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Construction Programs & Results Inc

We Like to See The Good Guys Win!

Architects, Payment Schedules in Construction

by Michael Stone

We recently got a call from a young man with a remodeling company on the East side of our country. An architect was providing him with a great opportunity and he wanted my opinion.

The job was/is in the $100,000 range. The architect had written a 12 or 13 page contract, using an AIA form, proposing a Cost Plus agreement, complete with a payment schedule of two (2) payments to the contractor. The contractor would submit a pay request midway through the job and again at the end. The architect would review the job and send a confirmation letter on to the homeowner advising them to pay.

I asked the young businessman if he was a licensed lender. He said he wasn't. My next question was if he was willing to lend money to the owner. He wasn't, of course. But he would be financing the job if he used the architect's payment schedule.

He said, "This architect has a great reputation." I said from whom? Owners? No contractor in his or her right mind would have anything to do with an architect with that agreement. Who wins here?

This young man will do well. He realized where I was going with all this and told me he would return their plans and say, "Thank you, we can't help." I know he will walk away gracefully, with tact, and burn no bridges. (He could try to restructure the contract, but I'm not too confident it would be successful.)

You must be vigilant in protecting your business. If an agreement isn't WIN-WIN, then walk away.

Comments

Robert Zeis (not verified) /

I would hate to think about taking a contract like that... The owner is in the drivers seat the whole way, with a need for the "expert" opinion of the architect as a cop out for the owner when it came to collecting even your first dollar. Run don't walk from any contract like this.

kris newman (not verified) /

Thank you again Michael for helping me on this, as well as many other topics. I have found that many architects will try to push this type of pay schedule, or even come up with some kind of allowances for the contractor to price by. I tell the customer that I didn't tell them how much and when to pay the architect, so I'll be deciding on the pricing and draw schedules, thank you very much. If they don't like this line of reasoning, I don't need the job, as this is a lousy way to start out the relationship.

Michael Stone /

Robert & Kris.

Right on target guys.

Michael

Bob Vandervelden (not verified) /

I am so glad that I read this when it came out because I am involved with helping a good friend of mine remodel a dentist office that he wants to move in. All points well taken and believe that I am much wiser going in. Bob

 

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