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Having Customers Pay Subs Directly

 
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Old 08-26-2019, 09:19 AM   #1
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Having Customers Pay Subs Directly


I just received my contractors license in Minnesota. When I purchased my insurance the agent gave me a few helpful tips. One was to not be a middle man with money between the customer and the subs. He explained that it’s less of a risk to just have the customer pay subs directly (since I’ll be doing 99% of the work myself).

The only scenarios I would have others do the work would be electrician’s, plumbers and carpet installation.

So my question is does anyone else who runs a small one man operation have their customers pay subs directly? Thanks!
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Old 08-26-2019, 10:11 AM   #2
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Re: Having Customers Pay Subs Directly


NO!!!!!

ABSOLUTELY NOT!!!!!

You will lose control of the job and the ho's will soon be dealing directly with the subs leaving you ass out.

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Old 08-26-2019, 01:49 PM   #3
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Re: Having Customers Pay Subs Directly


Quote:
Originally Posted by griz View Post
NO!!!!!

ABSOLUTELY NOT!!!!!

You will lose control of the job and the ho's will soon be dealing directly with the subs leaving you ass out.
This X 10000
The entire reason for being the lead contractor or GC it to make more money for your efforts. A big part of making more money is to run subs through your books and get a mark-up on them. It takes time, money and effort to locate subs, acquire quotes, manage the project and schedule them, hold them to quality, housekeeping and safety standards, etc. and you need to get paid for this.

The client does not need to know your subs price or how much you are marking them up. All they need to know is your lump sum price for the job. They don't even need to know who your sub is until they arrive on the jobsite.
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Old 08-26-2019, 02:03 PM   #4
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Re: Having Customers Pay Subs Directly


I work hand in hand with lots of contractors as a sub, but actually work for the HO & get paid from the HO & not the contractor.
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Old 08-26-2019, 02:03 PM   #5
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Re: Having Customers Pay Subs Directly


Quote:
Originally Posted by Mcconnda View Post
I just received my contractors license in Minnesota. When I purchased my insurance the agent gave me a few helpful tips. One was to not be a middle man with money between the customer and the subs. He explained that itís less of a risk to just have the customer pay subs directly (since Iíll be doing 99% of the work myself).

The only scenarios I would have others do the work would be electricianís, plumbers and carpet installation.

So my question is does anyone else who runs a small one man operation have their customers pay subs directly? Thanks!


What state are you in and what is your license classification?


Mike.
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Old 08-26-2019, 03:39 PM   #6
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Re: Having Customers Pay Subs Directly


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Quote:
Originally Posted by Mcconnda View Post
I just received my contractors license in Minnesota. When I purchased my insurance the agent gave me a few helpful tips. One was to not be a middle man with money between the customer and the subs. He explained that it’s less of a risk to just have the customer pay subs directly (since I’ll be doing 99% of the work myself).

The only scenarios I would have others do the work would be electrician’s, plumbers and carpet installation.

So my question is does anyone else who runs a small one man operation have their customers pay subs directly? Thanks!


What state are you in and what is your license classification?


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Minnesota. I have my residential remodelers license. The only difference between that and a general contractors license is I am not allowed to build new structures.
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Old 08-26-2019, 03:48 PM   #7
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Re: Having Customers Pay Subs Directly


What Your insurance guy is recommending you do sounds a lot like insurance fraud. Your subs, your responsibility, doesn’t matter how you shuffle money around. I think your sub contracted work is around 1% of your insurance premiums (every $100,000 worth of work you sub out adds $1000 to your premiums), if your margins are that tight you need to address that.
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Old 08-26-2019, 04:21 PM   #8
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Re: Having Customers Pay Subs Directly


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What Your insurance guy is recommending you do sounds a lot like insurance fraud. Your subs, your responsibility, doesnít matter how you shuffle money around. I think your sub contracted work is around 1% of your insurance premiums (every $100,000 worth of work you sub out adds $1000 to your premiums), if your margins are that tight you need to address that.
Hows it insurance fraud if I carry my own insurance?
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Old 08-26-2019, 05:40 PM   #9
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Re: Having Customers Pay Subs Directly


Sounds more like a construction manager type arrangement.
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Old 08-26-2019, 06:34 PM   #10
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Re: Having Customers Pay Subs Directly


If the guy is being paid by the home owner they are not the contractors subs, they are the HO'S.


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Old 08-26-2019, 06:48 PM   #11
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Re: Having Customers Pay Subs Directly


In MN, th GC is responsible for all the subs and their work on your job.

If the HO hires a separate sub (ie electrical) the GC is still liable for the electrician and their work.

You got poor advice from your ins agent.
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Old 08-26-2019, 07:01 PM   #12
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Re: Having Customers Pay Subs Directly


Been subbing since day one. Canít recall ever being paid by the HO.


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Old 08-26-2019, 07:02 PM   #13
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Re: Having Customers Pay Subs Directly


One man show here, home repairs is the specialty.

I sub out and markup specialty repairs Such as plumbing or electrical. I do the majority of everything else myself.

200 bucks for the electrician to put in two Canliteís, I charge 250.

Hypothetically speaking of course. We donít do pricing here.

I should be compensated for my relationships and for knowing who to call and for having them available.

Sometimes, if the job is not that interesting or profitable, I just give the potential customer the name of an electrician or painter.

If itís out of my area or above my level of expertise , I refer other contractors. I donít expect a kickback. It works both ways, they send me their small repairs.
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Old 08-26-2019, 07:44 PM   #14
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Re: Having Customers Pay Subs Directly


Quote:
Originally Posted by pinwheel View Post
Hows it insurance fraud if I carry my own insurance?
Itís fraud because theyíre his subs and heís trying to bypass his responsibilities by having a homeowner cut the check directly to the sub.. Will he get away with it? Probably for a while. Eventually his insurance company will wonder how heís making a living as a GC with no subs..
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Old 08-26-2019, 07:57 PM   #15
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Re: Having Customers Pay Subs Directly


I MN, the HO has the right to pay all labor and materials directly to the supplier of said materials or Subs.
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Old 08-26-2019, 08:02 PM   #16
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Re: Having Customers Pay Subs Directly


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Itís fraud because theyíre his subs and heís trying to bypass his responsibilities by having a homeowner cut the check directly to the sub.. Will he get away with it? Probably for a while. Eventually his insurance company will wonder how heís making a living as a GC with no subs..
He could do so acting as a CM.
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Old 08-26-2019, 08:05 PM   #17
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Re: Having Customers Pay Subs Directly


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I MN, the HO has the right to pay all labor and materials directly to the supplier of said materials or Subs.
Then I guess he’s covered.

You can do that here too but if you’re doing it strictly to avoid insurance coverage it’s suspect. It’s allowed because some customers want the extra security of paying the sub directly to be sure the GC isn’t misappropriating funds opening them up to a lien. I can pretty much guarantee my insurance provider wouldn’t tell me it’s an ok practice to use to lower my premiums though.
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Old 08-26-2019, 08:32 PM   #18
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Re: Having Customers Pay Subs Directly


Quote:
Originally Posted by PCI View Post
In MN, th GC is responsible for all the subs and their work on your job.

If the HO hires a separate sub (ie electrical) the GC is still liable for the electrician and their work.

You got poor advice from your ins agent.


That has to depend on the contract. It's highly possible the GC is contractually responsible for managing the subs but not financially. Again it's always about the contract.


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Old 08-26-2019, 08:35 PM   #19
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Re: Having Customers Pay Subs Directly


I can be a GC for any part of the job I agree to. In other words I can do a whole kitchen accept the plumbing if that's what my contractual obligations are. There's no law that says if I'm going to be the GC I have to do every operation of the project.

And I can do it because I don't want to be responsible for the plumbers insurance. Simply put in the contract plumbing done by others. Matters none why I won't do the plumbing.


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Old 08-26-2019, 09:16 PM   #20
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Re: Having Customers Pay Subs Directly


Whoever is writing the check is who the sub-contractor is contracted with... hence, sub-contractor...

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