Cfrgtkky

I recently heard about a construction contractor who's building a house for someone, and this contractor wants the client to open a checking account with the contractor's name on it so that the contractor can use that account to pay for building expenses. I assume the money in the account would come from the client (some kind of cost-plus contract?).

This sounds super sketchy to me. Is there any legitimate reason for doing this instead of just invoicing expenses?

While a traditional checking account with the contractor's name on it sounds a bit off, it's not uncommon for private contractors to leverage a construction escrow account for larger projects like building a house. This enables a situation where the contractor can get paid for their time as work progresses and doesn't have to pay for materials out of pocket and wait for reimbursement from the client.

This may be what the contractor in this instance is intending, but an escrow account would have a third party managing release of funds, which is safer than the client owning an account and giving the contractor the ability to draw from it at will, since that could lead to overdrafts and other issues.

If this is all 2nd hand information maybe there is some communication breakdown, but otherwise it sounds like the contractor is either ignorant of industry standards for this type of arrangement or is trying to do something shady.

Scam. The contractor is trying to transfer liability onto you.

What makes a contractor accountable for getting the job done is the financial peril he faces if he does not. There's the hypothetical distant risk of being sued, but what really keeps him honest is the immediate risk of not being paid.

That is the entire business model of contracting; it's why they get the big bucks. You may notice the raw cost of materials, tool rental and $9/hour Mexican day laborers are a fraction of what he charges. The difference is accountability, he has to get the job done no matter what, including all complications.

By paying up front, you break this accountability model. Because he's been paid, he has no reason to stick out a tough job; he can just say "sorry" or make up a line of bull about the problem being out of scope, and demand more money to finish or simply bail, and leave you with messy unresolved problems, or an unfinished project and a pile of lumber and supplies. It's almost human nature to do so. It is altruism for him to stay with the job once paid.

Humans kinda suck at altruism. This "demanding the money up front when he perfectly knows the business does not work that way" is a great example of sucking at altruism.

And of course, the tension over this unstable relationship will itself sour the relationship, making an abandoned job even more likely.

TL;DR: No.

There is no legitimate reason for doing this. It's trying to replicate the invisibility of a cash job with the convenience of not having to lug around briefcases full of cash, with the bonus that the person who opened the account has all the criminal liability.

While I wouldn't do it it might not be a scam. Rather, it could be the contractor is attempting to hide money and doesn't want accounts in their name. Maybe the IRS is after them, maybe they have a judgment against them, maybe they owe child support etc.

Such arrangements might happen when the contractor and the client know very well each other and the contractor is really trusted. But if the client was caught by surprise by this request it sounds an alarm bell, after all there are many ways contractors might dupe the clients, they might use substandard materials with inflated prices or subcontract to unskilled illegal workers. The risk of the contractor running away with the money is minimal compared to the other cases because it is easier to take a legal action when it happens. If the client has no experience in this kind of business the best thing to do is finding and independent third party who could supervise the works, the materials used and the accounting.