HI-
though i have been in the trade for a very long time, i have never had to negotiate or bid contracts- word of mouth, and a handshake, for 30+ years.
a potential customer was referred to me, and i expressed interest in execution of the ” ready to start ” project. After 5 months of my assistance with a remote ( GA/ UT) architect, ive provided critical information that has greatly impacted the final design.
I politely asked for compensation for ‘ design development’ and was told it was part of the contractors job. we are talking several thousand dollars of unbillable time i have devoted to this project. I have been the liason in lieu of an architect, who would have charged significantly more…
i would rather not ” roll ” this into the project, padding some phase, as i dont work that way. It seems disrespectful of my time and con tribution that no compensation is justified in their view.
any suggestions on a next step? other than getting it in writing? i dont have to take the job, as i stay busy, the project i estimate will cost between 8 and a million to execute….
small potatoes?
please advise-
Thanks!
Replies
was told it was part of the contractors job
So, the customer has expected you to roll it into your overhead, so roll it in, perfectly ethical.
The stuff I do has lots of overhead rolled into everything, billable about 2.5X salaries/hourly rates before taxes.
Are you expected to
now bid the job? Do you actually have no agreement as to how this will proceed if you choose to proceed?
If they're expecting a fixed price you could roll it in as Art says. If they're expecting some sort of T&M then you might have a harder time hiding the extra money that you should have already been billing for. When I get in these deals I ask for a contract fairly quickly. Fish/cut bait etc.
next step
ive been told i " have " the job- extremely detailed drawings for every aspect of the job, which is fine, but there seems to be .... a hesitancy to contract with me. yo, is a retainer asking too much? it would be fixed price, fixed schedule. no ifs . its a high rise condo, and other than flooding from above, variables are quite predictable. limited time access - 830 to 5, no " slab" noise till after 10 am, 36 floors up- elevator factor..... not the luxury of round the clock work to get it done on time.....and the design book of " details" just came in, and they want to start in two weeks. i have the subs to jump on it, but i expect it to take two weeks to refine the product costs ( designer tiles, etc.) isnt a contract normal for a project this size and complexity?
A contract is absolutely normal
and in my opinion should have been in place once it became clear that you were going to spend time on design development. Two separate contracts would be OK, one for the design work, probably just an hourly rate, and a separate later contract to cover construction.
If they are hesitant to start flowing money your way this is a bad sign. The money has to start happening.
next step
ive been told i " have " the job- extremely detailed drawings for every aspect of the job, which is fine, but there seems to be .... a hesitancy to contract with me. yo, is a retainer asking too much? it would be fixed price, fixed schedule. no ifs . its a high rise condo, and other than flooding from above, variables are quite predictable. limited time access - 830 to 5, no " slab" noise till after 10 am, 36 floors up- elevator factor..... not the luxury of round the clock work to get it done on time.....and the design book of " details" just came in, and they want to start in two weeks. i have the subs to jump on it, but i expect it to take two weeks to refine the product costs ( designer tiles, etc.) isnt a contract normal for a project this size and complexity?
Well, let's jusy say...
...in the name of easy math, that it ends up a $1,000,000.00 job.
Even $10,000.00 in design work would only be 1%, right?
I have no idea about your standard business practices, volume, or aspirations, but 1% either way doesn't make or break any business decision for me. There are far more important decision criteria than that.
Yeah, you should know, at least in general terms, about how much you're prepared to spend on marketing to a single customer, based on the size of the potential job. Consider it "advertising" directed to a single customer.
If you're below that number it's overhead. If you're looking to surpass that number then you need to decide when you'll either drop the job or start asking for something up front. It would be good to try to come to an "understanding" with the customer about "up front" money well before that limit is reached, however.
Similar issue much smaller jobs (remodel interior work $15,000 - $30,000 total budgets)
Problem: Since the economy turned down I have had several (3) customers pay the the initial 25% to 33% payment, start work and then decide to put the project on "hold"/ close up and then in a few weeks decide to cancel and ask for some part of thier money back.They are not unhappy with my work and they are not hiring someone else, they just say there finances have changed. In a couple cases the there really isn't much left (or they owe me a bit!) when I account for the time spent planing, discussing setting up the site and lost work days as I scramble to line up a job to replace the dropout.
Although I price in overhead and profit for each line item some customers are pretty upset when I tell them what the cancelled project is costing me and that I expect them to compensate me. Nobody ever pays me over what they have already spent but many feel unfairly delt with when I explain that I'll be returning much less than they figure they are due.
Sometimes they promise future work so I'll promise to give them a credit if they call me. I understand taking a bit of a loss in this situation in order to keep good relations but I don't have the volume of work anymore to just hand them what they ask even though that sum is usually under $2000. (Anyway when times were good and I could afford to be self effacing it didn't seem to generate a call back or referal to give in to a client's self centered demand)
Am I being fair? Is there a proper Way to deal with this?
Speaking as a HO, I'd say that a contract's a contract. Unless the contract says otherwise, cash paid isn't returned if the project ends early due to the customer's request. Certainly if one side or the other is really taking a major hit there should be some negotiation (and maybe a lawsuit) to settle things equitably, and there's always the widows and orphans exception, but otherwise I see no reason to make an exception.
And you're right -- this sort of customer is unlikely to ever come back to you for more work (or recommend you), regardless of what you do.
Fairness
dictates that, due to their inabilty to plan or budget well or due to unforseen circumstances, they have incurred costs and those costs must be covered.
The proper way to deal with this is in inital negotiations and in the contract paper. Explain to them, as you take their deposit, that you have to arrange for labor and materials to be committed to this project and that if is cancelled prior to completion, not all of the costs will necessarily be reflected in tangible work performed. Obviously, having made the decision to hire a professional, they realize the value in the skill and experience you bring to the job. Explain that only the costs directly associated with this job, and all direct costs associated with their job will be billed, or deducted from the deposit. No unspoken agreements or assumptions.
The promise of future work is useless. Put a clause in your contract pertaining to their voluntary cancellation of the job, that states that your cost and time up to the point of cancellation is to be compensated. You cannot realistically recover lost work days to to scheduing, that is your loss, and the way it goes.
Direct costs v indirect is what the conflict is about.
Direct costs is exactly what the conflict revolves around, Some clients feel they shouldn't pay for anything but what was done. Yet it is exactly the indirect stuff that makes it so costly for me ie. the time spent planing the part of the job which is canceled and the lost works days ( usually 1 to 3 days 2 to 3 guys) while lining up a new job to start.
As far as putting it in a contract, and no assumptions; in practice clients tend not to want to hire you for these Small remodel projects when you hand them more than a page or two to sign off on. Also there is a limit to how much a GC / builder can forsee and spell out ahead of time once you get to specific incidents.
It is self evident isn't it. I mean every body knows that if a builder walks off a job it isn't right, We all know that this is a big disruption of a clients life and that the builder who does this is in the wrong. It equally disruptive and wrong when a client does it. No?
Maybe the contract should have a single line about a Kill Fee equal to a percentage of the project, on top of direct cost / line item costs that make up the completed portion of the job.
I agree
that if every potential pitfall was covered in any form of contract paper, they would be lost in the myriad of details. Contracts would start looking like phone books.
All payment conflicts arise from different perspectives and morals. That is life in business. You cover this "base" for a while, and you can be certain that something else will bump it from your list before too long. You try to cover too many costs in a deposit, many will say no and look elsewhere.
Going after lost work days while reshuffling the crew won't go over too well with anybody, anytime. Lost to overhead.
Time spent (proposal, review, planning, management, etc.) is a direct expense and should be invoiced and paid. If you don't document and bill it, you don't deserve it. If they don't pay, you know your options. They may not like it it, but t.s. I would do my best to explain, in terms they understand, why the costs are there and why they must be paid (or not returned).
I think you've had a particularly bad run of luck and won't see this that often.
Contract?
Well my curiosity has gotten the better of me, what happened? As a small bit of "been there, done that" sort of advice
you were asking all the right questions about two months to late. It seemed to me that they were just getting what you were
giving them. I hope it has all worked out well for you.
Dan
Are you a part of the team or not?
It's a big plus for the builder to be a part of the design process. Good for you, good for the client, good for the architect. But why shouldn't you be compensated for your time and input?
Well, for one thing, you didn't ask for compensation. Presenting a bill for work that has already been done, but without any agreement on what is billable and at what rate...doesn't sound good to me. If you have been doing business on a handshake basis and it's been working out for you, OK - that's fine. But doesn't the handshake usually involve a discussion of your rates, when bills will be presented, etc, etc? If you work without asking for money, you are setting up a situation where the client can reasonable expect you to keep working without asking for money.
So what to do now? Assuming you want the job, have a frank discussion with the client, pointing out that you have put more than you thought you would into the design process, but that's OK. [Even if it really isn't totally OK, you have to accept this situation.] But you want a retainer at this point, that's a reasonable request.
And you have to look at what to do with your overhead. Again, backbilling for something that was never contracted in the first place - by handshake or by written agreement - is questionable. Still, every project takes office time and mobilization time before anybody puts on a tool belt. It's a part of your overhead.
In my industry
Commercial HVAC, a trend developing over the last decade and gaining more poularity everyday, is that of "design build". Contractors will bid jobs as the "designer" and installer for projects, thereby "saving" the owner or developer the cost of hiring a design firm and putting out plans and specs, reviewing bids and awarding a contract as well as haiving the designer provide some level of review and approval of various equipment and installation. Some contractors have in house design ability and some do not. I design HVAC systems for those that ask. It is part of the sales process. When my contractors get the job based on my design, they buy my equipment at the price I quote.
I have yet to design a project for a contractor and have them buy someone elses equipment. Should that happen, they will be SOL for any future jobs and good luck figuring out exactly what I designed on the job they got. Depending on the AHJ, calculations and other supporting documents must be provided for approval. Those are not provided without a purchase order in hand. I have designed many jobs for contractors that did not get the job and that is just the cost doing business.
That is nature of my business. For you, lesson learned. I tell my customers upfront that I'll design it on the condition that my number doesn't get shopped, you get the job I get the job and the "design" is mine until you "buy" it (i.e. purchase my equipment). My company has the unique benefit of having and experienced design engineer on staff. My competitors have no such advantage. Salesmen, no matter what level of experience, are not a close substitue, as many eventually find out. Fixing jobs after the fact come at a premium.
If they come back to you for a proposal and hopefully, the job, make it pay. You already know they are not going to cut you any slack. Deal with them accordingly.
posted in the wrong place