projects but is available for larger schemes.

The Housing Grants, Construction and Regeneration Act 1996 (and its 2011 amendment) gives construction professionals (contractors, subcontractors) the right to suspend work for non-payment and to receive payment notices and pay less notices under a defined process.

In domestic contracts (residential homeowners), these statutory payment rights do not automatically apply — but most well-drafted contracts include equivalent provisions. Understanding this:

• A contractor has the right to stop work if you don't pay what's due
• You have the right to dispute a payment application with a valid reason

If a contractor stops working and does not return:

1. Document everything — photograph the site, note what has and has not been done
2. Send a formal written notice to the contractor (email and recorded letter) giving them a defined period (typically 7–14 days) to return to site or provide a written explanation
3. Review the contract — check what it says about termination for contractor default
4. Do not pay any outstanding balance until the situation is resolved
5. Get the site made safe — if there are safety hazards, address these immediately regardless of the payment dispute
6. Get quotes from other contractors for completion of the works
7. Seek legal advice if significant money is at stake

Do not pay the remaining balance to a contractor who has abandoned your project in the hope that they will return. They are unlikely to, and you will have lost your leverage.

If a contractor claims the project has overrun and demands more money:

1. Check the written contract — is this a variation to the agreed scope, or is the contractor simply claiming more for work that was already included?
2. Ask for a written variation order describing what additional work has been done and why it was not included in the original contract
3. If you authorised additional works verbally, acknowledge that and agree a price before allowing work to continue
4. If the claim is disputed, request a meeting and try to resolve it without escalating to formal dispute

Verbal instructions are problematic — always follow up any verbal instruction with a written confirmation of what was agreed and the cost.

If a payment dispute cannot be resolved informally:

Adjudication: The most common formal route for construction disputes. An adjudicator makes a binding decision within 28 days. Quicker and cheaper than litigation. Available under most well-drafted contracts.

Mediation: Both parties voluntarily participate in a structured discussion with a neutral mediator. Non-binding but often resolves disputes without litigation.

Small claims court: For amounts under £10,000, the small claims track in the County Court is accessible and relatively straightforward.

County Court: For amounts between £10,000 and £100,000, the fast track or multi-track County Court process. Requires legal advice and can take 12–18 months.

A professional contractor will:

• Provide a written contract before any payment is made
• Not ask for excessive deposits
• Provide VAT invoices for all payments
• Pay subcontractors and suppliers on time (cash-flow problems are often the root of contractor behaviour issues)
• Have proper business bank accounts in the company name
• Be insured (public liability, employer's liability, and often all-risks)

Checking Companies House for a contractor's financial health — looking at filing history, any county court judgements, and years of trading — is straightforward and free. A contractor with a history of late filing or strike-off notices may have financial problems.

rcbGroup provides clear, written contracts with defined stage payments, regular financial reporting, and professional project management — giving London homeowners full visibility of where their money is going throughout the build.