Contractors often face situations where building owners or customers take certain actions to avoid payment on a job. One such example is when building owners delay or reject change work orders to avoid paying for them. Other situations contractors may face are those in which clients decide there is too much profit being made on their project and stop paying, clients don't make final payments on time, or clients want to change elements of their project and make the contractor pay for the changes. Consultant Michael Stone covers these situations for Markup and Profit and provides advice for what contractors should do to resolve the nonpayment problems.
Clients may decide, with the job almost three-quarters complete, that contractors are making too much profit on the job. If faced with such a nonpayment situation, Stone advises communicating to the client that they've signed a fixed figure contract and by refusing to pay, they're now in default.
Never let a customer pull this nonsense on you without challenging it. It's a game some owners play just to see if they can get away with it. Of course, this needs to be outlined in your contract that's signed before the job starts. You're simply doing what you already declared you would do if the client defaults on the agreement.
Contractors may also face a situation when clients fail to make progress on payments or delay the final payment completely. To avoid this, Stone advises putting a payment schedule in every contract and reviewing it with the client before they sign. He also suggests putting in a clause stating you will stop the job if they don't make payments on time and impose a restart fee if the work has to be shut down.
A final nonpayment situation many contractors face is when clients try to change elements of their project and pass the costs of the changes onto the contractor.
The customer [may] announce they don't like the appliance, light fixture or paint color they selected and want you to change it at your expense. They decided their wrong selection is your fault. Again this should all be covered in your contract and related paperwork. Selections should be recorded and initialed by the customer prior to job start. The contract should clearly state that if they want to make a change, it will incur a cost. If they don't like it, don't make the change.
Stone concludes by saying all of these nonpayment situations can be mediated with well-written contracts. Having a clear agreement in writing that covers such situations protects contractors from nonpayment situations with clients.
Read More
