I would question those billing practices as well. Check out the owner-contractor agreement. If the owner agreed to pay for services not yet rendered then the contractor has that latitude...if the owner agreed to this they are not very business savvy to say the least. If the contract does not allow for those billing practices then I would suggest that the owner has the contractor amend the invoice.

"I just spoke to the GC and he said that he assigns the percentages at his discretion in order to build up some "in-house funds" so that he has money to pay subs when the need arises."

the need to pay subs arises after the subs have done their work (or a portion), the client is billed, and the GC is paid. the GC has no need to pay subs any other way or time unless he wants to have his own unusual agreements with them. that he wants to deviate from standard means is his choice - it doesn't mean you need to take the project billing down that path.

i suspect he's short on cash and you'll have no means of tracking progress via dollars once you go down this slippery slope.

35% seems high for flatland but low for hillside.

Nothing too too wrong with that. Just make sure none of these numbers exceed 100%. After all what's 10% of imaginary HVAC system between friends?

35% figure you mention appears irrelevant to discussion. Did the contractor not submit a bid for the project? Were foundation and framing not listed in the cost breakdown? Next time make sure your bid submittal gives you that kind of info.

As a veteran of these types of small projects and wonky GC practices, your instincts are right - Make sure that 35% doesn't stray too far from reality. It sounds to me like he's closer to 25%, and I would approve billing for that amount. Make him re-adjust his percentages and re-submit the invoice. He should learn now that you're watching his bottom line - as you should, per your contractual and ethical duty to your client. It's not your client's responsibility to float your GC's business. If your GC can't manage his cash flow properly that's his problem, not your client's.

Worst-case scenario - GC takes too much money up-front, then decides he doesn't want to deal with any changes or with finishing the job and walks when he's at 80% but really only 60% completion. Yes, it's illegal, but does your client really want to go after him? This kind of thing DOES happen in the construction world.

On a smaller level, I've had problems in the past with subs that were advance paid and then attempted to shirk responsibility to fix mistakes. That's the GC's responsibility too, and should have nothing to do with your client, but a shyster GC will try to make it your client's problem. "I can't get this electrician in for a few weeks... why do you need this outlet moved? It's in the wrong place? But that was the closest stud..." (aka, "I already paid the guy and now he won't come back to fix it, therefore I will have to pay another electrician out of my own pocket to get him to come move these wrong outlets")

In a bad situation, the ONLY thing you have to hold over your GC's head is his remaining pay. It is critical to make sure you have some cushion leftover for the end of the project, to make sure that punchlist gets properly addressed and nobody's walking off with your client's money.

If its not on site or installed then there is no reason to be paying anything. Its raises a red flag and the worst case would be that the contractor is "stealing from peter to pay paul" with funds from somebody else.... is his name Bernie Madoff? The contractor should be using his own float for such expenses or at least the home owners 10 % deposit.

The only thing to keep in mind is if there are special order things, specialized equipment or custom items perhaps, that are not normal construction materials the subs/GC might want money up front for that. The items won't be installed yet, but if it/they are a big ticket item the GC's regular amount of cash-on-hand might not be enough to cover it.

If he's saying "I just bill way in advance for all my drywall because I want to" then that's a bit sketchy.

Also, you do say the windows are delivered - I'll bet windows are a pretty big percentage of the overall construction cost, no?

Yeah this did raise a few questions in my mind. Did he need to cover deposits for long lead items? (custom cabinetry for example) Also windows could be a big chunk, depending. The question is, how far along do *you* think he is?

He's building up a fund so he can spread money to other subs that might already be over-budget, or that he thinks might be over-budget in the future. There's always some of this that goes on, but it seems like he is getting ahead of himself billing for subs he hasn't even signed on. I would watch him very closely.

The way it should work (at least in California) is the sub bills the GC who then pays the sub, at the same time, the GC gives the bill to the client and often has to wait a month or two (for really large jobs) to get paid. This is a big part of the GCs risk and they really have to have good cash reserves to cover paying the subs before the client pays them.

I guess with small projects it's all probably much less cut and dry and depends on what the client has negotiated. If it gets really bad, you should definitely let the client know.

what does the contract say? Most contracts allow the contractor to be paid only for work in place, less a retainage amount held against completion. I've never seen a contract that allowed a contractor to create an "in-house" slush fund. How can you be assured he will use the slush on this project?

Pay him for work completed, if that's what the contract says.

As an Architect and General Contractor, I can tell you it is not too uncommon to collect as much as 25% total project costs up front at the start of a job. In this economic climate it is very hard for many GCs to extend credit to your client for work completed but not yet paid for so I would be inclined to give him a break if he seems above board in other respects.