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Construction Programs & Results Inc

We Like to See The Good Guys Win!

Final Payments and Guarantees

by Michael Stone

A contractor sent a note about a client who had become a royal pain. He admitted that he saw red flags before the project began, but business was a little slow so he took the project anyway.Finaly Payments and Guarantees #MarkupAndProfit

The problems began near the end of the job. They completed the punch list, but she disappeared the day they were ready to close out. Since then, she's contacted the contractor almost weekly with complaints that would require significant expense on his part, and most of them are items that weren't even part of the project. She's threatened to turn him into the state licensing board.

The final payment hasn't been made. He's concerned she'll continue to tie up his time with unrelated issues and complaints. The contractor included binding arbitration language in his contract as he should, but he's concerned she'll take him to court in spite of the contract unless he treads lightly, which is why he hasn't pursued the final payment or filed a lien. She has time on her hands; he doesn't.

Many clients think they can arbitrarily change the terms of a contract and you, as the contractor, have to go along. This is why a detailed written contract is so important. You need language that protects you from clients who decide they can write their own rules during a project.

Our Fast Track Proposal Writer software program has the following language included:

"Such labor and materials as outlined in this agreement are guaranteed for a period of XX year(s) year from the date of substantial completion of this work, when subject to normal use and care and provided Owner has complied in full with terms and payments and other conditions of this Contract."

When they sign the agreement, they agree to the terms. Not some of them, ALL of them. That is the nature of contracts.

I'm not an attorney. We recommend having your attorney review the language you choose to use in your contracts to make sure it meets their requirements. If you're using Fast Track Proposal Writer, choose the language you want to use, especially in the contract section where the legalese, the terms and conditions, are spelled out, and have it reviewed by your attorney. Set it up as a template and select it as the starting point, then detail the work to be done for each specific contract.

With this language, if they don't make the final payment, they haven't complied with the terms and payments of the contract. That's why payment schedules also matter. Your final payment should never exceed 2% of the contract sales price. This is a classic example of why. If this contractor has done everything correct, he should still make a net profit on this job despite all the problems this client has caused. We talked about final payments in this article.

Finally, you need to be willing to walk away from a potential client if you see red flags. A few weeks ago, we posted a guest article "On Politely & Confidently Qualifying Leads." Another contractor shared with us his approach to qualifying leads:

When we get a lead, we immediately send the following email (modified a little based on the scope of work being requested).

"Good Morning David,

Thank you for your interest in (our company) for your renovation project. May we please ask that you click on the link below and fill out our questionnaire about your project so we can get a better understanding of your project's needs. Once we have reviewed, we will reach out to you and take the next steps.

Thank you in advance and we look forward to hearing from you."

The questionnaire includes all the basics but also asks about occupancy, pets, access, the owner's remodeling history, what they want in their contractor, how many contractors are bidding, if they have plans and are working with a designer or architect, budget range, if they were referred, and more.

The finished questionnaire is sent to all relevant members of their staff, and after review they decide whether or not to proceed. They'll either send a very polite email that explains why they aren't able to consider the project, or a phone call to set up an appointment.

The contractor with the problem client explained why he took the project in spite of the red flags. "We have ample money in saving to pay for slower times. I just haven't had a client this bad and really did not see how far South this could go."

It can go far south. Always work with a detailed written contract, and if you see red flags, walk away.

 

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