Why cost plus and time & material contracts should be avoided, for both contractors and building owners.
Pricing changes for a change work order isn’t easy when the scope of work isn’t clear.
Time and Material contracts are full of risk, especially on larger jobs.
Some people are used to snapping their fingers and having others jump. It’s irritating, but you have to remember that they’re writing the checks.
I’m not a fan of working with government agencies, but some situations are unique.
When clients try to change the terms of the contract, you don’t have to go along.
Over the years, I’ve seen contract language evolve, shifting more and more responsibility to general and specialty contractors.
Is it a good idea to have a service agreement to cover small jobs under a certain amount?
Avoid losing money by recognizing some of the games that building owners play to avoid paying.
Michael discusses a ploy some building owners use to not pay for all of their change work orders. It happens in both residential and commercial projects.
You shouldn’t sign a contract that stipulates what you can charge, even if it’s just on the change orders.
We discussed design agreements last week; today we’re going to look at them from another angle. The first step is setting the budget with the client.
A contractor who has designed projects asked how to protect his design work.
There are things you can and should do when a client tries to dodge making payments.
There are two schools of thought on pricing handyman projects and service work: T&M or flat rate pricing. They both have advantages and disadvantages.
“Let’s see what the contract says about that.”
We often hear from contractors dealing with a client who, for whatever reason, has decided to change the terms of their contract. Other professionals have the same problem.
Not all of your clients are honest. There are even a few who have no intention of paying you for the work you do.
A contractor asked for my opinion on a request he recently received. It’s not a win-win proposition.
If you’re doing service work, make sure your client knows what to expect before you start.
A call came in from a friend recently. It seems that a client of his wants to cancel a signed design agreement.
I’ve written before about clients who decide to make changes to a contract. Last week I heard from two different contractors who had to deal with this, and I want to share their stories.
Your contract should call for arbitration, not mediation, to settle disputes.
When I’m working with a group of contractors, I often ask how many are providing a Right of Rescission form with their contracts. Many contractors aren’t even aware of the document or realize its importance.
There isn’t one right way to handle allowance items that works for all contractors and all clients. Plan A may work for most clients, but then you meet Mrs. Oddball who seems to work at being difficult. So you derive Plan B and hope it works.
Many building owners want a Cost Plus contract because they believe they’ll have more control over the total cost of the project. It’s your job to educate them on the downside.
At least once a week I hear from someone who can’t get paid for work they’ve done.
There are two benefits to documenting your jobs. One is protecting yourself in case there is a disagreement about the project. The other is providing information that will help you when you’re promoting your business.
We’d like to share an email received from an anonymous homeowner. If you believe that it’s smart to provide an itemized invoice, this will make you reconsider.
How do you deal with a dishonest client? I recently corresponded with a contractor concerning this issue.
Retainage clauses, removing the finance charge clause on the last payment, “we’ll pay you when we get paid”.
What do you do when a client calls about a problem they created? Preventative measures make the difference between a profitable job and losses.
The popular belief is that contractors are the villains and homeowners are the victims. But if you’ve worked with the public for very long you know there are also dishonest clients.
Never let your final payment exceed 2% of the sales price. And your contract should include a finance charge clause for payments not made on time.
We used to get three payments on jobs. 1/3, 1/3, 1/3. That’s not a smart business practice.
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.
Estimate your jobs properly so surprises don’t happen.
Without hesitation, a large majority of cases I’ve worked on could have been prevented, and should have been prevented, with a well written contract.
Seven issues that upset clients. And when clients are upset, either you won’t make the sale or you might not get paid.
A selection of issues that should be written into every contract to protect your profitability.
If you are going to deviate from a standard fixed price contract, look at your approach from your client’s point of view. Make sure they know what to expect and what you’ll do.
Commitment language in your contracts, payment schedules that help cash flow, right of rescission language. With a few extra comments.
Many construction-related disputes can be avoided with a well written contract. Here are a few of the things that need to be included.
When a job goes bad, the contract is front and center. If you don't have a dispute resolution procedure defined, you're probably looking at a lawsuit.
What if you agreed on a price, now customer wants all receipts for material? Without a clearly written fixed price contract, it's a problem waiting to happen.
Too many contractors use a poorly-written construction contract, or no contract at all, leading to different interpretations of an issue.
If you're a remodeling or new home contractor, how can you get clients to make their selections before you write the contract? Make it easy for your client.
Last week we discussed having signed Change Work Orders (or Additional Work Orders). Today we’ll discuss 4 mistakes often made when writing Change Work Orders.
Intent to lien – payment schedules – contract language. Common problems contractors experience on jobs.
An example of what transparency does for your business. If clients want the details (i.e., itemization), then provide those details but charge for them.
Don’t take any job where the client tells you how much you can charge for your work.
Guidelines to a more successful construction-related business.
Cancellations happen, even with the best of salespeople. Clients have all kinds of reasons to cancel an agreement, and you need to be prepared.
A good payment schedule keeps you paid for the work you are doing. If you're using a 1/3, 1/3 and 1/3 schedule, you are financing most of the job out of your pocket.
Contractors have cash flow problems for two major reasons: poor money management, and poor payment schedules.
A very nice gentleman called me last Friday. He related a story about his home remodeling project. It was done a Cost Plus job, the "plus" was negotiated at 18%.
Transparency, as I understand it, is opening your books to your potential clients and showing them all the numbers pertaining to a job you are quoting.
If you want positive cash flow in your construction business, make sure you're using the right payment schedule on your contracts.
This article was originally published in our newsletter, and it garnered more responses than usual. It was loved and hated, so we are posting it here for more to read.
Invoicing is one way clients delay paying. "Thanks for doing that work, send me an invoice, okay?" Why do contractors agree? Maybe they believe everyone does it.
Client misunderstandings happen, but there are steps you can take to make sure you are paid in full, on time, and reduce those misunderstandings.
A homeowner commented on a forum. He’d been told to add $3 – $5K to a job just to cover the extras that will come up. He was under the impression this is normal.
They want to know how to deal with owners who come to them 60%, 70% or 80% of the way through a job and announce they want to re-negotiate the price of the contract.
I hope there is an original agreement to go back to. This is a classic case of a contractor either writing an incomplete contract or not writing a contract at all.
Does a job have a “life expectancy”? I believe it does and you should be aware of the warning signs.
"You overcharged me! I am going to sue your sorry a**." Or, "I bought your house 17 years ago and now the roof is leaking. I am going to sue for everything you've got!"
In case you don’t think it’s important to have change work orders signed and paid BEFORE making a change, read this note I received from a homeowner yesterday:
I took a call from a married contractor with four young children. He can’t collect the final funds due from an owner for a large job. They are about to lose everything.
A Minute With Michael – Working Without a Contract (video)
What do you do when an employee’s work is not up to par and the client complains and will not pay for the work done?
Got a call from a contractor with a legal problem. He got involved with a homeowner who kept adding to a job, then decided the price was too high and they aren’t paying.
I heard from a contractor recently who is dealing with a hostile owner who vents via email. That isn’t acceptable behavior, and you don't have to accept it.
A slightly different perspective on Cost Plus contracts that provides two more good reasons why Cost Plus contracts should be avoided.
As a contractor, you need to know that the homeowner is both able and willing to pay for the work being done.
Got a phone call recently from a contractor doing a job in the $150K range. Everything is fine, contract signed, and the job is going great.
I often hear from contractors having problems with their customers. Many of these problems are because of the written contract they use for their jobs.
A client decided to change the rules of their contract. She decided not to pay the full amount or on time as the contract specified.
It was another situation of a homeowner waiting until the job was almost complete, then start playing the "we are not going to pay you because blah, blah, blah."
I was talking with a young guy about writing contracts. He’s a small construction company and is convinced he didn't need any "big contract" with lots of pages.
I believe a majority of the conflicts I …
I am serving as an expert witness this week for a new home builder in our area. There are many issues in this particular case, but there is one overriding problem.
A coaching client related how one of his customers arbitrarily decided to change the payment schedule that was clearly written on the contract.
A question arose this morning on a call from a contractor. Should you write a contract on all the jobs you do, regardless of the size of the job?
Have you noticed that when you have a solid, well thought out payment schedule and insist your customers abide by that schedule, you have fewer problems?
At a recent class, I was covering the basics of getting paid for additional work orders. I gave an example to emphasize the necessity of getting paid for your work.
A young businessman called. He was in a state of shock after checking his books over the weekend and found over $11,000 in receivables, much of it over 30 days.
A coaching client was working with a potential customer who wanted a remodeling job on a cost plus basis instead of a fixed fee contract.
Just a quick reminder. Be sure to put a limit on the length of time your proposals are valid. That time should be a maximum of 3 working days, no more.
Contracts are what hold a contractor and home or building owner together during the course of a project. Without a good contract you become either a victim or a target.
E-mail is a great tool. But some cowardly homeowners use it to file complaints. They don't understand something so they hit the contractor with a nasty E-mail.
We recently got a call from a young man with a remodeling company in the east. An architect was providing him with a great opportunity and he wanted my opinion.
We got a call last week from a company whose customer had arbitrarily decided that the markup used on their job wasn’t fair. This was a Time and Materials job.
A question came in this week from a potential coaching client about when to schedule payments on their contracts.
A contractor dealing with a Time and Material Contract is hearing constant complaints about his price. Instead, give a firm fixed price quote upfront.
What do you do when a progress payment from your customer is late?
I do most expert witness work on the side of contractors. However, when I find a contractor who has been dishonest, I go after them with every tool I have.
A few years ago, Michael was part of a discussion on Time & Material contracts. The other speaker was Stephen Eichelberger, a construction attorney from Salem, Oregon.