Last week we discussed a ploy that some building owners use to not pay for all their change work orders. This week, we’re going to address a few more games that can be played to avoid payment on a job.
You’re Making Too Much Profit, I’m Not Going To Pay You Anymore
Your client, with the job about 60-80% complete, decides you’re making too much profit on their job. A warning sign is when they start asking how much things cost. Or, they start making comments about rich contractors. It gradually progresses until they refuse to make the final payment, claiming they’ve paid all they’re going to pay.
If this happens, in a businesslike manner, point out that they signed a fixed figure contract and by refusing to pay you, they’re now in default. Tell them they have 48-72 hours to make the payment as outlined in the contract or you’ll take whatever action is necessary to enforce the contract.
NOTE: Never tell a customer how you intend to do that. Just tell them you’ll enforce the contract.
Send your notice of intent to lien, file the lien, and if necessary, start foreclosure. Never let a customer pull this nonsense on you without challenging it. It’s a game some owners play just to see if they can get away with. Of course, this needs to be outlined in your contract that’s signed before the job starts. You’re simply doing what you already declared you would do if the client defaults on the agreement.
Another warning sign is a request for receipts or time cards. Simply tell them no. In almost every case I’ve seen, when a contractor shows receipts, it leads to an argument about the price. If they threaten not to pay until you show receipts, read the three paragraphs above.
Not Making Progress Payments or The Final Payment On Time
We heard from a contractor that was doing some work for a judge. The judge decided to take a two-week vacation and failed to make the next progress payment. When she returned, she started demanding the contractor guarantee that certain things would be done by a certain time.
She was in default on the contract, and had no business making demands. I told the contractor to tell her she had 48 to 72 hours to get the payments to him or he would shut the job down. After he got the payment as outlined in the contract, then they’d talk about her demands.
A payment schedule should be in your contract, and you should review that payment schedule with the owner before they sign the agreement. You should also have a clause that says you’ll shut the job down if they don’t make their payments on time, and you’ll add a restart fee if it’s shutdown. The restart fee should be at least $300-500 range, maybe more depending on the size of the job and the disruption to your schedule.
Wanting To Change Something On The Job And You Pay For It
Next is the customer that announces they don’t like the appliance, light fixture or paint color they selected and want you to change it at your expense. They decided their wrong selection is your fault. Again this should all be covered in your contract and related paperwork. Selections should be recorded and initialed by the customer prior to job start. The contract should clearly state that if they want to make a change, it will incur a cost. If they don’t like it, don’t make the change.
Every one of these situations requires a well-written contract. When you start a job without having a clear agreement in writing that addresses possible problem areas, you’re at risk of not getting paid in full for your work.
There are two sources of contract language that we recommend. The first is our Fast Track Proposal Writer software. It addresses many of the landmines that contractors face on jobs, such as stating that the owner is responsible to remove all personal items from the work area and the contractor won’t be held liable for damage to items not removed. It has language that discusses animals in the work area, the risk of reinstalling used plumbing parts, and the chain of communication during the job. It’s easy to add language to the program or edit the existing language. However, the Fast Track Proposal Writer doesn’t include all legal state-specific language that might be required where you operate, which is why we state you must have the legal portions of the contract reviewed by your attorney before using.
The second source is Craftsman’s Construction Contract Writer. It writes a state-specific legal contract that’s meets state requirements. What it doesn’t have is language covering some of the landmines we outlined above.
We recommend getting one or both of these programs to help you write a stronger contract. Because when an argument starts, the first question is, “What does the contract say?”
Doing business on a handshake or a one-paragraph contract doesn’t work any longer, especially if you’ll be working in someone’s home for more than a few hours. Before you start that job, write a strong contract and protect your business.
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.