Down Payment

What does Down Payment Mean?

Definition of Down Payment in Construction
The amount of money required by a contractor, prior to the start of any work.

Normally this is a more common practice in the residential marketplace, and not in the commercial construction industry. A down-payment is used for purchasing materials for the project, especially long lead items. In addition it provides the contractor with assurance that the work will be paid for, and the owner is realistic about the contract. Down-payments, are in many instances, the initial point of disagreement with the owner and the contractor, although the intent is to use the down-payment money to start the material purchasing process, many times the down-payment is used by the contractor to pay for past invoices on other projects. The system can become a scheme, with down-payments being used for other project issues, that have nothing to do with the project that the down-payment was received for. In many cases, down-payments are just the start of financial issues on a project. In a normal commercial or industrial project, the use or acceptance of down payments is rarely seen. Down-payments, although nice for the residential builder, are difficult to financially manage and difficult to control.