In the old days, most contractors had a group of loyal customers who they worked with and often negotiated the final terms and price for construction contracts. When work was busy, construction customers used to have to beg contractors to bid their projects and often just received one or two bids for each trade or scope of work. Therefore, price was not the determining factor in a majority of jobs awarded.
Most general contracts and subcontracts are now awarded based solely on the lowest price. There are so many bidders looking for any chance to bid any job, customers have gotten greedy and taken advantage of the situation and extreme competition. The typical scenario now is for developers and construction project owners to solicit as many bids as they can get, and then work the low bidders for even more blood out of their proposals. The trickle-down effect then permeates down from the general contractor to the subcontractors and ruins the process for every business involved in building projects.
The results are often not pretty as these low-price contractors now struggle to provide the best possible quality and service without getting paid appropriately for doing excellent work. So what is the solution? In the old days, contractors' bids included a little slop, extra money and enough profit to take care of their customers and not be too aggressive enforcing their contracts, managing change order requests and demanding prompt payment. Without any extra money, contractors are now faced with an ethical dilemma. Should they continue to put their customer relationships first, even though they’re treated poorly by customers who award solely on the lowest price? Or, should they manage their contracts like their mean and nasty attorneys would like them to?
An eye for an eye
It’s time for contractors to take a stand and treat customers as they are treated. This means no more Mr. Nice Guy! When your customer asks you to cut your bid and lower your price, they don’t deserve to be treated like royalty. When they don’t approve legitimate change order requests, delay getting back to you on requests for information or pay you late or never, enough is enough! It’s time to give them the same treatment they give you. The time is now to start managing your contract like a junkyard lawyer and getting what you deserve. You deserve to get what you are contracted to do and what it requires. This includes timely responses to all requests, prompt approvals of change orders, no verbal agreements, no free extra work orders, pay by the 15th of the month, proper supervision of other trades, a reachable schedule, a constructable complete set of plans, and adequate funds set aside and available to finish the project.
Nine Steps To Signing A Successful Construction Contract
Manage every contract per the contract
Start by getting a complete copy and read every contract, specifications and general conditions to clearly understand what you must do to protect your rights and be in conformance with the project requirements. If in doubt, put it in writing. Document, document and document even more than you think is necessary. Take photos of every field condition that’s in conflict or doesn’t match the plans and forward them to your customer with a notice or demand. Be quick to make written requests, and don’t give in to make the other side happy or the conflict go away – you can’t pay your bills with a happy face.
Balancing Risks Through Contract Language
If the plans are wrong, you deserve more money, no questions asked. (Besides, the project owner probably hired the lowest price architect and engineers, and therefore the quality of the working drawings likely reflects the fee they got as well.) If you don’t get paid per the contract, you should pull off the job per your contract terms. If you don’t get answers to field questions and conflicts in a timely manner, you should document the situation per your contract and stop work until you get answers you need to move on with your work. If your customer expedites the schedule to make up for other slow non-performing contractors, you should document the claim and get overtime pay or additional time to complete your. If your customer or another contractor damages your work product, you should put them on notice per the contract and get paid to repair the damage, or don’t do the extra work. If you submit a claim and don’t receive a prompt answer that meets with your approval, you should proceed under protest and demand mediation or arbitration per the contract.
Stop being a second class contractor
The days of being treated like second class contractors are over-rated and unprofitable. In order to make any money in construction today, your bid must be lean to win any work. Therefore, bids only include the minimum required by the plans and specifications. Remember, you were hired to do what the contract says, no more and no less. Get tough and get paid what you’re worth; and do only what you were hired to do.
Pay the man or get taken to the cleaners
Get an attorney who’ll help you be aggressive and improve your overall success rate, and keep him or her on speed dial. Set aside a monthly attorney budget amount as an investment in your bottom-line. Meet with them twice a year to review which contract clauses to look out for and which you will sign or not sign. Whenever you feel trouble coming on, call them to get their opinions and suggestions on how to proceed. Have them take a look at any new clauses you don’t clearly understand before you agree to them.
Construction Contract Pitfalls
Don’t be afraid to stand up for what’s right. Don’t be afraid of being tough. Don’t be afraid of customers who beat you down on price and then treat you poorly. Remember, if you do what your contract says, you have the power. So go out and make more money than ever by doing the right thing to get what you deserve.
George Hedley is a professional business coach, popular speaker and best-selling author of “Get Your Business to Work!” and “The Business Success Blueprint For Contractors” available at his online bookstore. He works with contractors to build profitable growing companies. E-mail: [email protected] to request FREE admission to his next webinar, signup for his e-newsletter, be part of a group BIZCOACH program, join a peer mastermind BIZGROUP, take a numbers class at Hardhat BIZSCHOOL online university, or hire George to speak. Visit www.HardhatPresentations.com
