Saturday, December 13, 2008

Contractors-What to do in a Bad Economy

The construction industry is in a terrible state right now, and I know many contractors who are suffering the worst downturn in work in their careers. Now, more than ever, contractors need to protect themselves when they undertake projects and make sure they are operating their businesses correctly.

In my practice I see many distraught homeowners who want to file claims against contractors. They are now willing to fight over less and less money and their general level of anxiety has risen.

The best contractors recognize that maintaining good client relations is the best way to stay out of trouble, ensure future referrals, and stay in business. Particularly in this economy, this is not the time to ignore phone calls, disappear from the job, hit consumers with unexpected change orders and extra bills and cut corners. Many builders do not realize that their best source of future business is their current clients.

So, keep the following in mind:

1. Keep the lines of communication open at all times. Make sure you manage your clients' expectations. Let them know that the project may go over budget and that they should allocate for that. Address problems early before they accelerate.

2. Make sure you have a good contract that protects you. Include a provision that allows you to collect your attorney's fees if you have to sue a client for payment. Most of the contractors I meet with do not have this clause in their contracts. They are shocked when it costs them two-thirds of their payment in legal fees when they have to sue a client for their fees.

3. Follow the law. Would you drive a car without a license? There are so many contractors who do not have the proper licenses for performing their work. Do this at your peril. It will catch up with you at some point. In addition, make sure you know the requirements of the building code for your state. Code violations provide excellent evidence against you in a lawsuit. I know of a contractor who sued a client for a $7000.00 payment who ended up with a $130,000.00 judgment against him because he did not follow the law.

4. If you run into a dispute with a client, and you have committed a violation of some sort, resolve your disagreement quickly and protect yourself for next time. You may have to "eat" your fee in order to keep from suffering further consequences.

When business is slow, it is time to review your contract, brush up on the building code (Massachusetts recently published the 7th edition of its code), check the status of your licenses, and check in with former and current clients. If you do your housekeeping now, you will greatly reduce your worries when business is booming and you are too busy to pay attention to these important tasks.


At 2:04 PM, Anonymous Anonymous said...

Thank you Andrea, helpful information on general business practices and the reminder that even when things are tough we must remember our relationships for tomorrow.

At 11:03 AM, Blogger RHIANNON said...

seeking advise...

My boyfriend recently purchased my home and we got numbers from a few contractors to fix up the bathroom. Most of the guys came in at around the same price but we have a mutual friend in the business and my boyfriend wanted to move forward with him for the job. We agreed to the scope of work being completed for 5000 plus materials (tile, fixtures etc.)
What should have been an in and out project turned into a 3 month ordeal as our friend got called to do a job in NY and St. Louis MO for the construction company he works for as his main job. While he was away, he sent 3 or 4 of his guys over to continue the work. (slowly) I had some concerns with the quality of the detail work that was going on but was assured that everything was right on track. We paid him half the money up front and about three months later, when he said that it would be through in another week, he asked my boyfriend for the final payment. Being good friends, and him needing the cash, we paid. It is now 6 months later. Since then, I have discovered some very massive screw ups with the structure of the space as well as the application of the materials. I wont get into details of the damage but I will tell you that I have had three other guys in the space to look at the work. I get the same answer from all of them... The work done is Irreparable and the most of the materials can not be salvaged (apx. 2900 of tile). I have gotten numbers from the contractors and but it in a format for our "friend" and original contractor. Basically, for 4000 he can walk away and wash his hands of any liability from this project. This will allow me to have the bathroom completed and to get the house structurally sound again. He was shocked by this number. I let him know that we could try and set up a payment plan that would work for him and gave him the weekend to come up with a schedule that would be attainable for getting this accomplished. Four days have gone by and I have heard nothing. A side note to this story is that we had a renter that moved from California. He was supposed to get into the house when the work was to be completed in June. Needless to say, we were not able to collect rent on this home as planned and because of this are paying over 1000 a month that it is inhabitable. It is now December - you do the math. As you may well know, these are hard times for a lot of people now and I am not excluded. I lost my job two months ago and am still looking for something to keep me afloat, my boyfriend is in a commission based industry and is being affected by this economy as well. I would love to be able to salvage this friendship eventually but it is imperative that this project gets completed swiftly and we can focus on moving forward. (of coarse this has strained by boyfriend and I's relationship a bit as well...)

I am looking for any feedback on this situation and what my options are for getting this resolved in Missouri.

Thanks for your time and consideration. - rhiannon

At 11:37 AM, Blogger Construction Law Musings-Richmond, VA said...

I like the blog. Thanks.

At 5:01 PM, Anonymous josh said...

Good article.

At 11:03 AM, Anonymous Robert said...

Hey great post. You and others that take a chance to read this should check out Business Beware. It's for contractors to file complaints about hard to please customers in their area.

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