When Clients Do an End Run

We’d like to share another letter we received, with a question that has probably dogged other contractors at one time or another, especially those new to the business.

I purchased your book as my husband decided to incorporate his renovation business the last 7 months. Your book is amazing and he refers to it constantly. He did glean from your book that there are a lot of growing pains in that first year and it takes time to build. It is a frustrating time. He works so hard and is so honest and generous. I have a question. This is the scenario:

My husband quotes a job and has the contract signed. He has his sub trades do their thing. He waits for the their bill which of course, is never timely! (another problem) He gets the shock of his life when he gets a very high electrical bill. He investigates. Without informing my husband, the electrician has gone ahead with extra electrical projects in the home the client asked him to do. The client never informed my husband either. More and more I realize clients think they can add these extras without paying!! Because my husband had got the final payment when the job was completed from the client before the electrical bill, he did not want to go back to them say “you owe me more money” How can this be avoided?

If you’re in this situation, you need to make a few changes as soon as possible.

First, you need to get and use a well-written contract. It needs to include language that specifically forbids owners from talking to subs or employees. Language like:

Owner(s) understand and agree not to effect any side arrangement or separate Contracts with any of {CONTRACTOR}’s employees, vendors, or subcontractors performing work on this job, for additional work on this or any other job for a period of at least one year following the completion of this job, except as provided by agreement with {CONTRACTOR} pursuant to the terms of this Contract.

and

(Owner agrees) to not engage {CONTRACTOR}’s crews or subcontractors or suppliers in conversations of any kind during the construction of this job. All Owner’s communication for or about this job will be conducted through either the Owner of {CONTRACTOR} or {CONTRACTOR}”s job superintendent.

and

{CONTRACTOR} will not be liable for any changes made without a completed and signed CHANGE WORK ORDER. {CONTRACTOR} will not be liable for any agreements made between Owners and any parties other than {CONTRACTOR}.

This language needs to be carefully reviewed with the owner before the contract is signed so they can’t say they didn’t read or understand how changes are to be made on their job. (The language above is included in the Fast Track Proposal Writer software.)

Employees and subcontractors need to be told that if they’re approached by the client for changes, or for other light-hearted questions like “how much did you charge to do this work?”, they are to stop what they’re doing and report the incident to the job superintendent or company owner immediately. If they let conversations continue, eventually they’ll say something that will cause you a problem.

And when you’re told about these conversations, it’s important to meet one-on-one with your client and a copy of the contract, and remind them that they agreed to not engage in conversations with employees and/or subcontractors.

Next, you need a subcontractor agreement and you need to use it with every sub on your jobs. It’s also important to verbally explain to all subcontractors how you operate. A sub, any sub, should never agree to do any work directly for an owner without approval from the GC.

Our subcontractor agreement would have prevented this problem for these folks had they used it. All it takes is one incident like this to wipe out any profits on the job.

Now, in the incident above, it’s easy to blame the client for trying to get work done for free. But the electrician isn’t an innocent party, either. Did they really think it was okay to work directly for the client and send the bill to the general contractor?

This electrician should be told that they will only be paid for the work agreed to. If the owner is willing to pay for the extra work, then the GC will pay the electrician at job completion. If the owner refuses to pay, that’s the electrician’s problem, they shouldn’t have performed the work without a written change order from the general.

Now, as to the husband not wanting to go back to the owner and tell them that they owe $XXX more for the work that they had the electrician do. When you own your own business, you can’t always be a nice guy. He has no choice but to go back, tell them what happened and ask for payment. That’s part of being in business. Owning a business isn’t about what we like to do or are comfortable doing. Business is about providing a service to our clients and making a profit doing it, and sometimes that means doing things that aren’t easy or don’t come naturally.

Upsetting the building owner at this point would be the least of my worries. They obviously don’t care about this contractor or his contracts, and it’s been my experience that folks who think that way are seldom if ever going to give you a referral for the work anyway. If you think it will be a difficult conversation, you might want to take the electrician along with you. After all, they are the one that will (or won’t) get paid for the extra work.

The more time you spend reading on business related subjects, the more you’ll know about dealing with issues like this. We have truckloads of information on our website, including some of the advice I’m sharing above. And tell the electrician about our website – if they can’t invoice in a reasonable time, they need our help.

In today’s marketplace, you can’t conduct business today like you did 10, 15 or 20 years ago. Clients have access to the Internet and those who want to cause you a problem can find all kinds of scams and schemes to keep from paying for the work being done. Clients also have a good idea of how we run our businesses. They’re aware that general contractors mark up the subs quote and pass the marked-up price to the home or building owner. That’s why many of them try to get subs or our employees to work for them directly and bypass the general contractor.

Stay ahead of your clients. Write a detailed contract that protects you from as many unpleasant scenarios as possible, and work from written agreements with both your subcontractors and your employees. It takes work getting these agreements together, but we offer a solid starting point for all three types (Fast Track Proposal Writer software, Employee Manual and Subcontractor Manual), and the small investment in time and effort will be nothing compared to the time and trouble you face dealing with issues like this.

“Thieves respect property. They merely wish the property to become their property that they may more perfectly respect it.” — Gilbert K. Chesterton