Bud writes: Our contract is a fixed fee tied to the final cost per square foot, and it provides the builder a bonus for meeting the cost target. Should the bonus be held until the punch list is completed or paid at the final draw before punch list? Second, who typically pays for the punch list, the builder or the owner, if issues arise and the workmanship was not up to par originally?
Steve Bliss, of BuildingAdvisor.com, responds: This sounds like some variation of a cost-plus-fixed-fee contract, but the issues are similar with any contract.
As for when to pay the final check, retainage (or bonus, in this case), this is typically done at “substantial completion” with a hold-back for punch list items. The hold-back should be at least twice the value of the punch list work — the more you can hold back the better in terms of motivating the contractor to finish the job. You should definitely retain enough to pay another contractor to complete the job if necessary. If the hold-back amount is not covered in the contract, then it becomes a matter of negotiation between the owner and contractor.
The general idea is to not pay the contractor for work not yet completed so you have some leverage.
As for who should pay for punch-list items, on a typical fixed-price contract this work is definitely paid for by the contractor since the punch list work is required to fulfill the original scope of work. On a cost-plus job, it’s a little more murky if it is not specifically addressed in the contract. For standard punch-list items like a missing molding, I would expect the owner to pay. If the problems are with the workmanship, it’s a subject for negotiation. As an owner, I would be unhappy about paying a contractor to do something twice — first the wrong way, then the right way. On the other hand, the contractor might argue that the owner’s quality standards are beyond normal construction standards and therefore he should pay to get the work to his personal standards.