My Company has been building a private pre school here in Southern California. Things have been going pretty well till about three weeks ago.
I bill my client on a regular time schedule and have been good at that. My client as well in there timely payments to me.
What happened three weeks ago was nothing short of a bomb shell going off with the bad news from my client. That bad news came in a meeting scheduled to pick up the draw, billed five days earlier. The bomb shell going off was that the clients Bank, Washington Mutual, had pulled my clients line of credit. Effectively shutting down all work on the project till new funding has been put into place. (My only thoughts were how was I going to break the bad news to my subs and suppliers. Fortunately all were very understanding as well which made it much easier on me as well working with the client.)
Need less to say this was devastating news to my clients and being a pre school in both English and Japaneses with over 40 new students ready to descend on the new school this fall, could not have come at a worse time. Being the person I am, I did not blow a cork with the client when I heard the news. I was very understanding knowing that the issue was not the client fault, but with the bank. This reaction I had, turned the tide and helped to know end in building the confidence back up with my client. As of this last week they were able to gather up the funding from savings and family to continue on with the project. Our new completion date is for late October or early November.
The reason I am sending you all this note is not to tell you my challenge. But to send a note of warning to others, that if any of there clients are working from a line of credit in order to fund & or to build there project, it would be prudent to draw on thoughts funds now, in case their bank chooses to do the same thing and pull the funding out from under them.
Tony Czuleger
IMC Construction and Development Inc.
Redondo Beach, Ca
Edited 8/31/2008 11:34 am ET by TonyCz
Edited 8/31/2008 11:34 am ET by TonyCz
Edited 8/31/2008 11:35 am ET by TonyCz
Edited 8/31/2008 11:37 am ET by TonyCz
Replies
I think a lot of banks are in trouble and tighteneing up. WaMu has one of the worst balance sheets out there, teetering on the edge. I think others are doing the same thing though with uncollateralized credit.
I have had a 40K LOC with my local bank, 10K with American Express, and 10K with Wells Farago. Never used either of the later until a week ago.My AMEX LOC has a lower interest rate than my local, so I wrote a check from it for 5K. I had called the day before to find out if the account was still open since I'd never used it.
even after confirming it on the phone, when the check went through, they refused it. I received a letter from them the next day that It was reduced to only one thousand because I had too much credit available! Same amt of credit I have had for years, but it is suddenly too much!???
As an investor, I read a lot on the banks and credit crisis. These institutions are in deep trouble and barely making it, so they are starting to dump on their customers. It could be a long cold winter.
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
Washington Mutual pulls the plug on honest people but has bent over to curry favor with a crooked California politition with a history of defaulting on her debts.http://www.jasmynecannick.com/blog/?p=2322BruceT
Your post is exactly the reason why we stay ahead of the game during the construction phase.
How do you do this if the owner's bank will only pay draws for completed work??
You get all that straightened out before the contract is signed.Example of the contract:Signing deposit: 10k
Special order payment: 20k
Commencement payment 30k.
Framing Commencement 30kThe owners have to start the job with enough to get the project to the point where the banks will be remimbursing for something built. Like Mike says "I'm not in the banking business".
How many new homes have you GC'd that had construction loans that worked like that?
You can try to insist on whatever you want, but often the owner will need to you build the job and bill the bank for work completed. You need capital to get that done. You either take the job or you don't. I guess in your case you don't?
"I guess in your case you don't?"Excactly. I'd rather pass on a job than put my money into it. If they don't care enough about their own project to dump 10 or 20% of their own capital into it, why should I? The banks aren't dumb enough to risk their money without the owner haven't something to risk in the form of a downstroke, so why should I take that chance. Hasn't the subprime mess taught us anything about the need for a downpayment?
Jim, I agree with David on the way things work. It is not about the owners putting there money into it.
It is about the fact that banks do not write checks for a project until AFTER the work is completed and their appraisal has been done and assures them that the work is done, the materials used match what the bid sheets show and that all previous work has been paid for (lien releases signed). Smaller private party (or even big and expensive ) projects can be (and are) often funded out of pocket by wealthy owners, but in the bigger picture of the industry these are not the norm. Banks and lending institutions fund most of the construction work out there so you play their game or pass on a lot of work in some areas. If you cannot show and prove the dollar value of what has already been done then you get nothing for it. You mention the sub-prime mess but these rules of the game about draws and financing are older than that . They go back to the saving and Loan mess of the late 70's and early 80's. Prior to that time banks and institutions loaned directly to owners, no contractor involvement and no checking to see what was done or paid for.
Where I used to get a check signed by the owners for work done (written on an account they had control over ) I now get a check from a lending institution and only after the institution is assured they are paying for completed. I am not saying that you can't do it your way , nor that it isn't safer for you (or me or anyone else). I am just pointing out that for most builders it isn't a reality to do it that way.
I have been caught since last May in a very similar situation to the OP was in . Latest news is the owners have just now gotten all the ducks in a row for the financing again. Here it is Sept. and I am supposed to start my job this week again. The owners scraped up enough to cover the work already done, but from this point forward every contractor and sub on this $1.2m job will be supplying materials and labor out of pocket for 30 days and waiting for the bank's people to confirm all is right prior to writing checks and then the subs (and I) will get paid. If the owners had had enough cash on hand to fund the project to begin with why on earth would they be sitting in a loan officers office asking for the funds? It is only gonna get worse not better after this latest mess.
They can't get your Goat if you don't tell them where it is hidden.
Dovetail, thanks for bringing your current real world experience to this discussion. If you look carefully, you'll see that your situation is exactly the situation that I'm trying to avoid. The only way for me to avoid that situation is to stand by my self imposed financial standards which I've modeled after the banks.Using your numbers, I'd have to refuse your 1.2 million dollar project unless the clients brought enough cash to fund construction till the first draw. That might mean they had to start with somewhere between 120k and 240k. I don't know where they would get that kind of money but I know for sure one place where they WOULDN'T get the money: my pocket or my suppliers. If they did front the 240k, I would be able to construct about 200k of verifiable product and then I would expect the bank to inspect that and cut a 200k check. I'd then build 200k more work and wait for a check again. I understand that this might not be the fastest way to wealth creation in the construction industry and I might lose 99 out of 100 clients but until I have an extra 3or 400k laying around that I'm willing to gamble with, I have no choice. Right now, I tell everyone that I'm running a "cash on the barrelhead" business. I'm not operating off credit and everything that we contract is done as a cash transaction. No exceptions.
Actually , and maybe I wasn't clear on this, the client did fund approx. 120k out of pocket, now they have no more personal money so from here on out it becomes the banks rules.
I , and everybody else involved to date has been paid in full for work done.
They can't get your Goat if you don't tell them where it is hidden.
Thanks for that updated info. It appears that 10% isn't enough anymore in today's banking climate. That was my gut feeling too, that's why I said the client has to come up with 120- 240k. Each situation will be different and require a different start value.
So you are suggesting the client will advance you money for all work? i.e. at start of project they advance for sitework and foundation, at start of framing they advance for that, etc.? You will find that only about 2% of your competition is asking for the same terms.
IMO, you are just fine working on a bank draw job where you work and then get paid, especially if you have the client presign all of the draws. That way--unless the bank closes the loan prematurely--you work and then get paid.
Second best would be work for owners who have all cash. You work, you bill.... you likely get paid.
Basically all of my work is in that second category. I generally explain to the owner up front that I do not ask them to pay in advance for work but I do bill biweekly and pay all of my subs, vendors, and employees. So far I have had zero problems getting that to work. It is extremely rare that I ever have actual money into a job, although I certainly always have obligations.
Advantage of this scenario (no bank) is that my lien rights are in first place. With a bank loan your lien rights are generally going to be worth squat.
"although I certainly always have obligations."That is the key phrase. At this point in my career, I am a refusing to take on those obligations. Perhaps there is some other vehicle for taking on those jobs without having the obligation if the owner doesn't pay, or the owner's bank doesn't pay. Maybe there's some contract language that will insulate me from the obligation without the need for me to hire a team of lawyers to get things squared away. I'm okay with eliminating myself from contention on 98% of the construction projects. I'm 100% focused on working on the smaller jobs where I can structure the payment schedule so I won't have to lien anyone.
It seems to me that if you are hiring employees and/or subcontracting work you are going to need jobs of a reasonable size. You'll be competing with other contracting firms for those jobs and I just don't see how you can sift thru enough prospects to find the ones that (a) will hire you and (b) will advance enough money to prevent you from obligating yourself at all.
"I just don't see how you can sift thru enough prospects to find the ones that (a) will hire you and (b) will advance enough money to prevent you from obligating yourself at all."I would never find that if I wasn't seeking it. So far, I'm finding it. I'm not claiming that I belong in the Remodeling top 50 but I am telling you that I will not sign a contract that puts me behind the eight ball. No one is funding my personal projects and I'm not funding theirs. It's a mindset that I obviously have embraced and so far it's working well for me.
In my experience, doing additions of up to about $200k, you can find a lot of clients that are funding the project with a HELOC. In that case, you're only limited by how much you can convince them to give you up front (barring state laws that limit the deposit amounts).Working with construction loans is totally different because the bank doesn't have any security until something is in the ground.Of course, with the tightened lending practices and reduced property values, we're seeing fewer additions in the $50-$200k range.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
Say you have a client funding a remodel with a HELOC--I had one last year--what is your billing method? Are they advancing money, or reimbursing for costs incurred + fee earned?
David,Here is an excerpt from a sample proposal I use for marketing purposes. It's not a real job, but is a reasonable approximation.Total Cost___$90,697
Payment Schedule
1. Due at signing $1,100
2. Due at commencement of work $14,700
3. Due at commencement of framing $18,100
4. Due at commencement of exterior finishes $13,200
5. Due at commencement of drywall $20,900
6. Due at commencement of painting $14,300
7. Due at substantial completion $6,700
8. Due at declaration of completion $1,697It's not as aggressive as some would make it, but it keeps us on the upside for the most part.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
That looks good to me except for the payment at substantial completion. I'd split up that 6700 and spread it out over all the other payments and eliminate the declaration of completion too. My payment schedule would look something like this:1. Due at signing $2,100
1A Special order deposits: $3,000
2. Due at commencement of work $15,700
3. Due at commencement of framing $18,100
4. Due at commencement of exterior finishes $14,200
5. Due at commencement of drywall $18,900
6. Due at commencement of painting $15,300
7. Due at substantial completion $2,697
David-- you might want to talk to Grant Logan about what happens when you have obligations--and your customers fail to meet THEIR obligations to YOU.
Best wishes,
stephen
That's the scary thought that I'm trying my best to avoid. When you think about it, the contractor ends up in the worst position. He puts his credit on the line but the bank has first position on the property. The bank can change the rules anytime and put the contractor behind the eight ball. The client can declare bankruptcy and move one with theit lives. The contractor is stuck, no money, all the debt and if they don't make good, the subs and suppliers will never work with them again.I like the cash on the barrelhead game better.
The contractor and the homeowner are both relying on trust; either one could be screwed by the other.
Based on my experiences, where the contractor went bankrupt after being paid 75% of the cost of a house, and having paid NONE of his suppliers, I have a different perspective than you do. Without the Mechanics Liens Act, I would essentially have had to pay twice, through no fault of my own, for my own house.
If the suppliers and subs had shown proper business sense, they would never have extended that loser any more credit, and therefore I wouldn't have been put in a very bad situation, because I wouldn't have hired him. Instead, everybody said he had a good name, and a good reputation. Even the people who hadn't been paid by him for a year. They were the ones with the information - that he was on shaky financial ground - and they declined to share that information or act on it. In the end, they were also the ones who lost. As it should be - they chose to extend credit to what was, in their own books, a bad credit risk.
Your experience forces you to do business the way you need to to feel comfortable. I can say the same thing. So far, I've been cheated by a lot of contractors, subs and homeowners so I create my payment schedule to fit me. You and I might not ever reach common ground on a payment schedule but I'm okay with that.Like I said: I don't have a choice. I'm never going to put myself in the position where I have to cash in my piddly retirement savings to pay suppliers and I'll never look a subcontractor or supplier in the eye and say "the bank didn't pay....I can't pay you.".
Jim, I have 24 years in the business and I've been paid 100% of everything I was ever owed. Maybe that means I'm due for a big hit, but I doubt it. It is about choosing jobs and customers carefully, communicating well, contracting well, and exceeding customer expectations.
Subs who sign up to work on a job know that they will not get paid unless the owner pays me. How many contractors out there can say they will pay their subs if they are not paid?? Nobody who works for me thinks that I am the financial power behind the job. They know much better than that. They count on me to manage the project and the owner competently and to get them paid. Frankly, I think a lot of subs like working for me better than for homeowners because I am better about keeping the money moving and avoid a lot of hassles for them.
In a very small percentage of situations what you are doing might be better, but your system is not foolproof, and I know it's not typical in the industry. You could easily end up part way into a large job and find that the customer is no longer comfortable advancing money and asks you continue working on a reimbursement basis. What are you going to do, lay off your crew and idle your business?
It is possible that I might come across a client who I need to operate differently with. I have seen two prospects recently who make me wonder--basically, two couples who want to build houses and I question their ability to afford it. But, my usual customers are much more known to me and frankly they can pay me without feeling it, if you know what I mean.
"You could easily end up part way into a large job and find that the customer is no longer comfortable advancing money and asks you continue working on a reimbursement basis. What are you going to do, lay off your crew and idle your business?"There is a termination clause that kicks in if the payments aren't met. So, yes, I would stop work. I'd rather "idle the business" than work beyond a payment anniversary that a client decides to skip. And, since I have been paid for the work done, I'm not out of pocket for anything and I owe nobody.
"But, my usual customers are much more known to me and frankly they can pay me without feeling it,"Those are the most dangerous kind. People who can afford to pay you, can afford huge lawyer bills to avoid paying you. Don't let me try to talk you into setting up a payment schedule that puts you in the driving seat. You might not like it up there. I do.
Dave, I HAVE paid a sub when I did not recieve payment from a homeowner
that was not a pleasant summer( or a pleasant following winter)but my problem should not extend to the sub--he did his job as agreed--- and I paid him
it has NOTHING to do with wether the customer paid ME.
stephen
Stephen, if you were a GC building houses you would either (a) get all costs advanced to you by the owner (not likely in the long term, job after job), (b) have enough capital to float the job including paying all subs even if you were not paid, or (c) be exposing your subs to nonpayment if you were not paid.
I would say that 98% of GCs out there are in category b or c, with 80% being in c.
Like I said, I've always been paid and it goes without saying I've always paid everyone too. I'm not saying anyone else here is wrong, but I think their methods are somewhat outside industry standards. Try sitting in a meeting with a potential client and an architect who is referring you their job (among other GCs) and telling them you want all money advanced. If I did that here I would distinguish myself as very atyical and I do not want to do that, there is too much good competition.
Plus, like I said above, it REALLY complicates my bookkeeping.
David,
while your point might be accurate----- I don't think it is valid.
( that's a curious combo--isn't it?)If I was a GC-- I would have zero interest in being like 98% of my competitors--- i wouldn't even want to be like 80% of my competitors that 2% niche-- would be my bread and butter---things the other 98% can not or will not do it's pretty much how i operate in my segment of the industry.
98% of the work theoretically available to me---isn't of interest to me
AND-- I only want "enough" of the other 2% in your scenario-- currently I am "b"-- but i got there by operating like "a"so- can everybody do it that way---? I doubt it---but that absolutely doesn't matter to me
what matters to me is can I do it?
well---as a matter of fact I can--and so can blue--and so can mike----and dare I say- I suspect you would be suprised to find maybe you can also! as a practical matter---remember I am not dealing with a high end copper roof like Grant--or slate like Walterwe are talking about something very close to a commodity type product--typically dimensional shingles. and there is no shortage of roofers here who will put on a roof for no money down, 100% upon completion but i am not really just selling shingles ,am I--so if i can do it with a commodity like that--- i see absolutely no reason why i can't do it with just about anything if I so choose
if somebody tells you something CAN'T be done-- that right there is an opportunity.
Very best wishes to you,
Stephen
"telling them you want all money advanced."That is a gross overstatement of what we are talking about. You've also chose to discuss how a GC building houses do business. The GC building houses is in a much different position when it comes time to file liens and foreclose on property. I thought our discussions were about remodeling contracts on existing homes.
When I say "all money advanced" I mean that it happens in chunks, but that the owner is always behind. I can't imagine asking for final payment before I completed the work.
Re new home construction vs. remodeling, it's much the same as far as this goes. The cash flow is huge on a major remodel just like it is on new construction. In either case your position is lousy if you have to file a lien.
We don't have to agree to disagree, we just have to agree that we do things differently. Like I said I have seen a couple of prospects lately who might have me doing things differently, because they are borrowing money and if the bank stops funding I can't afford to be caught.
Do you put the money in a special job account or does it all go in the same pot? Do you provide lien releases from your subs and suppliers? If not how does the customer know you are managing his money properly? I like your attitude, I may give it a try when things pick up. You must be a good salesman.John
I'm not that good of a salesperson if you consider my over the kitchen table skills with housewives. I have sold my vision of how a company should be run to a couple of ambitious managers though. They are moving the company along quite nicely given the extreme position we started out from. The only pot I put the money in is our company account and I assigned the meanest, nastiest, cheapest watchdog that I could find to dole it out...my wife. Without her, I'd probably be doing all the accounts payable myself, which would involve me hiring a consultant to teach me some type of quickbooks program or something. I'm not sure what would happen. I'd probably have to hire someone full time to do the bookeeping. That's high on my agenda anyways. I do require all the subs to sign unconditional waivers of liens. So far, no client has asked for them but they are on file. I have two clients right now that have already warned me that they will be seeking them to prove that I've made the payments. One client is a lawyer and balked at our contract and payment schedule. After a round of compromise clauses, we ended up with essentially the same payment schedule. The reason: we offered to break the larger draws up into smaller draws to minimize their exposure but we still wanted to make sure we were always working on their money. We are not afraid to explain that we only want to work with their money. We explain it this way: we want to stay in business and if we dump money into other people's property, some day, it all might get tied up in a bogus legal dispute that could take years to solve. We explain that if we were the type of business that worked in such a risky manner, we'd probably be out of business soon and wouldn't be able to honor our warranties! The clients have the ability to vet us before they sign the check. It helps that we have a very friendly estimator that knows how to earn their confidence.
Exactly.
And in my personal and business life, I've never not paid a bill I was faced with (except once I forgot a credit card bill, and once paid a week late), or paid according to agreed upon terms. If we did business, and your terms were x, I'd accept that, or we would mutually come to an agreement; whatever we agreed to, I'd live by. Same as in my business, our terms are net 30 days, and we expect that to be paid on time.
" Without the Mechanics Liens Act, I would essentially have had to pay twice, through no fault of my own, for my own house. "What terms protected you.I ask because in is usually lien laws that allows them to go after you.Did he get lien releases from all of them?Did he mess up the notification requirements?.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
There were 20 liens filed against the house.
We had followed the mechanics liens act, wherein our lawyer held back the statutory 15% from the money paid to the contractor. ie, if he sent a bill for $100,000, he got $85,000, and the lawyer held $15,000 in trust. So, once all the liens were collected, there was a pot of money, that was distributed to all of those who filed (and perfected) the liens - I think they got paid 25 cents on the dollar. It was an interesting journey through the legal system.
If we had NOT held back the 15%, we would have had to pay that amount anyway, since the courts will state that we were supposed to hold it back. As the lawyers said, the courts assume you have held back the funds as per the law. If you do not, it is your problem.
As everyone (including the subs who got stiffed) said: we did our part, paid on time and as we were supposed to. The fact that the subs got screwed by the contractor wasn't our fault, and therefore we shouldn't be forced to carry the burden.
Are you in Canada?That system is different that in most areas.Either you have proof that they have been paid or you paid them again 100%..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Uhhh... you mean like I lose my working capital? There's no mystery in this for me, Stephen.
I wouldn't in a million years think that it WOULD bea mystery to you Dave. I was just thinking of a story that grant told here a week or so ago about how he is having ( I think) his best year everand yet a couple of slow payers???-thing snow ball a little--and next thing ya know you are getting nasty calls from YOUR suppliers--over someone elses ir-responsibility.As Mike and blue pointed out--it is possible to arrange things so that CAN'T Happen. Personally- my jobs don't top 25K or so-----and I won't put more than $500 cash and one day of my time into somebody elses project without a deposit---after all it's THEIR project not mine( I would prefer to stay at home and look at my safe bank balance than finance THEIR project for free) some of my "competitiors will do the whole job for 100% upon completion but I don't have to--so why would I???
mike doesn't have to--so he doesn't
blue--is new to the state and HE doesn't seem to have to either so-- i am guessing nobody really has to---if they set it up right.
I notice the standard procedure---- is to put the brunt of it on the person least likely to bear the load--- the contractor
that's good for the customer--it's GREAT for the bank---but it's lousy for the contractor.
stephen
"blue--is new to the state and HE doesn't seem to have to either"Correction...that statement should read: "blue is new to the state and he CANT do it any other way!"For me, necessity is the mother of invention. It helps though to get counsel from others wiser than me in this matter though.
Don't mean to direct this to just you Hazlett, but all who arrange payment in advance of work. ""I notice the standard procedure---- is to put the brunt of it on the person least likely to bear the load--- the contractor"" Not to be a total jerk here but what about the supplier and subs? Do those of you who "Get Ahead " of the curve allow your suppliers and subs to "Get Ahead " of as well? or do they have to wait 30 days for their money. ( Subs maybe not so much , but how about suppliers?)
Most of my subs do not expect payment or even down payment in advance unless it is a special order circumstance. Same applies to my normal suppliers.
They can't get your Goat if you don't tell them where it is hidden.
Cash on the barrelhead here.
Is that because of no credit history there or is that the way it is done in Austin between subs , suppliers and GCs?
They can't get your Goat if you don't tell them where it is hidden.
It' because I don't have any cash reserves. I refuse to put something on credit and hope that a client will pay me. The banks work on a similar program and I'm just following their lead.
So you pay your subs up front for anything they will be doing?
They can't get your Goat if you don't tell them where it is hidden.
The subs will ask for deposits and we will risk a proportionate amount based on our history or references. Basically, I cannot risk too much of our client's money. I have to be careful to have enough to finish their job. I consider it my fiduciary duty.
dovetail- that is a perfectly fair question.
I would say--that for my first 15 years or so in business--- I worked with my suppliers paying with a check,in full when I ordered materials.
the last 5 years or so I have opened charges at 3 seperate suppliers--which THEY offered ME.
so-- i guess-- offering credit to their customers is THEIR business model--it's just not MY business model at one of the suppliers-- my costs are actually LESS by putting an order on a charge and then paying it promptly or better yet EARLY--than the cost would be if i payed cash.Stephen
BTW- as far as subs go--------I don't use many--and THEY set THEIR terms--which are generally 100% INSTANTLY upon completion
"at one of the suppliers-- my costs are actually LESS by putting an order on a charge and then paying it promptly or better yet EARLY--than the cost would be if i payed cash."That is usually true and I understand that I'm forfeiting a couple points by paying cash. I'm okay with that for now.
As a homeowner & DIY'er that's going to have to hire a contractor in the near future, following this discussion has been interesting, esp. since "Rule #1" from just about every consumer oriented source of information available is "never pay for work before it's done", and the first corollary is "never pay for materials until they're delivered." I've also gotten the same advice from my attorney. And, of course, when I went against his advice & rule #1, I got shafted. While I certainly understand your points-of-view about getting paid in advance, you do appear to be going against the most prevalent form of contractual obligations in commerce in general.While I have had the privilege of dealing with some very reputable, honest, trustworthy contractors & tradespeople, I've also had more first hand experiences in dealing with those from the other side of the spectrum than I like. As a result, I am wondering what those of you that require payment-in-advance are willing to cede to the buyer/homeowner in return for the risk they are taking. (risk is not meant in a derogatory sense, but merely stating the fact that they are paying for something upon the promise of delivery in the future & that this country is chock full of stories about contractors that have taken those payments & not delivered). What kind of contractual guarantees do you provide in return, if any?
Ahh, I am glad to have you speak of your experience. My thoughts exactly.
(Now I have to go get a cross ready for my fellow contractors to hang me on)
They can't get your Goat if you don't tell them where it is hidden.
2 sides to every arguement.
In NY where I live, you may take any deposit you want up to 100% of the job. The catch, it must either be bonded or in a bank escrow account.
I have always asked for and recieved deposits. I have given deposits to contractors before working on my house. I forgot to say, failure to follow the rules on deposits open a contractor to crimminal charges.
BD, you are asking a good question. To date, I only know of one client that refused to work with us because of our pay schedule. It was a very small job and we were far too agressive. That probably scared him off which would be a natural effect. We have had several conversations asking for proof just as you are doing. I think your cautious nature is sensible. I don't blame you one bit for wanting some assurance that your money is well protected. I really don't know how my estimator has overcome that objection but somehow, someway, she has. I think she encourages the clients to call some of our past clients.
bd,
that's a good question.
My perspective is--that it is MUCH easier for you, the customer ,to check out MY track record of responsibility-- than it is for ME to check out yours.So-- If I require a 50% deposit on a roofing project- I don't view it as you assuming any risk at allbut rather- I have declined to accept 100% of the risk.It's YOUR project---all the risk should be yourshowever-as a practical matter--when you pay a 50% deposit-- you might feel you run the risk that I am never going to show up
I, however-run the risk that you are never going to pay the other 50%
so--effectively-we have split the risk I had a brick and stone project done on my house this year.
the contractor set his terms--which i followed--and as a result I got the contractor and the project i wanted If I didn't want to follow those terms---- I could have looked for another( and lesser qualified contractor)---and probably got a different resultStephen
I agree with everything you say, but consider this: I never give a sub a downpayment, and I never give a contractor working on my own property a down payment. The only thing I can remember advancing for in quite a while is custom cabinets that a vendor ordered from a manufacturer. They asked for 50% down, which I consider standard and which I gave them. It doesn't make sense that I would apply those rules and then operate my business differently.
My approach is to have a detailed written contract (it could not fit on one page... Mike, how can yours?) with a payment schedule that gets me paid frequently. I don't keep a lot of capital in my business checking account but I can always pay everyone on time. With a few subs I specify "pay when paid" but that's for the guys turning in big bills.
Anyway, no doubt I could get burned, and honestly it would draw in vendors and subs right away, because if a client missed a payment I would be unlikely to pay out the invoices on that billing. If any of this happens you all will be the first to know, because I'll be here bitching about it.
"Anyway, no doubt I could get burned, and honestly it would draw in vendors and subs right away, because if a client missed a payment I would be unlikely to pay out the invoices on that billing."I've been the sub too many times on the bad end of that conversation. Quite frankly, when the check is due, I don't care how good of a payer you were, or how good your excuse is, if you don't pay, I'm still hurting and the work is done!!!! How is that right?!!!!I'd much rather work for a general contractor who is opererating on my program. They have the cash up front and THEY WILL PAY WHEN I'M DONE....NO EXCUSES, NO WAITING FOR THE BANK, NO WAITING FOR THE CLIENTS TO MAKE A DRAW DEPOSIT!Think about that from the subs point of view before you knock it. I don't have to make promises I can't keep. When I discuss the terms with the sub, I tell them exactly what I'm telling you here: "We get paid up front from the clients. We are expected to deliver and we are relying on you to deliver. If you deliver, we have your money right now in an account waiting to pay you". We are not kiting any checks, praying for anyone to pay us. We are solvent...and I don't spend any of the money till it's "earned".
"""We get paid up front from the clients."" If I were a sub and heard that I would immediately tell you I also get paid upfront.
If that is good business for you it is good business for me. I operate on the "if it is good for the Goose it is Good for the Gander" rule of life.
They can't get your Goat if you don't tell them where it is hidden.
"If I were a sub and heard that I would immediately tell you I also get paid upfront. "Unfortunately, I'd immediately tell you a little story about what happened to me here in TX when I paid a sub up front and he didn't deliver. Dovetail, you've already went this route with these discussions. You recently stated that your client put 120k into a project as a downstroke, so you obviously are covering your bases in some way too whether you want to admit it or not. In any event, I trust me, but I don't trust the subs and I don't trust the homeowners. If everyone that has cheated me would step up to the plate and pay up, I'd have quite a nifty account that I could renew my faith in humanity with. But, since they don't step up, I'll do it this way...trust but verify by getting the money up front!
No Jim You misunderstood what I posted. My client put 2% into it as a down payment. All of 24k. Now for that 24K they had in 10 days (as per the initial contract) complete construction documents, paid for permits, a paid for job shack ,paid for phone lines in and hooked up ( both DSL lines) temp elect and water service up and ready to go and a survey pegged building with lot line set backs noted and marked, and a Chem can on site and my future time for 1 month and the results of 2 months work for me to put the package together. A large portion of the balance of the money amount I posted I received was what I received from them after the work was done (excavation, foundation, all materials and labor finished and installed, everything you see in the last pictures I posted)
Plus as part of that mentioned amount (120k) the owners also directly paid for engineering fees and architectural fees for some portion of the job. ALL BILLED to the owner AFTER THE WORK WAS COMPLETED Jim not before.
Each supplier and sub had to sign and return a Lien release to me with 5 days of payment as well or face legal problems as part of my contract because before I can get paid for the next round I have to show that the money I was paid went directly to the subs and suppliers and that they received it from me, failure to show that will mean I do not get paid for the next round until I provide proof ALL previous invoices I received and billed for have been paid 100%. Now I would appreciate it if you were to remove this claim from your post:
""Dovetail, you've already went this route with these discussions. You recently stated that your client put 120k into a project as a downstroke, so you obviously are covering your bases in some way too whether you want to admit it or not.""
Prior to my receiving the owners payment to me for work done I was at risk for approx. $58,000.00 to my subs and suppliers.
Your claim makes me look as if I am a liar and I am not. I cover my bases by living cheaply and being able to bill out at a rate that far exceeds my personal expenses and ensuring to the best of my ability I can trust those I do business with .
They can't get your Goat if you don't tell them where it is hidden.
Thanks for the explanation. I'm not sure why you are overreacting to the topic but then again, I'm really not looking for an explanation either.I am interested in the business of numbers however. So, at the risk of offending you again, I'm going to ask: Why wouldn't you have the owners put the first 120k into the deal before you risked a penny? How would you deal with the 58k debt if the owners decided to pull the plug on the deal and not fight tooth and nail to continue funding? There are a lot of circumstances that could change, so I don't understand why you feel you need to put your finances at risk for their project, while they keep 120k in their pocket. At the very least, I'd insist that the 120k be deposited into an escrow account with the instructions for payment to be clearly spelled out.
Well to start with I am not over reacting IMO.
I do not however, appreciate being made out to be a liar. Why would I put myself at risk?
Because life is a risk and business is a risk and if I am going to take part in either I accept risk as the entry cost. I don't insist on others putting themselves at risk for my safety. ""I'm going to ask: Why wouldn't you have the owners put the first 120k into the deal before you risked a penny?""
Easy answer, because if I insisted to that type of prepayment then I would not have a job. Despite what you and others may be able to pull off the majority of the world of building simply does not work that way. As has been noted by several people virtually every single consumer advice giving source cautions against paying 100% for work yet to commence in advance.
Now asking for a down payment of a size enough to ensure that the client and lending institution are committed to the project and that start up costs are covered is perfectly acceptable.
In my case because I was working with what ultimately was going to be a $1.2M contract my down of $24k appears small, but the reality is that I also had a contract only for the initial phase of work or approximately $60k of actual work + that portion of the $24k devoted to paying me for work already done. (The balance of the $120k amount being paid out directly by the owner for various things)
One could argue I was indeed paid well in advance for the $60k worth of work, but that is only a part of the picture as it ignores the greater contract. I was smart enough to foresee the possibility of a funding problem and refused to commit to the entire project until I had full assurances that the client and lending institution were committed in writing to me.
Could both of them suddenly pull the plug after I sign the big contract?
Absolutely!, On the other hand If I were paid full in advance I could get hit by a car crossing a street after having having visited Reno and gambled away every dime and they would be left holding the bag.
Given that I had already done 2 months worth of work on this project, and the goal of the 2% down was to secure for me the much larger contract the down is so small as to be meaningless.
I am not asked by my grocery store, gas station etc. etc. etc. to pay in advance for them to stock their product, nor by my LY .
I can find quotes from you yourself (and other of the advocates here of the advance pay system) chiding owners who have posted on this forum and who have paid in advance for work that either isn't done to acceptable standards or not completed. How can it be that you advocate both sides of the issue depending on whose ox is being gored?
Personally I know far more consumers ripped off by shady or inept contractors than I know of contractors ripped off by shady customers. ""How would you deal with the 58k debt if the owners decided to pull the plug on the deal...""
I eat it until I can collect. BTDT. (and have a following of loyal subs and suppliers as a result) I foresaw that possibility and set up a line of credit for myself that costs me nothing to have in place that would have allowed me to pay off my subs and suppliers in the event of a default, same as I have done in the past. Now to be honest, virtually every one of my subs and suppliers would have worked with me on the issue and asked only for what they absolutely needed so as to keep me afloat while I fought for what was owed.
Liens and lien rights are a wonderful thing. I have no problem at all with what you would insist for yourself, if you can make it work for you fine. Insisting to others in the face of how the world of funding for building projects works that it is the ONLY way to do it,( meanwhile putting the client/consumer at risk) is what I have a problem with.
Trying to accomplish what you say you do in the real world is a different animal. You have said (in some posts) and I agree that the real issue is about sharing the risk as equally as possible. That is what I try to do. Insisting on full payment in advance of work being done is not sharing the risks IMO.
The world of commerce would grind to a halt if everyone insisted in being paid in advance before delivery of their final product and that is the reality of it.
They can't get your Goat if you don't tell them where it is hidden.
dovetail--- business may involve risk----but isn't it really about limmiting the risk--or at least being compensated for it? the bank is in the business of lending money---not the contractor.
but look how a bank attempts to limmit its risk---by essentially putting the contractor in the position of short to moderate term lender---with the bannk remaining as secure as possible.
you may not want to ask others to take a risk--to allow you to remain safe---but isn't turn around fair play???
YOU are taking a risk---to allow the other party to remain safe.I remember when you fist discussed this project some time ago--and I thought" I can't believe he is gonna get involved in this"
I haven't followed all the details- but it sure has seemed like you are taking MORE than your fair share of risk.
I very much hope it works out for you,
stephen
You are correct in some sense. I am comfortable with the risks I am taking (as large as they may seem to others) , as are the bank and the client but many others may not or would not be. Yea, I sometimes wonder what the heck am I doing !! But for whatever it is worth my gut instincts have rarely failed me. I also think about the owners who are risking $1.2m on me and the fact that I complete the project and it doesn't develop serious problems shortly thereafter, heck I could be basking in the Bahama's with Jeff Buck serving me drinks by then. The mental strain on me to see that major problems don't come up in the future with the building from that risk is far greater than if I lose money. The way it will work from here on out is that each month a draw sheet is submitted to the bank for all work finished within the last month and for any materials delivered to the site, each submitted draw will be accompanied by copies of all the invoices I have received, both labor and materials and signed lien releases from all who were paid from the previous draw.
The new draw is paid by the bank within 10 days (after an appraiser visits to confirm the information I submit) and I (Unless this bank does it themselves, which some do, or they can print out co-sign checks for the suppliers and subs, different institutions handle that one differently.) then pay out to the subs , collect new lien releases and start the cycle over agin.
Yes I am at risk for each months draw amounts. I can front load my own O+P somewhat to lesson the risk but it still exists. My own O+P comes to me each month as does my own wage which on this job is figured into the contract under "Site Supervision". My own personal experience (and most builders I know of here) is that this methodology is SOP when it comes to most commercial , many residential, and virtually all the bank financed jobs I have worked on for 20+ years. It was different prior to the S&L melt down in the 80's but since then this is what I have known. As for compensation, suffice it to say if I didn't think it was going to be worth it I wouldn't be doing it.
Time will tell and so will I . Nothing to hide if I blow it and others can learn from my mistakes if it goes that way. I am advocating what I perceive to be fairness and am not advocating the system as it exists for most of us as being whats right.
I simply do not see paying a contractor in full (or more than about 25% of the work to be done) in advance as being fair to the client. I also think it is unrealistic to come on this site and tell people that getting 100% safe money up front is the ONLY way to do things.
They can't get your Goat if you don't tell them where it is hidden.
>> I could be basking in the Bahama's with Jeff Buck serving me drinks by then
Can I go too?
I suppose you want me to but with all the money I ran off with as well.
They can't get your Goat if you don't tell them where it is hidden.
I know Jeff. I happen to like Jeff. But there is no way he is the one I want serving me drinks on the beach. You guys go without me."this dog may be old but he ain't cold. And he still knows how to bury a bone."
Lattimore
http://www.rehmodeling.com
If he breaks the seal on the Jack while we're all sitting there then I think we're good.
I don't drink Jack. Whiskey and I had an argument a long time ago. Whiskey won. Big time. You are also assuming jeff would share.
If it were Cabo Wabo to..............."this dog may be old but he ain't cold. And he still knows how to bury a bone."
Lattimore
http://www.rehmodeling.com
Ya know I really did not think anyone here would be so interested in this as I was only making note to look out.
I thank all who have put in the good words of encouragement. I had no idea it would create such a buzz. One Other point is if you are getting a large check expect the bank to place a longer then normal hold 7 day even on a cashers check. I currently have two biguns.
I truly hope this blog will help someone out in the future before the bank chimes in.
Tony Czuleger
IMC Construction & Development Inc.
Tony, maybe time to let them know that the fed reserve has all checks through there system in 3 days or less. Time for a chat with the branch manager or higher>G<
Yes I do know about this it generally is 24 hrs, the process is called Check 21 adopted about three years ago with all banks.
It is my general fealing that most if not all banks are out for them selves to service and not the customer. It may be time to move on to another bank, Union bank of California is who I currently use and very conservitive.
Edited 9/4/2008 8:20 pm ET by TonyCz
I don't remember who brought up the problem with Washington Mutual, but that bank is teetering on the edge of insolvency. That is probably why they have closed some accounts.
There are a number of counterfit cashier's checks floating around.So banks are taking extra care.But depending on how long you have been their, how well you are know, how well the other bank is know and how local, you can often get that waved or have them directly verify the funds..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Our bank has warned us about cashier's checks, money orders and all checks. They are scrutinizing signatures and rejecting checks when the singnature doesn't match. They said that people are getting upset at the window but they refuse to take checks unless they can verify that they are signed properly. Things are getting turned upside down in the banking world due to technology.
properly signed checks????
now you are making me laugh. I have a payroll service handling things this year---never used one before. first THREE weeks- I phone in the employee hours--- payroll service writes the checks and mails them to me--where they sit in my breifcase untill payday on friday---- i open the envelope and hand out the checksI do this THREE consecutive weeks--on the fourth week one of the workers calls me from the bank--"Steve they won't cash this check-you forgot to sign it" right then i dope slap myself-because I hadn't signed ANY of the previous payroll checks this week-but they ALL went through flawlessly.
i AM an idiot.
Stephen--a big freakin idiot,LOL
stephen..... we use a payroll service.... and all of my guys have signed up for Direct Depositno more rushing off to the bank to cash their checks....
the money is sitting in their accountsMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Bank accounts?????
don't make me laugh----roofers don't HAVE bank accounts!actually my son works for my neighbor the landscaper---we have the same payroll service.
son will collect 2-3-4 paychecks in a row---then deposit them ALL into his savings account--maybe every 4th or 5th paycheck he will put in his checking account
kid has more money in savings than--well lets just say it was long after HE was born before I ever had that much money in one place, LOL
but roofers and bank accounts?-- don't get me started----- i would have to tell you about the time one of our guys called me at 9:30 on a saturday night p.oed at ME because" this check is no good--the guy at the convienience store by my house won't cash it tonight"
stephen
That's where we are heading.
Blue,
or mike, is it possible( or legitimate) to make direct deposit a condition of employment
I wouldn't do it this year--- and in fact sincerely hope to have ZERO employees next year but-- let's say next year I do need employees is it kosher to hire employees--" your pay rate is $XX/hour. your pay period runs from sunday to Saturday and that weeks pay will be directly deposited into YOUR bank account the following friday" ?
stephen
I wouldlove to work for you under those conditions, Steve.
I have cashed my bosses checks with no signatures. I have also signed my bosses checks for my crew when he forgot to sign!
That would depend on state law.But I know that requiring a bank account is not that unusal.I once went to work at a company and when I started they setup an account at THEIR BANK automatically. And payroll was automatically deposited in that account.But that was probably 25 years ago when direct deposit was not that common and electronic payment transfers where very limited.One problem that you might run into is that some of the employees can't get a bank account. Many banks won't open an account if you have had too many bad checks or some other problems. So you might have to guarantee the account.Now states are also trying to do 100% with direct deposit and run into these problems. And some are going with a prepaid, reloadable debit card.But that would not be practical for you unless the payroll services already offers it as a standard option..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Yes. They might have to have you send the checks to their mother's account LOL!
"is it possible( or legitimate) to make direct deposit a condition of employment"I sure wish my employer would make DD mandatory. First of all they will not offer it to us. Yould think a company of nearly 200 could find a way to make it work.
Secondly it would slow down the parade of people in my office looking for their check.ML
going into your office might be an excuse, you know how us constrution workers are>G<
Yep I do. still am one.... Funny thing is they all want to change their withholding about every 2 days. When are people going to learn how to budget their income. Don';t they know it comes out ABOUT the same at the end of the year.ML
Ahhemmmm, they aren't interested in the check!!!!!
I am really, really surprised that a payroll check was chased without a signature. Specially if it was not put into their account.Whoever cashed that really put themself at risk. And no recourse.I am wonder if they just signed it themself.Because the place that cashes the check has no way to verify the signature. And the your bank sees 10 of thousands of checks each day (if not each minute) and certain can verify each signature.Now putting checks into a business account with other checks if it is a nominal amount and appears to be a "regular" check it get deposited even if it is not the right payee..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
bill- i now have in my posession the paychecks from those three weeks- the actual checks-- and NONE are signed by me-- or anybody else( other than the employees signature on the back.)
stephen
Our bank complimented my wife because her signature is consistent. They told her that they are rejecting checks if the signature changes! I guess she can't sign for me anymore. We used to laugh because we didn't think a check would cash if I really signed it.
Checks or cash of $10,000.00 or more can be held up to 10 days due to reporting to the IRS, FBI and homeland security. This is what my bank told me. Interesting thing is they gave access to a $125,000.00 check next day as we use the same bank.
BY the way, it was so i could buy materials ( an elevator comes to mind) & pay subs as they reach milestones. I don't finance any one, tha'ts what the bank is for."this dog may be old but he ain't cold. And he still knows how to bury a bone."
Lattimore
http://www.rehmodeling.com
I think I might check into that if I were you, doesn't sound right.
Yes I think you are correct in the reporting the information to the IRS anything over ten thousand dollars. I don't know if it applys to Corporation though?
Yes, it all applies. We've been dealing with the "Bank Privacy Act" for a long time and it got more intense after 9-11.
Use but that does not affect the release of the funds..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
"I simply do not see paying a contractor in full""I also think it is unrealistic to come on this site and tell people that getting 100% safe money up front is the ONLY way to do things."I think we all agree on both those statements. There's no great revelation there.
You are right Stephen, the banks do everything in their power to reduce their risks. In fact, one of the problems that small time contractors like me face is that we often are in very, very bad positions even if we decide to file a lien, perfect the lien, then move to foreclose the property to collect on the judgment. Lets look at a real world situation of someone that I know of. They hold a second mortgage on a property for 50k. The bank has first position on a 400k note. If the client stops paying on the 50k note, should the holder of the second position foreclose? What does that accomplish? If it was you, would you want to take position of a property, that can't/won't sell and have a 400k note to pay on? The same situation can happen to a contractor who is going to file a lien for 5k. He's going to hire a lawyer for 3k to win an 8k battle with a homeowner? Then, a couple more grand to go through the foreclosure process only to find out he's going to own a house that is financed to the tune of 110%?!!! Great...now the contractor owns a home and has a 3000 montly mortgage payment to make!????!!!!Liens can be a wonderful thing, if you have deep enough pockets to make them work. I don't. My only protection is to stay ahead of the game and stop working when the pay stops.
I think you and I have discussed this enough. A few corrections...feel free to do some research and recorrect me if you'd like.1)You're liar claim are outrageous and way out of line
2)no one ever advocated that anyone should get all of the money up front
3)no one ever said that this is the ONLY way it should be done. Dovetail, I don't mind discussing things but when you decide that you want to escallate and personalize and get angry...I think I'd rather pass.
Fine with me Jim.
They can't get your Goat if you don't tell them where it is hidden.
Jim ,
I have thought about this post of yours and decided to reply. ""A few corrections...feel free to do some research and recorrect me if you'd like.1)You're liar claim are outrageous and way out of line. ""You recently stated that your client put 120k into a project as a downstroke, so you obviously are covering your bases in some way too whether you want to admit it or not.""
What I posted in response to that statement : "Your claim makes me look as if I am a liar and I am not.""
If I am not admitting something to myself (Or You) I am lying to myself (Or You). 2)no one ever advocated that anyone should get all of the money up front
What I actually posted: "Insisting on full payment in advance of work being done...
Now that doesn't mean 100% of the full price of a job, it means you get 100% of the needed money to cover a phase of the job in advance and that is exactly what you are saying you do. 3)no one ever said that this is the ONLY way it should be done.
True and You are correct in that statement.
The emphasis of the advice sure seems to be on it being that way, or at least to me. If I hadn't read it that way I wouldn't have responded. But You are absolutely correct that no where is it stated by you or anyone else that it was the "only way " which is the phrase I used.
They can't get your Goat if you don't tell them where it is hidden.
I still have no idea where the term "liar" enters into this discussion. You are obviously going way overboard as a reaction to what I wrote. Read it again. I never accused you of lying , never gave that a thought, never had any intention. Like I said, it's a gross overreaction. All I know is your client put 120k into a project. I just assumed that they put the first 120k in and that should qualify them for another 120k draw because there would be 120k of provable asset provided. That's what I assume. That doesn't mean I know anything about the reality of your situation and just because there is a different reality doesn't mean you are lying or I'm calling you a liar. Please, when I decide to go after you and offend you, I'll be much more direct.
dave...... i'll see if i can post a copy
what about "special orders" ?
like custom windows .... do you get deposits ?
when i sign a contract.....i get my schedule deposit.... that gets them in in line
if there is special order..... the signing deposit also includes that
my next payment is a substantial one for obtaining the permit & commencing workMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Mike, I generally only bill the client when I have an actual expense. I get windows on open account up to about $25,000 and payment is due the 10th of the month after I receive them. There is often a significant float period in there for me, i.e. if I receive windows today, I'll get an invoice by fax tonight, I'll bill you on my next regular date (usually 5th and 20th) and then disperse funds to the vendor per their terms. Your $25K would be in my account for 15+ days in that scenario.
One thing that might be different for me is that here in WA we charge sales tax. It is a lot easier for me to invoice you for a specific amount that reflects a bunch of actual costs, add sales tax, and then post that to my books. If I start taking deposits I have to figure out how to deal with reconciling the tax amount after the fact. I might be too lazy to do that.
I don't think we've ever had to pay in advance to get "special order" items.Sure, when we pull the trigger, we're on the hook. But the materials show up at the supplier according to schedule (hopefully), are delivered to our job site, and then we are invoiced.I'm not saying that I don't like to stay in front of the customer, but I don't like to stay too far ahead.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
"I'm not saying that I don't like to stay in front of the customer, but I don't like to stay too far ahead."Don't you trust yourself? I think some would be surprised to find out that we often get our draws faster than they are due!!!! Imagine that...we are already on an agressive pay upfront schedule and the check writers combine two payments at some stage so they don't have to "be bothered next week".
"Don't you trust yourself?"Yes, but I also like to be equitable to the client. I'm not saying that staying too far out in front of the client is being dishonest, it's just not the way we choose to do it.If you look at our payments schedule, you will see that, 80% percent of the time (I just pulled that number out of the air, but I think it's reasonable), we are ahead of the client. I feel comfortable with that.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
i don't have to pay in advance for special orders.... but i own them as soon as i order themso... my customer owns them as soon as i order themi want to protect that... so i get either half or all of the cost of the order with the signingMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Jim that is the way I try and run my company and have been successfull up until this lastet job.
Fortunaly the client has paid the bills up current as of Tuesday, but still waiting for the bank to release the cashers checks from the holds.
I also run my business on a cash basis with the clients money always paying for the project. NOt my money, not my line of credit. I am commercial construction and jobs can go over $500,000.00. Yes there are some jobs I lose because I won't finance them the same as there are some banks that won't finance some of the clients I build for. It is all about the risk you feel comfortable with wether you are a bank, the owner or builder.
The banks don't like risk, I don't like risk and the owners tend to want something for nothing with no risk. It's my job to educate the owner on their acceptance of risk in order to aquire the value I offer. Sometimes it works, sometimes it dosen't. If it dosen't, on to the next one. I speaclize in restaurants, bars & medical space and I'm constantly out networking and looking for prospective clients. Note the first to areas of speacilty, generally banks don't finance those. These folks are working on equity lines which can be & are shut off without notice. One more reason not to expose myself.
From what I have read, those that don't operate on the cash up front ( I don't recall any one asking for 100%) are those that havne't been burned. Get stung for an exess of $30,000.00 and then tell me you accept the risk of some else using your money and credit. It may not be the traditional standard operating procedure to which I reply.............so? It should be. This industry is slow to adopt change and I accept that. Just don't expect me to wait for everyone else to catch up. "this dog may be old but he ain't cold. And he still knows how to bury a bone."
Lattimore
http://www.rehmodeling.com
dove...that has not been my experience....
most of the customers i have had ...
had enough pull with their bank to structure the paymrnts bey my schedule... not the boilerplate schdule the bank was using
how about this " you don't ask.... you don't get "
you'd be surprised at what you can get if you ask... and if your customer wants you to do the jobMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
dave....i know people get swindled by unscrupulous contractors
i know people get upside down with incompetent contractors
i'm not in those categories... and neither are you
i am in a position so that if i took a $10k hit.... it would be a lot of scrambling
if i took a $50k hit... i might survive
i am not going to put myself in those positions
just like my customers rely on my good name i rely on them
here is the deal..... i will do the work.... you supply the money
all my payment schedules are based on cash flow.....
which means money up front and at timely events....
not bank schedules...... my schedulesMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
Words to live by. Well said.
Beer was created so carpenters wouldn't rule the world.
Tough break, Tony, and I hope everything works out for you. You sound like you're handling it well - afraid I'd be a basket case.
Had something similar happen when I worked for an architect. We had a large school project coming up, a magnet school that the whole office was excited about. We were gearing up for that and another very large private project when the bottom fell out because of funding cancellation on both and some sort of unmet state requirement on the school. No one saw either of these coming; even the school board was amazed.
This was the year after 9-11, and we were having a tough time getting enough work. The firm eventually did find some replacement work, but a couple of us got laid off and were never able to return.
Hope your clients get their funding back in order soon!
Tony,
I am sorry about WAMU screwing you and your client. They funded one project of mine and it was the most convoluted contract, payment was slow and they were not a pleasure to work with. Final Draw took 30 days after multiple assurances that all the paperwork was complete.
Best of luck to you. May a small local bank may step up to fill in.
Bruce
Client.........Funding? I know those two words but have NEVER seen them grouped together before.
Thanks for the heads up. The banks are going nuts with the lines of credit.
My friend had one for 10k. He paid it off figuring he could always pull whenever he needed to. Two days later he got a letter from the bank saying they were closing his LOC.
Unbelievable!
Family.....They're always there when they need you.
Great post. Thanks for passing on this valuable information.
It was my impression that the first "wave" of the banks rescinding or reducing equity lines of credit had happened 1 year to 6 months ago. This is the first post that I have read that concerns this topic at all, and to have it come so late in the cycle.
The banks in a belated attempt to stem their losses from out of control lending practices had sent out letters informing holders of equity lines of credit that due to falling home prices the amount of their loans were being substantially reduced or taken away completely. People in the middle of remodels, etc., saw this source of funding evaporate.
But it is funny, I had not heard anyone relay any personal experiences to this effect. Glad you were able to work it out.
In rereading you post, I realized that your client has a different form of credit than what I referenced.
Edited 9/8/2008 2:40 pm ET by yojimbo2
Edited 9/8/2008 2:41 pm ET by yojimbo2
Theres been several people who were relaying this type of real world information over the last 6 months. Each has their own unique twist....most of them painful.
I beleave they did call it an Equity line of credit based on the value of there own home.