Stay informed. Sign up for our weekly newsletter
and receive Chapter 1 of Markup & Profit Revisited.

Construction Programs & Results Inc

We Like to See The Good Guys Win!

Money Changing Hands

by Michael Stone

I'm going to spend the next few weeks discussing contracts. My focus will be payment schedules, but I'm also going to discuss a few miscellaneous topics that I hear about every now and then.

Down Payments

You should always get a down payment on your jobs.

It's easy to ask someone to do something; it's harder to hand over money. Your client isn't committed until they've written the first check.

You're committed as soon as you begin drawing plans, ordering materials, scheduling employees or starting on the job, whichever comes first. When you're committed to a project and they aren't, you are at risk. Money changing hands means a commitment is made. Always get a down payment.

Remodeling. Your down payment should be between 20% and 40%. Be careful how much you ask for. If you ask for more than 40%, you might be perceived as one of those con artists who collect a high down payment then disappears. Don't be greedy; ask for enough to cover your startup costs and the first two weeks of your overhead.

Some states dictate a down payment of only 10% of the sales price or $1,000, whichever is less. You can do that and add a job setup fee, a job initialization or design fee, a material purchase fee, etc. Just make sure you get enough to have a commitment.

You'll also find a reduction in the number of cancellations when you get a down payment. Why? Because money changing hands means a commitment is made.

New home construction. The down payment will be a smaller percentage, but you still need the money up front. You aren't in the finance business, you're a contractor. It's not your responsibility to finance the new home, it's your responsibility to build it. Remember to avoid a discussion with any bank involved. Your contract is with the building owner, not the bank, and the building owner needs to make sure you get paid.

Specialty contractors. Regardless of the size of the job, you should be getting a down payment. That applies to projects where you are working directly with a home or building owner, and it also applies to jobs where you are hired by a general contractor.

Write Your Own Contracts

Often, if you're working on a project for an attorney, they'll tell you they want to write the contract.

If your potential client tells you they're going to write the contract, your response should be, "John / Mary, it's your job and you can write your contract if you wish, but if our company is going to be involved in the project, regardless of the size or who it's for, we write the primary contract that's used to govern our work on the job. You can review and suggest changes or additional language that we can agree on, but we write the document. If that's acceptable, we can move ahead with your project. If it isn't, then I suggest we part ways now with no hard feelings."

You're setting the parameters under which you're willing to work. I've seen a number of contracts written by attorneys over the years. Fair as they may try to be, when it comes to their own project, they'll tilt the tables in their favor every time and use terms and conditions you've probably never seen before. Would you agree to language that states "the contract will match the plans for this job in toto"?

Additionally, while they may be an expert on law, they rarely know construction and the problems inherent in our business. And I have yet to meet one who understands the cash flow needs of a construction company. As a result, they'll include a payment schedule guaranteed to cause your company pain. Write your own contracts.

Have you ever seen a plan that was drawn perfectly? How can the contract match the plans "in toto"?

 

subscribe now

to receive our Wednesday morning newsletter