Management Talk: working with customers

I believe a majority of the conflicts I see as an expert witness, arbitrator, consultant and business coach are a direct result of a lack of respect for our profession. I served recently as expert witness and this attitude was obvious from both the owner and his attorney. I’m not sure about the judge, but it was clear that he was not happy that his precious court time was being used by yet another fight between an owner and a contractor.

That lack of respect is generated by the business practices of many in construction who run their business as a hobby. Unfortunately, everyone gets painted with the same brush, and it allows some clients to believe they don’t have to pay if they don’t want to. We’re going to talk about how to insist on respect (with kindness).

First and foremost, don’t give out “free estimates.” Ask and get answers to basic questions, get the budget set and then design the job to the budget. Your design, estimating and proposal writing work should be done only with a design agreement, letter of intent or other device that gets you paid for your time and effort.

The rule in your company needs to be “No freebies for any reason.” If the customer wants you to work for free, find another customer. You are not in business to give estimates or other work for free. You are in business (or at least you should be) to provide a service to your customers and make a profit doing it.

When you and your customer have agreed on a budget, designed the job to that budget and agreed on the job to be done including the price, it’s time to write a solid, clear contract. The contract should include your proposal for the service or work, the legalese language necessary, a clear payment schedule, and the Right of Rescission. The contract should have a clearly written definition of how Change Work Orders are to be handled, and what happens if the payment schedule is not kept.

What happens? Example: You are working on a job and the owner has obtained financing from a lender. Your contract calls for a progress payment. The owner does not get it to you on the date specified. Don’t just remind the owner that a payment is due and then go right on with the job. Bad plan. In your contract, specify that if a payment is not made on time, you will wait 24, 36 or 48 hours for the payment and then you will shut the job down. If you shut the job down, you may also file a lien against the property at the same time.

Shut the job down? Sure!
If you really want to let the folks know that you are serious, include a clause that says if you have to shut the job down, you will charge an additional $750 to $1,000 to restart the job.

Now, if the owner is late with payment, shut the job down. No ifs, ands or buts. If you don’t, you have accepted the owner’s new terms. From that point on you will have a hard time getting any court to enforce the terms of your original contract because you knowingly let the owner breach the agreement.

When we set foot in a courtroom, we are assumed guilty unless and until we can prove our innocence. To that end, it has been my experience that most courts will expect you to adhere to and convey the terms of your contract to the owner. You are the expert; you wrote the contract. It is up to you to make sure both parties follow it.

Now, let’s suppose the lender insists on an inspection to justify draws against the project. Here is where careful forethought and wording on your contracts is necessary. Suppose you ask for a draw at the 40 percent completion point. The lender says the job is only 30 percent done and wants to issue a check for that amount. That will short you 10 percent of the money that is due and you have probably already spent. Bad plan.

Make your draws based on a start or completion point. Insist that the draws be issued on the point in the job you are at or you will either charge interest to the owner for the delay in payment, shut the job down, or both.

I hear it already – “You can’t do that.” Why not? If you word your contracts correctly, you can do just about anything you want as long as it doesn’t violate city, county or state laws. In this case, state usury laws would probably apply so be sure to talk to your attorney and include language in your contract that specifies how and when you will be paid and what the penalties are if the owner doesn’t comply.

Protect yourself: Know the law
If you let others either write the contract or if you don’t know what your legal rights and obligations are pertaining to how you are to be paid, it’s your own fault.

In California, I deal with California’s stupid state laws all the time with our coaching clients. I know all too well the conditions that well-meaning but ill-informed bureaucrats have dumped on you. You, above all others, need to be sure you know the laws and any workarounds that your attorneys recommend. Yes, there are several workarounds pertaining to such things as down and progress payments.

OK, suppose you shut a job down and now you have to file a lawsuit to get your money. Before you do that, make sure of the following:

You have an attorney, preferably one who knows construction and the law.

You have written a clear, solid, fixed figure or guaranteed price contract. (Not cost plus or time and materials.)

You have kept your end of the contract and wrote change work orders whenever a change was made to the job.

Your contract outlines what an allowance is, how and when it will be used and the amount you will charge. It also spells out exactly when you expect to be paid for the allowances and when you will issue refunds.

And your contracts include clear and concise language that spells out exactly how the job punch list will be handled. I’m sure there are any numbers of other things that can and should be included, but those are the big ones.

One last issue: Suppose you aren’t getting paid for your work. You place a lien on the property. The owner can bond around the lien, thinking they are taking the wind out of your sails. Maybe, maybe not.

I read the following at www.levy-law.com/lien/faq.php#bondinglien, the website of Levy. von Beck & Associates, P.S.

Here is what they had to say about bonding around a lien claim:

“A properly perfected lien claim attaches to the real property that is identified in the lien. This means that the property owner cannot refinance or sell the property without taking care of the lien. In many states the owner or general contractor can, however, purchase a bond worth 150 percent of the lien amount and file it with the recorder’s office. This will have the effect of removing a lien from the title.

“Many contractors and suppliers view this as a bad development, because it may relieve some of the pressure on the owner to resolve the lien claim quickly. Thus the property owner or the general contractor may threaten to bond around the lien, in an attempt to pressure the claimant to settle. In reality, however, bonding around the lien, or getting a lien discharge bond, is often good for the lien claimant, as a bond may provide a faster and less expensive legal remedy.”

What does that all mean? It means, Pilgrim, that you need to get your derriere down to your attorney’s office and get your contract language checked inside and out so you know exactly what the laws are before you enter into a contract with anyone. Every state’s laws are different when it comes to a surety bond, so you need to fully understand the law in your area.
Customers can change between the day you sign a contract and the day you ask for a progress payment. Make sure your contracts are clear and there is no doubt about the payment schedule or the contract intent. Protect your assets.

Michael Stone is a graduate of Eastern Oregon University whose business expertise lies in business management, sales, computer-assisted estimating systems, and contract and proposal writing for the construction industry. He is the author of “Markup and Profit: A Contractor’s Guide.”

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