Contractor Payment Schedules: Industry Standards and Washington Law

How and when you pay your contractor significantly impacts your protection throughout a project. Pay too much upfront and you lose leverage. Pay too little and good contractors won't work with you. Understanding payment best practices—and what Washington law allows—keeps you protected.

Washington State Payment Requirements

Washington doesn't cap contractor deposits or mandate specific payment schedules for residential projects. However, the Contractor Registration Act (RCW 18.27) does require:

• Written contracts for projects over $1,000
• Payment schedule must be included in the contract
• Clear description of how price is determined

While there's no legal limit on deposits, the Washington State Attorney General and Department of Labor & Industries recommend never paying more than 10% upfront or $1,000, whichever is greater.

Industry Standard Payment Schedules

Typical Progress Payment Schedule

Payment	When	Amount
Deposit	Upon signing	10%
Progress 1	Demo/rough-in complete	25%
Progress 2	Major work complete	30%
Progress 3	Substantial completion	25%
Final	After punch list	10%

This schedule keeps the contractor funded to purchase materials while maintaining your leverage through retained funds.

Alternative: Milestone-Based Payments

Better than time-based payments, milestone payments tie payment to actual progress:

Kitchen Remodel Example:

• 10% at contract signing
• 15% when cabinets ordered (proof of order required)
• 20% after rough plumbing and electrical inspection passed
• 25% after cabinets installed
• 20% after countertops and final inspections
• 10% held until punch list complete

Large Project Payment Schedules ($100K+)

For substantial projects, more granular schedules protect both parties:

• 5% at signing (good faith)
• 10% upon permit approval
• 15% upon delivery of major materials
• 15% upon completion of rough work
• 20% upon passing rough inspections
• 15% upon substantial completion
• 10% upon final inspection
• 10% retention held for 30 days post-completion

Understanding Retention

Retention (also called retainage) is a percentage of each payment withheld until project completion. It protects you against incomplete work and punch list items.

How Retention Works

Example: 10% retention on a $50,000 project

Each payment, you withhold 10%:

• Progress payment due: $12,500
• Retention: $1,250
• You pay: $11,250

By project end, $5,000 is held in retention. It's released only after:

• Final inspection passes
• Punch list complete
• Lien waivers received
• Any required warranties provided

Washington Retention Norms

Residential projects: 5-10% typical Commercial projects: 5% is standard (sometimes regulated)

Retention Red Flags

❌ Contractor refuses any retention ❌ Contract requires retention release before completion ❌ No clear criteria for retention release

What to Pay At Each Stage

Deposit (10% or less)

What it covers:

• Good faith commitment
• Administrative costs
• Initial material ordering

What you should receive:

• Signed contract
• Copy of insurance certificates
• Permit application submitted
• Estimated material order timeline

Red flag: Deposit demand over 20% without exceptional justification (custom materials requiring factory deposit, etc.)

Progress Payments

What triggers payment:

• Completion of defined scope milestones
• Passed inspections (rough plumbing, electrical, etc.)
• Material delivery (with receipts/documentation)

Before each payment, require:

• Lien waiver for previous payment
• Updated schedule of values
• Inspection approvals if applicable
• Photo documentation of completed work

Final Payment

What triggers final payment:

• All work complete per contract
• Final inspection passed (with certificate)
• Punch list items addressed
• Final lien waivers from contractor and all subs
• Warranty documents provided
• Closeout documents (manuals, as-builts)

Never pay final payment:

• Before final walkthrough
• Without final inspection approval
• Without lien waivers from all parties
• With punch list items outstanding

Protecting Yourself: Lien Waivers

A lien waiver is a document where a contractor or subcontractor acknowledges payment and waives the right to place a mechanics lien on your property for that work.

Types of Lien Waivers

Conditional lien waiver: "I waive my lien rights upon receipt of payment of $X." Use when: Submitting with each progress payment request

Unconditional lien waiver: "I have received $X and waive my lien rights." Use when: After funds have cleared

Washington Mechanics Lien Law

Under RCW 60.04, contractors and subcontractors can place liens on your property if not paid—even if you paid the general contractor.

Protect yourself:

1. Require lien waivers with every payment
2. Get waivers from subcontractors, not just the GC
3. Consider joint checks (see below)
4. For large projects, require the GC to list all subs

Joint Check Protection

For significant subcontractor work, you can issue checks payable to both the GC and the subcontractor. Both must endorse, ensuring the sub gets paid.

Example: Check made out to "ABC Contracting AND XYZ Plumbing"

Red Flags in Payment Requests

Be Concerned If:

Front-loaded payment schedule:

• 50% upfront
• 40% at rough-in
• 10% at completion This eliminates your leverage too early

Requests don't match progress:

• Payment request for "rough plumbing" but no inspection scheduled
• Materials "delivered" but not verified on site

No lien waivers provided:

• Contractor is vague or resistant about lien waivers
• Never provides sub waivers

Cash preferred:

• Requests cash or money orders
• Discounts for cash payment Paper trail protects you

Emotional pressure:

• "I need this payment to pay my crew"
• "I can't order materials without full payment"
• Claims of cash flow emergency

Schedule acceleration:

• Payments requested ahead of milestones
• "We're ahead of schedule" but work doesn't show it

What to Do When Contractors Deviate

If They Ask for More Upfront

Legitimate reasons:

• Custom/specialty materials requiring factory deposit
• Long lead-time items where manufacturer requires payment
• Very large projects with significant upfront material costs

Your response:

• Request documentation (manufacturer invoice/requirements)
• Consider paying the supplier directly
• Add materials-specific payment milestone instead of larger deposit

If They Want Payment Before Milestone

Ask:

• What specifically has been completed?
• When will the milestone inspection occur?
• Can we schedule a site meeting to review progress?

If They Won't Provide Lien Waivers

Firm response: "Our contract requires lien waivers with each payment. This protects both of us. I'm happy to issue payment upon receipt of the waiver."

If they refuse, this is a significant red flag.

Sample Payment Schedule Clause

"Payment shall be made according to the following schedule, subject to completion of specified milestones and provision of conditional lien waivers:

1. Contract signing: 10% ($X) 2. Upon permit approval and material delivery: 20% ($X) 3. Upon completion of rough-in work and passed rough inspections: 25% ($X) 4. Upon substantial completion: 25% ($X) 5. Upon completion of punch list and receipt of final lien waivers: 20% ($X)

No payment shall be due until Contractor provides conditional lien waivers for all work covered by the payment request. Final payment shall not be due until Contractor provides unconditional lien waivers from all subcontractors and material suppliers."

Real-World Scenarios

Scenario 1: Contractor Demands 50% Upfront

Situation: Contractor says they need 50% to order materials. Red flag level: High Response: "I'm comfortable with industry standard—10% deposit, with a materials milestone payment when delivered and verified. If specific materials require factory deposits, please provide documentation and we can pay those suppliers directly."

Scenario 2: Payment Request Without Progress

Situation: Contractor requests second payment, but rough-in isn't complete. Response: "I'd like to do a walkthrough before this payment. Per our contract, payment 2 is tied to completion of rough-in and passed inspection. Can we schedule the inspection this week?"

Scenario 3: Sub Shows Up Asking About Payment

Situation: Plumber visits asking if you've paid the GC. Red flag level: Medium to High Response: "I've paid per our contract. Can you tell me what amount is outstanding?" Then contact your GC immediately. Request lien waivers and evidence of sub payment.

Scenario 4: Final Payment Demand, Punch List Not Done

Situation: Contractor says project is complete and wants final payment, but 15 punch list items remain. Response: "I'm happy to release final payment when punch list items are complete. Per our contract, final payment is due after the punch list walkthrough. When can you complete these items?"

The Bottom Line

Payment best practices:

1. Never pay more than 10% upfront
2. Tie payments to milestones, not dates
3. Retain 10% until everything is complete
4. Require lien waivers with every payment
5. Document everything with photos
6. Never pay final without final inspection approval

Your payment schedule is your primary leverage. Once money is paid, getting work completed becomes harder. Protect yourself by keeping the contractor funded—but never overfunded.

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