# Draws



## CarpenterSFO (Dec 12, 2012)

In California taking funds from one project to pay for another is a violation of contract licensing law. In practice it only becomes an issue when a contractor can't finish a job because he's run out of money.

It's a corollary law to the requirement that a contractor must have the capital to complete his projects.

Edit: I hate to keep saying "in California..." but the fact is that these sorts of laws are very state-dependent.


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## Jaws (Dec 20, 2010)

AllanE said:


> You have 10 jobs going on simultaneously, various draws coming from different jobs, one operating account. Of course you will be commingling funds.


How so, if you have the job seperated in Quick Books or something like that? 

Maybe I am not using the term correctly, I am not an attorney :laughing:

When i say comingling, I mean pay for client As project costs with client Bs money, because you havent been paid for client As costs yet but you have client Bs money. That is like writing a hot check to cover your gas until you get paid on friday. Or actually, using someone elses gas card without permission, in hopes you will pay the bill before they see it? How is that not illegal? I thought this was the purpose of credit and operating capital?


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## CarpenterSFO (Dec 12, 2012)

Jaws said:


> How so, if you have the job seperated in Quick Books or something like that?
> 
> Maybe I am not using the term correctly, I am not an attorney :laughing:
> 
> When i say comingling, I mean pay for client As project costs with client Bs money, because you havent been paid for client As costs yet but you have client Bs money. That is like writing a hot check to cover your gas until you get paid on friday. Or actually, using someone elses gas card without permission, in hopes you will pay the bill before they see it? How is that not illegal? I thought this was the purpose of credit and operating capital?


Exactly. I'm out of thanks, else I would have just thanked the post.


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## Jaws (Dec 20, 2010)

EthanB said:


> This may be the case John, but I don't see how it could successfully be proved in our industry with supplier accounts, cc's, etc.. As long as you can pay for the other job or provide a deposit refund, I can't see how it would ever be an issue.
> 
> For a major corp., this is probably a very different animal.


I have no idea, I am no expert by any means. It would never come up I imagine unless the contractor runs out of money floating checks or is audited. 

I am not attacking anyone, I am just trying to learn.


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## griz (Nov 26, 2009)

Jaws said:


> ...It would never come up I imagine unless the contractor runs out of money floating checks or is audited....


Happens many times & is exactly how a guy can get in trouble.


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## Jaws (Dec 20, 2010)

When I was a kid my dad opened a seperate account for every house he built, to keep it from happening. Which is essentially what we do now with different ledgers in Quick Books. I am not the book keeper, I just know the basics and how to see where we are on each project by looking at QB. 

My granddad actually had the homeowner open a joint account and he wrote the checks to his subs and suppliers out of it.


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## griz (Nov 26, 2009)

Jaws said:


> When I was a kid my dad opened a seperate account for every house he built, to keep it from happening. Which is essentially what we do now with different ledgers in Quick Books. I am not the book keeper, I just know the basics and how to see where we are on each project by looking at QB.
> 
> My granddad actually had the homeowner open a joint account and he wrote the checks to his subs and suppliers out of it.


I know a guy who builds custom homes and that is exactly what he does.


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## AllanE (Apr 25, 2010)

Money is fungible so when you deposit funds from several jobs in one operating account, you typically are not tracking the use of that money after it is deposited. Yes, your accounting system labels the deposit as to the job it comes from, the GL account it is deposited into, and your job costs. But you don’t specifically take money from client A and only pay invoices for client A. 

Opening an account for each job? What an accounting nightmare and waste of time. Stick it all in one account, code incoming and outgoing money per job and cost code, pay your bills and run your business conservatively and all will be ok.


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## Jaws (Dec 20, 2010)

AllanE said:


> Money is fungible so when you deposit funds from several jobs in one operating account, you typically are not tracking the use of that money after it is deposited. Yes, your accounting system labels the deposit as to the job it comes from, the GL account it is deposited into, and your job costs. But you don’t specifically take money from client A and only pay invoices for client A.
> 
> Opening an account for each job? What an accounting nightmare and waste of time. Stick it all in one account, code incoming and outgoing money per job and cost code, pay your bills and run your business conservatively and all will be ok.


Agreed on seperate accounts, I imagine thats why he quit doing it that way in the mid 90s. 

I disagree money isnt tracked after its deposited. I can look at Excel or QB and see when and how much I paid for the granite at the Parsons project and concrete on the Lacy project within a couple days of it being paid usually. By looking at that, I can see what the client has paid me and what they owe me, what is due before the next draw, if the project is on budget and if I am paying out of pocket with company money at that point waiting on a draw or whether there is money from the last draw. 

One thing I know for sure is I would hate to be a book keeper :laughing:


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## AllanE (Apr 25, 2010)

Jaws said:


> I disagree money isnt tracked after its deposited. I can look at Excel or QB and see when and how much I paid for the granite at the Parsons project and concrete on the Lacy project within a couple days of it being paid usually.


Of course you can track draws and job costs on each job.


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## Dan_Watson (Mar 1, 2008)

Jaws said:


> Agreed on seperate accounts, I imagine thats why he quit doing it that way in the mid 90s.
> 
> I disagree money isnt tracked after its deposited. I can look at Excel or QB and see when and how much I paid for the granite at the Parsons project and concrete on the Lacy project within a couple days of it being paid usually. By looking at that, I can see what the client has paid me and what they owe me, what is due before the next draw, if the project is on budget and if I am paying out of pocket with company money at that point waiting on a draw or whether there is money from the last draw.
> 
> One thing I know for sure is I would hate to be a book keeper :laughing:


Do you track your in house labor per project like this as well?


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## Jaws (Dec 20, 2010)

Dan_Watson said:


> Do you track your in house labor per project like this as well?


Yes


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## Jaws (Dec 20, 2010)

AllanE said:


> Of course you can track draws and job costs on each job.


I guess I dont understand how thats not using Client money to pay for client As project.


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## Dan_Watson (Mar 1, 2008)

Jaws said:


> Yes


This thread has taken some turns....

How often is that calculated? How do you get those numbers in that time frame?

Who does your book keeping?


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## EricBrancard (Jun 8, 2012)

When we are talking about draws and using funds from one job to fund others, I think every draw on a job does contain a percentage of money that goes to O&P. So say off a $15k draw, not all $15k is directed to job cost, some of that is company money. Part of that overhead goes to operating capital. This is why as long as you are keeping track of costs, the direction of funds happens on paper while the actual funds pool together in an account.


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## AllanE (Apr 25, 2010)

Jaws said:


> I guess I dont understand how thats not using Client money to pay for client As project.


You are using client's money to pay for their costs but if you have one operating account you mixing all client's money in terms of draws and payables.


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## Jaws (Dec 20, 2010)

Dan_Watson said:


> This thread has taken some turns....
> 
> How often is that calculated? How do you get those numbers in that time frame?
> 
> Who does your book keeping?


My mom is the office manager, she does it full time, 25 + years experience. I would not be able to keep the books the way we do them with out a full time person, and wouldnt want to. 

The in house labor isnt entered until payday, bi weekly. 

Every employee, including me, as a project manager/Estimator turns in a daily time sheet with hours and description of what was done on each project. Each task has a code, I dont know if you remember the list posted in the Custom Home Bid thread, but everyone of those tasks has a code. The code and employees name is entered in quick books. At the end of the job I will be able to see if I was off on any of my estimates. 

When we are too busy some of this takes longer than it is worth probably, but it is our system for better or worse. Most importantly its what the office manager is comfortable with. I just need the information, how I get it is not important. 

I have a much more rudimentary system for myself, I keep notes everyday in my little padfolio, how many hours by which hands at which jobs. It makes it easy for me to check their time sheets. My brother does the same thing with his jobs.


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## Jaws (Dec 20, 2010)

AllanE said:


> You are using client's money to pay for their costs but if you have one operating account you mixing all client's money in terms of draws and payables.


Absolutely. I get what you are saying.


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## Jaws (Dec 20, 2010)

Dan_Watson said:


> This thread has taken some turns....
> 
> How often is that calculated? How do you get those numbers in that time frame?
> 
> Who does your book keeping?


To be clear, I know what the results are of the system we use, and the basics of how it is implemented. But if something happened to my mom, or she quit, I wouldnt be able to runnit the same way or train someone on it. My dad probably could train someone just from being around it for so long. Neither of us would be interested in doing it full time. 

Thats why my SIL is doing some part time. Her education is in Business Management, and when her kids go to school will be probably be about the time my moms ready to hang it up. So hopefully she will be able to step right in. 

Otherwise, wed have to have our CPA recommend a book keeper and have her go through the system and try and pass it along. Which sounds expensive.


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## Dan_Watson (Mar 1, 2008)

Jaws said:


> My mom is the office manager, she does it full time, 25 + years experience. I would not be able to keep the books the way we do them with out a full time person, and wouldnt want to.
> 
> The in house labor isnt entered until payday, bi weekly.
> 
> ...


I do. And I believe the time sheets were discussed somewhere else as well. All of us do daily reports now for what job we were on, how long, major items. Supervisors also keep bound books with info and times. 

Our next big step is tracking project costs like you do along with better book keeping. Hence all of the questions.


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## Jaws (Dec 20, 2010)

Dan_Watson said:


> I do. And I believe the time sheets were discussed somewhere else as well. All of us do daily reports now for what job we were on, how long, major items. Supervisors also keep bound books with info and times.
> 
> Our next big step is tracking project costs like you do along with better book keeping. Hence all of the questions.


I am hoping someone with more knowledge on these subjects posts. I am looking to learn myself.


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## GovtContractor (Dec 4, 2014)

I can only explain how I have performed these things in the past. Since I do government work, public works, etc. everyone has a preliminary notice filed on the project, from the GC all the way down to the suppliers. 

After the project is awarded, we create what we call a "Schedule of Values." This is derived from the budget and the schedule. We forecast our project expenses and then create the SOV to submit monthly progress billing based on percentage of completion. 

We generally do not pay for materials or subcontractors until we get paid. If the client is a slow pay, or runs the risk of default, all project suppliers and subs follow the procedure for mechanic's liens. 

This protects our capital and spreads the risk among all who participate in the project. Additionally, our suppliers tend to have much more legal clout behind them, so we let them use that clout to put pressure on the client. 

As part of our monthly progress payment there are up to four different forms of releases are used to prove that we have paid for supplies and subs, etc. These releases protect the client and us, to ensure that everyone is being paid from the project funds. 

We don't use separate bank accounts, but every project is separated in the books, and all costs are job costed. We also have additional cost codes within each job to split up labor and materials by tasks, which helps our estimating dept. see where we were either over or under budget. 

Everything works hand in hand, but each project is completely independent of on another.


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## AllanE (Apr 25, 2010)

Dan_Watson said:


> Our next big step is tracking project costs like you do along with better book keeping. Hence all of the questions.


Tracking job costs is critical, contractors need that information real time. I would recommend a good contractors accounting system, I use Custom Homebuilders Solution, it is written for home builders and remodelers. 

http://www.chsontheweb.com:81/index.a5w


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## Jaws (Dec 20, 2010)

Our time sheets are generic, just added the company letter head. 

Date, name, work performed, and a job summary box which consolidates the project worked at and the total hours at that job. 

John 12/15/14

Lacy- met with concrete subcontractor and discussed footings location. Checked the DWV, scheduled the concrete deliver and made lists. 2.5 hrs. ( this would be billed and tracked as PM. We dont break into each category) 

Bliss- checked on the trim. Met with paint sub 1 hr (Pm) 
Helped guys with trim. 4 hrs (it would be coded as trim)

Rosamond- checked nail pattern of the roof deck. Cleaned up and ran a magnet. 2 hrs. (PM) 

P and Z- went to meeting in Marble Falls discussing tree ordinance. 1 hr. ( Networking) 

Hurd- met with client about a patio addition. 1.5 hrs (development) 

Arthur - brought pictures of existing structure and took measurements for dad. 1.5 hrs (design) 

Office- 2 hrs (tracked as office unless it is something we bill for. 

Often on CP projects, I will write "no bill" next to an item, like meeting with a sub or a client an additional time when I should of covered it in the first meeting, or if I am fixing something that should of been done in a different way. 

In the job summary, it would just show each jobs name and hrs. Like Bliss would be 5 hrs, not broke out between carpenter and PM.


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## Jaws (Dec 20, 2010)

AllanE said:


> Tracking job costs is critical, contractors need that information real time. I would recommend a good contractors accounting system, I use Custom Homebuilders Solution, it is written for home builders and remodelers.
> 
> http://www.chsontheweb.com:81/index.a5w


Thanks for the link :thumbsup:


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## AllanE (Apr 25, 2010)

Jaws said:


> Thanks for the link :thumbsup:


Jaws, I see you are in Texas. A very nice lady in Austin wrote CHS, in my opinion it is the best contractor software on the market. I used to use Quickbooks, then switched to Buildsoft in early 90's, changed to CHS 2005. Best move I ever made. There are 200-300 users.


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## Jaws (Dec 20, 2010)

AllanE said:


> Jaws, I see you are in Texas. A very nice lady in Austin wrote CHS, in my opinion it is the best contractor software on the market. I used to use Quickbooks, then switched to Buildsoft in early 90's, changed to CHS 2005. Best move I ever made. There are 200-300 users.


Ill definitely check it out. Im in Horseshoe Bay/Marble Falls, about an hour west of Austin. Thanks for the link.


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## AllanE (Apr 25, 2010)

GovtContractor said:


> I can only explain how I have performed these things in the past. Since I do government work, public works, etc. everyone has a preliminary notice filed on the project, from the GC all the way down to the suppliers.
> 
> After the project is awarded, we create what we call a "Schedule of Values." This is derived from the budget and the schedule. We forecast our project expenses and then create the SOV to submit monthly progress billing based on percentage of completion.
> 
> ...


I agree with everything you wrote and pretty much do it the same way, except for "not paying for materials or subcontractors until paid". I do not let job draws effect who I pay or when I pay them.

Allan


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## Jaws (Dec 20, 2010)

AllanE said:


> I agree with everything you wrote and pretty much do it the same way, except for "not paying for materials or subcontractors until paid". I do not let job draws effect who I pay or when I pay them.
> 
> Allan


Yep. Out of thanks.


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## Spencer (Jul 6, 2005)

Jaws said:


> When I was a kid my dad opened a seperate account for every house he built, to keep it from happening. Which is essentially what we do now with different ledgers in Quick Books. I am not the book keeper, I just know the basics and how to see where we are on each project by looking at QB.
> 
> My granddad actually had the homeowner open a joint account and he wrote the checks to his subs and suppliers out of it.


Are you actually creating an account for each job under the chart of accounts or just creating a job name and filing all costs under that job name?


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## Jaws (Dec 20, 2010)

Spencer said:


> Are you actually creating an account for each job under the chart of accounts or just creating a job name and filing all costs under that job name?


I dont do that at all. My dad did, and from my understanding he opened a seperate account for each new home. He quit doing it when I was in eighth grade or so, so I dont really know a lot about it.


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## Spencer (Jul 6, 2005)

Jaws said:


> I dont do that at all. My dad did, and from my understanding he opened a seperate account for each new home. He quit doing it when I was in eighth grade or so, so I dont really know a lot about it.


I've gotten a lot better at QB but am still untapping all its power. 

For any job I create a customer name. All costs are tagged to that customer and I either select "Billable" or "Non-billable" depending on if it was a fixed quote or not. I also do the same thing when I input my time. It is either billable or nonbillable.

This helps me make sure all my costs are getting billed on T&M and nothing slips through the cracks. 

I know I should be able to run reports on larger jobs to see exactly where I am at any given moment but haven't quite got that figured out yet. To get a true picture I almost have to wait until everything is billed and paid for, or at least I have to wait until everything is washed out to really trust the number that I am seeing.


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## Spencer (Jul 6, 2005)

As far as draws go, I'm still figuring things out. This year on bathrooms and smaller projects I would typically do 50% down, then 35%, then 15%. 

A lot of times if a job goes fast I just end up doing 50% before start, 50% upon completion. This is for jobs 5-10 days.


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## GovtContractor (Dec 4, 2014)

That's fine if you have subs that you work with a lot and enough cash to do so. 

We do it as a matter of risk management. All projects come with some form of risk associated with them. When projects reach $1M +, it's not feasible to finance the clients projects. I am not a bank and the cost of capital is a hidden cost to our company. Just because I have money in the bank, doesn't mean I should finance a project beyond a reasonable extent. I need to preserve my cash for other purposes. 

Risk is shifted onto the subs and suppliers. And in my industry, it's just the way it's done. California law has negates the "pay if paid" clause, but "pay when paid" is still used. Most medium sized contractors have a line of credit to keep their own company moving forward while awaiting payment. 

As I stated previously, my experience is on larger government type work. Most jobs run for 6 months to a year or more and range upwards of $1M. I've had subcontract billing in excess of $1M. Can't float that.


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## Calidecks (Nov 19, 2011)

In this state it's illegal to take money for any part of the job that isn't completed. You can't even take a material draw without the material being onsite. Taking money up front is called Frontloading and it's illegal here. 

However there is two exceptions. 

1. You may take money upfront but you first have to have a payment bond and it needs to be on file with the licensing board. It's used by the big box stores often.

2. You may take a deposit of 1000 dollars or 10% whichever is LESS. So on a million dollar project you may take 1000 dollars.


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## Calidecks (Nov 19, 2011)

Straight from the licensing board website. 

Consumers also should be aware that their contractor cannot “front load” the contract by asking for project funds in advance. That means a person should never pay for work before it is completed, or for materials before they are delivered to the property. Make sure the written contract contains a progress payment schedule that outlines project phases, with all costs and estimated completion dates


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## Jaws (Dec 20, 2010)

GovtContractor said:


> That's fine if you have subs that you work with a lot and enough cash to do so.
> 
> We do it as a matter of risk management. All projects come with some form of risk associated with them. When projects reach $1M +, it's not feasible to finance the clients projects. I am not a bank and the cost of capital is a hidden cost to our company. Just because I have money in the bank, doesn't mean I should finance a project beyond a reasonable extent. I need to preserve my cash for other purposes.
> 
> ...


I dont see anything wrong with pay when paid, IF all parties are ok with it. 

Obviously commercial and residential are two different deals. 

For me personally, on residential, I pay when I am invoiced as I said. If I was a residential sub that is what I would expect. I certainly wouldnt work for 80% of residential GCs I have encountered here. ( here being where I live, not CT)

I also pay when invoiced on commercial, but I have never done a big commercial job. The biggest one in terms of money was a large plant roof replacement, anything bigger we would have to make different arrangements I imagine, whether credit or pay when paid.


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## Calidecks (Nov 19, 2011)

Jaws said:


> I dont see anything wrong with pay when paid, IF all parties are ok with it.
> 
> Obviously commercial and residential are two different deals.
> 
> ...


California has statues to protect subs. "Pay when paid clauses"

CA Business & Professions Code

§ 7108.5 Prime building contractors and subcontractors; payment to subcontractors; withholding payments; violation; penalty

*

A prime contractor or subcontract shall pay to any subcontractor, not later than 10 days of receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor’s interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.

Any violation of this section shall constitute a cause for disciplinary action and shall subject the licensee to a penalty, payable to the subcontractor, of 2 percent of the amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs.

The sanctions authorized under this section shall be separate from, and in addition to, all other remedies either civil, administrative, or criminal.


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## Jaws (Dec 20, 2010)

Why would you be able to hold 50% more than is owed? How do you even hold more than is owed?


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## Calidecks (Nov 19, 2011)

Jaws said:


> Why would you be able to hold 50% more than is owed? How do you even hold more than is owed?


Driving right now I'll be back to answer


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