In a previous article, we started examining the “Seven Signs” that often rear their ugly heads for contractors when things are not going well. Here’s a list of the Seven:
- Under-supervised or lacking knowledgeable supervision
- Inability or lack of knowledge of how to administer change orders (not collecting monies for work performed)
- Job not completed on time (a pattern is starting)
- One or more contracts have a claim or pattern of owners/customers holding back final payment
- Company is continually threatened with litigation
- Increase in backlog with few management resources
- Lead time to prepare bids is too short or lacks needed “intel”
We examined the first three items on the list, and now we take a look at the last four.
Consider these solutions to the final four “Seven Signs” that your company might be facing trouble.
Communicate early, during & post job completion
Most legal action against contractors is often related to the amount of communication that has taken place during the life of the job. Communicate early and consistently with your clients about when your crews will start, what their needs will be, what role the owner plays to support the construction, etc.
You really can’t communicate too much to make sure there is a confidence and calmness to beginning a new project. Then, daily or weekly, there should be regular dialogue between the contractor, project manager or crew foreman and the client about job progress. Taking a customer on a “walk about” occasionally throughout the project is a great way to keep her in the know and allow her to see progress.
Finally, it’s always important to continue those customer site tours through the actual completion of the project. Taking pictures throughout the project’s life is also important, making such pictures part of the job history and file. All of this might not prevent a legal action by the owner but will tend to remove reasons for such an action. Remember, in most cases it is the lack of communication, or lack of response from a contractor, that causes the owner to question and be suspicious!
The legal issue is certainly no fun for any contractor, but the number of customers and owners holding back final payment appears to be growing as well. Keep two things in mind:
First, holding back final payment, sometimes called “retention,” is growing. Second, if you perform work where this has not been the norm but has begun to happen with more regularity, then consider some suggestions:
- Be sure to spell out the terms and conditions in your project contract. Bolding specific words and phrases pointing to specific payment terms should be done.
- Discuss this focus on payment terms with your client. Do not be timid here! Let the client know confidently and positively that you expect payment by the terms spelled out.
- Be sure to stay in touch with the client throughout project and keep the client updated on important issues.
- Look at getting payments broken into “thirds.” Many contractors are moving to 1/3 down, 1/3 at the halfway completion mark and 1/3 at final close-out.
- Prepare the client for final push work, be clear about the last day, and start that “punch list” earlier to begin working to correct those items needing attention.
- Finally, don’t avoid this topic with a client. If you have been upfront, honest and forthcoming in keeping the client informed you will reduce the likelihood that there will be much of a wait for payment.
This entire issue is tough for even the biggest of contractors. Just the thought of legal action is enough to send some contractors into orbit while for others it shuts down their enthusiasm. Work to integrate as many of the suggestions here as possible and you’ll greatly reduce the potential for negative action needing to be taken.
“Prevent Defense” is documentation based
Oh boy, now for something that we’re seeing as well in different parts of the country. While the chance for having some legal action filed against a contractor is always present, the reality is that few contractors actually go to court. The science of risk management has certainly assisted with this reality.
However, every contractor should be prepared for legal action, impacting how he or she documents projects. The larger contractors can testify to the realities of legal threats, but we are beginning to see smaller contractors now being held legally accountable for things as simple as a crew member driving the company truck over the residential owner’s flowers. It just doesn’t take much anymore.
So, consider a few proven ideas to strengthen your “prevent defense”:
- Document pre-con strategies of completion process with schedule
- Document each weekly or daily “look ahead”
- Take “before-and-after” pictures of jobsites and progress updates
- NEVER perform a change in contracted scope of work without a very clear statement of change that is signed and dated by the client
- Include in your scope of work not only what your company WILL DO but also what you WILL NOT DO per the scope of work contract
- Identify any safety concerns, clearly document them and have the client sign off as recognizing the safety issues
- Document any conditions that the owner has requested be followed, stating clearly what consequences might be realized
- And, don’t forget to educate all your workers, especially your field leaders, on what is acceptable performance, behavior expectations and needs
Even after following all of the above suggestions you might still find yourself being challenged legally. While we cannot live in fear we need to be very cautious in how we document contracts, perform work and maintain client relations. Be sure to avoid shortcuts and make the effort to increase your amount of documentation by about 50 percent or more! You’ll be glad you did.
Covering your bases when you have few thoroughbreds in the stable
Wow! You just landed a bunch of new work and then, lying in bed at night you suddenly wake up from a nightmare. You realize that you do not have nearly enough workers, much less experienced field leaders, to complete all of the new work in the time that you have committed to completing the work.
Part of any contractor’s efforts is to balance work that can be done with the number of leaders and workers available to perform the work. So, what do you do when you are looking into the near future and realize that you might not be able to satisfy all of the contracted work with our current workforce? Let’s jump right into this solution.
- Immediately re-calendar your schedule and consider what customers you might be able to adjust within the schedule.
- Call in a few of those “cards” and subcontract what work you can with those companies where you personally know and trust the owner.
- Begin immediately to interview “best matched” candidates to increase your stable of thoroughbreds. Be careful and don’t jump too fast lest you hire a “carp” who will make you pay handsomely for your quick hiring effort.
- Consider contracting out your scheduling effort as some consulting firms actually can increase your scheduling effectiveness, assisting you in picking up some days that you might not have realized.
- Encourage all of your current leaders to “man up” and take on a bit more project oversight than they have been. This, of course, might cause your leaders to be even more limited with their time commitment but it might be needed to keep a few projects afloat. Remember, you can’t drop any balls during this stressful time — just make sure everyone realizes what balls they are juggling.
- Call some recently retired “experts” who might have worked for you or other contractors that you respected. In some cases, this pool of field leaders might be interested in working a project here or a project there. Call them!
Look, there are no easy answers to being short of leaders who you need to run work. For many contractors who might have struggled picking up work over the past few years, a lot of work is good medicine for past shortages in work and profits. However, in your enthusiasm to catch up and even move ahead of past financial shortages be careful of overselling your company’s potential for completing work.
Prepare bids with all the needed “intel”
It all starts at the beginning, doesn’t it? The right information, the right pricing, the right “legalese” that spells out payment terms, retention if needed, and especially clarity about process for change orders and the payments for such efforts.
While there always seems to be something left out, we also do ourselves no favors if we hurry through to complete a bid and miss some very critical aspects of the job, site, conditions or administrative issues. Commit to not calling a bid complete unless all of the critical points of contractual success have been completed.
No contract is 100 percent “fool proof,” but contractors can certainly do more to protect themselves while also lining out clearly the scope of work to be performed and who the responsible leaders are for all parties involved.
If you are finding the opportunities to bid more work just too tempting please keep in mind that when you are busiest is when the biggest mistakes are made. Help yourself out here by creating checklists to remind you of what you need before a bid is complete — including securing all needed “intel” to assist you making the most strategic of estimates.
Recognize that if you are lacking critical intelligence about a project perhaps you need to walk away from bidding that job. Projects that leave too many holes and cracks in securing the needed information only pose a problem later for every contractor on the project. This is exactly how some contractors get themselves into trouble, wanting to work on a highly visible project or work for a famous owner or architect. The cost can be devastating so be careful.
Well, I hope the “Seven Signs” hasn’t caused you to consider leaving the construction industry. In fact, just the opposite! I sincerely hope and trust that you will take the extra precautions necessary to keep yourself, and your company, from falling into some deep crevice that no experienced “mountain climber” of a contractor would dream of climbing out of.
Watch Out for Those Ominous Signs!
© Brad Humphrey, Pinnacle Development Group/The Contractor’s Best Friend™