A call came in from a friend recently. It seems that a client of his wants to cancel a signed design agreement.
There are always at least two sides to every story, but from what I see this scenario stinks. It went down the wrong road early on, and I want to share it with you so you can avoid having it happen to you.
My friend, a contractor, was referred to the client by an architect. The contractor had worked with the architect on several previous jobs. This architect had caused problems on several of those projects by making comments to their client that questioned the contractor’s approach to the job. These comments should have first been made directly to the contractor so the contractor could have explained his approach. Instead, the architect took his concerns to the client first, making the contractor look incompetent.
For that reason, the contractor took this referral cautiously.
Even though the architect had supplied plans for the job, a whole-house remodel, there was still much work to be done to get the job ready to submit for a building permit. The architect had drawn the plans but hadn’t located or specified any of the load-bearing points in the project.
After some meetings and research, the contractor signed a design agreement for a remodel in the $400,000 range. That range was given by the architect to the client; not a good thing.
Our contractor made sure the client’s questions were answered before signing the design agreement. His fee for the design on this job was $12,000 with half down, $3000 at the 50% mark and the balance due upon presentation of the finished plans and quote for the job.
Our contractor included a demolition and discovery agreement to determine the amount and location of copper pipes in the existing ceilings of the home. The pipes were part of the heating system for each room on the second floor and they all had to be moved. He couldn’t give a firm price quotation without knowing where the pipes were located, how many feet of pipe must be moved, and where the new pipe location will be.
A demo and discovery agreement wouldn’t have been necessary if the architect had indicated the load-bearing beams and the copper water lines in his plans. The architect would also have had to do at least a small amount of demolition to locate those beams and water lines. Someone needed to do it.
After the contractor started the project, the owner called to cancel. The architect heard about the demolition and discovery agreement, and told the owner the price range for the project was way too high.
The architect was the one who originally gave the price range. It looks like price was just an excuse; the architect didn’t understand the demolition and discovery agreement, and reacted without first asking the contractor for clarification.
The contractor decided it would be best to part ways with the client rather than make his case. He told the client, via email, that he would figure out his costs, get back to them with his bill for the work done, and refund the balance of the $6,000. You can guess what happened next. They wanted all his receipts and started nitpicking the hours he’d put into the project.
My suggestions:
- After having heard a number of these scenarios over the last few years, your design agreements should contain a clause that says the down payment, or at least a designated portion of it, is non-refundable. This should be enough to cover your time and expenses plus at least 50%. Each state will have different laws that cover these type of transactions (usury laws) so do your research first, but don’t get in position where you end up having done work for free.
- Make sure that you have a clear understanding right up front before you ever engage an architect, engineer, or designer that they are not to talk to the customer about other contractors, getting other bids, or how much the job should cost. If they think your price is too high, they are to talk to you first.
- Similarly, if they have questions or opinions about what you are doing, those questions and/or opinions come to you first. They should do their work and not butt into the contract between you and the building owner. I understand that many architects state they have a fiduciary responsibility to the owner, but they also have a responsibility to the contractor to find out the facts before they take issues to an owner.
I always hope that architects and designers will treat contractors with the same respect the architects and designers believe they are entitled to, but it isn’t always going to happen. It doesn’t help that there are flaky contractors, but there are flaky professionals in every industry. That doesn’t mean every professional is a flake.
A little golden rule is a good thing: treat everyone as you want to be treated.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.
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