It’s not unusual for an owner to announce, near the end of a project, that they think they’re being overcharging so they won’t make the final payment. Why do clients enter a contract and then think they can unilaterally change the terms?
I think there is a false perception that contractors aren’t well-educated so it’s okay to push them around. They think contractors aren’t professional business owners, they are just handymen, so it doesn’t matter. “Let’s tell him we aren’t going to pay the last payment and see what he does.” They may have talked with a family member or neighbor who got a substantial reduction in the price of a job by pulling that trick.
Making matters worse, some contractors give freebies so they can get payments that are rightfully due. If it worked once, it’ll work again, right? Owners think that’s how the game should be played. And why not? It’s to their benefit.
If an owner pulls this stunt on you, is it worth fighting over? It all depends on how good your contract is. If you write a clear contract, including a notice of intent to lien on the first day of the job, then yes, force the issue and get your money. If you don’t have a well-written contract, then get out as quickly and cheaply as you can, then develop and use a solid contract from now on.
I can tell you that this scenario happens far more often to contractors with one or two-page contracts. The length of your contract will often give the customer a hint at how savvy you are. A one or two-page contract is just asking for trouble. Those with well-written fixed price or lump sum contracts that cover the issues and provide details seldom run into these problems.
Your contract should tell them what they are getting for the price you quote, what you expect from them, what they can expect from you and a detailed payment
schedule. Cross your “Ts”, dot your “Is” and CYA. It should also include language that tells the customer what you will do if they don’t perform their portion of the agreement including putting a mechanics lien on their property.
The payment schedule is important. Your final payment should be no more than 2% of the total job price. Progress payments should be at regular intervals. I talked about payment schedules in this article on our website.
Include a binding arbitration clause, specifying a non-attorney as an arbitrator. The arbitration clause should state that either you or the owner could invoke the arbitration process within 3 calendar days of written notification. Your best bet is an arbitrator who knows construction.
You don’t want a mediation clause; the goal of mediation is to find areas of agreement, to find common ground. The goal of arbitration is to look at the evidence and determine what’s right. You want arbitration.
Include language that states that if you need to retain an attorney or a collection agency to collect monies rightfully due, the owner will pay all collection and attorney’s fees.
There are a litany of other subjects that should be included, like hidden conditions, code violations, owners visiting the job site, owners talking to subs or employees, charges for change work orders, your punch list routine, animals and children in the work areas, fees and recovery, hazardous materials, missed appointments, rock clauses, rescission notices, and a defame and disparage clause if legal in your state. These are the issues that can and do lead to misunderstandings. Language for these issues and many more are included in our Fast Track Proposal Writer software.
The Fast Track Proposal Writer includes language for many of the landmines that contractors can face on jobs, but it doesn’t include all legal state-specific language that might be required. You’ll find that in Craftsman’s Construction Contract Writer. That software writes a state-specific legal contract that meets state requirements, but it doesn’t have language covering the real-life pitfalls that contractors can face on jobs. You can use both to create a solid boilerplate contract. Whatever language you use in your contract, we always recommend having it reviewed by an attorney before using.
You may be the nicest person in the world and do the best work anywhere around, but if you don’t have a clear, well-written contract that protects you from dishonest owners or unforeseen situations, sooner or later you’ll run into an expensive problem. Write a contract that is clear and spells everything out, have your attorney check it, and you can start your jobs with the confidence that you’ll be paid.
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.
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