Key Takeaways
- Five principles: milestone-based, back-loaded, verified, waiver-protected, retainage-reserved.
- Verify every draw with site visit, inspection, and waiver collection.
- Mechanics liens from unpaid subs can attach even when GC is fully paid.
- State lien laws vary—consult local construction attorney.
The draw schedule is the primary financial control mechanism during construction.
Process Flow
Design Principles
Five principles: Milestone-Based, Back-Loaded, Inspection-Verified, Lien-Waiver Protected, Retainage-Reserved. Violating any increases financial exposure.
| Contractor Type | Material Markup | Labor Markup | Overhead | Profit Margin | Typical Total Markup |
|---|---|---|---|---|---|
| Solo Handyman | 10-15% | 0% (is the labor) | 5-10% | 15-25% | 30-50% over materials |
| Small GC (1-3 crews) | 15-25% | 25-40% over cost | 10-15% | 8-12% | 50-75% over direct cost |
| Mid-Size GC (4-10 crews) | 10-20% | 30-50% over cost | 12-18% | 6-10% | 55-85% over direct cost |
| Large GC/Design-Build | 10-15% | 40-60% over cost | 15-22% | 5-8% | 65-95% over direct cost |
| Specialty Sub (Electrical/Plumbing) | 20-35% | 0% (is the labor) | 8-12% | 10-18% | 40-65% over materials |
Source: NAHB Cost of Doing Business Survey 2024. Understanding contractor economics helps investors negotiate fairly without squeezing margins that lead to quality cuts.
Key Takeaways
- ✓Five principles: milestone-based, back-loaded, verified, waiver-protected, retainage-reserved.
- ✓Verify every draw with site visit, inspection, and waiver collection.
- ✓Mechanics liens from unpaid subs can attach even when GC is fully paid.
- ✓State lien laws vary—consult local construction attorney.
Sources
- NAHB Remodeling Payment Guidelines(2025-01-15)
- AIA Document G702 — Application for Payment(2025-01-15)
Common Mistakes to Avoid
Paying contractor ahead of verified work completion
Consequence: Loss of leverage if contractor underperforms, abandons project, or goes bankrupt with your money
Correction: Never pay ahead of completion. Tie every draw to verified milestone completion with site visit confirmation.
Not collecting lien waivers from subcontractors
Consequence: Subcontractors can file mechanics liens on your property even if you paid the GC in full
Correction: Collect conditional lien waivers with draw requests and unconditional waivers with each payment release
Test Your Knowledge
1.What is the standard residential renovation draw schedule structure?
2.What document must be collected before approving each draw payment?
3.What is the maximum deposit an investor should provide before work begins?