re: Another contractor in the news.

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Rule #1, if a contractor needs money up front, look for another one.

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Not true really. If I have to use too much of my money to build your house, you can bet you are going to pay me for it. You also aren't talking about big commercial guys doing big commercial jobs that are being backed by someone. It would be pretty hard for most any residential guy to have to come out of pocket to get every house he does started and then fight with the owner to get paid.

I hardly build custom but the times I have I always set up a draw system. 4 payments of 22.5% of the total cost at different stages and the final 10% payment once everything is finished and the punch list is signed off on. I get that first 22.5% up front then the second one as soon as the concrete is dry as it's expensive just to get to that point.

The issue many have is the draw system isn't laid out in black and white and too many contractors commingle funds from different jobs and their accounting sucks so they lose track or as the saying goes they are robbing Peter to pay Paul.

Without having a draw plan in the contract many homeowners that don't know any better...

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let a contractor get "ahead" of you.

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and then if the guy is a PoS or gets in a money bind of course he has no incentive to finish which is why I find leaving the final 10% works out great. The 10% clause did bite me one time as I had some homeowners not pay it to me (PoS taking advantage of people can work both ways and it's not always the contractor) but I filed a lien on their house and they couldn't roll over from a construction loan to permanent financing so the bank saw to it that I got paid.

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Rule #3, hold back a percentage of the money for at least a month to take care of any latent defects that you may find after the job is complete.

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Nope. A month is way too long and pretty unreasonable unless you want liens on your house. I have only a short time to file them and if it looks like you are going to be trouble a lien is pretty cheap to file. Do you wait a month to get paid?

There is also a warranty that is enforceable by law if need be for latent defects.

Your rules are stupid and you really only need one rule when building and that is get it all in writing.