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My Customer Claims I’m Overcharging and Now Won’t Pay Me!

We had a call from a contractor who said an owner told him that
he was overcharging for his work, and they were not going to
make the final payment. what causes our customers to treat us
this way? And where do they get the idea that we are overcharging
for our work? Part of the problem is the perception that
remodeling contractors have an “industry standard” of 20 percent
overhead and 10 percent profit, and new home building
contractors have a standard of 10 percent overhead and profit. If
the contractor puts language in his contract or an additional work
order contrary to that so-called standard, the owners go ballistic.

I think part of it is that contractors have a false reputation for
not being well educated, and the owners think they can bluff their
way into new terms for the agreement. They may have worked
with another contractor who gave freebies, so they think that’s
how the game is played. Whatever the reason, without proper
wording in your contracts, this can happen to you. The solutions
I offer are based on my own experience and that of a number of
other contractors and attorneys. (But there are always exceptions.)

First, you must decide if he qualifies to buy from you. Watch for
telltale remarks that alert you to problems to come. One that
comes to mind is the potential customer telling me what he
thinks the job should cost. If you hear comments like that, you
might want to reconsider working with this customer.

If the person is a potential customer, you must take a position
on what you are and are not willing to do. You should be prepared
to state your position very clearly, and put that position in
your contract. Your contract should tell your customer what he
is getting for the sales price you quote, what you expect from hi,
what he can expect from you, and a very detailed payment schedule.
Then you also include language that tells the customer what
you will do if he doesn’t perform his portion of the agreement.

If an owner pulls this stunt on you, is it worth fighting over? It
depends on how good your contract is. If you write a good, clear
contract, force the issue and get your money. If you don’t have a
good contract, then get out as quickly and cheaply as you can. I
can tell you from many years of seeing this happen, this type of
thing happens far more often to contractors with one or two page
contracts. Those who write good solid contracts (lump sum
contracts, I might add), seldom, if ever, run into these problems.

What are some of the things you can put in a contract to pre-vent
owners from trying to avoid paying monies rightfully due?
First, have a binding arbitration clause that specifies a non attor-ney
as an arbitrator. The arbitration clause should also state that
you or the owner could invoke the arbitration process within
three calendar days of notification to the other party. Your best
bet is an arbitrator who knows construction.

Second, have language in the contract that states if you retain an
attorney or a collection agency, the owners will pay all collection
and attorney fees.

Third, have a clause in the contract that states there are certain
fees and costs in your quote that are non-negotiable.
There are other subjects like hidden conditions, code violations,
owners visiting job sites, owners talking to subs or employees,
charges for change orders, animals and children in the work areas,
fees and recovery right to file liens, etc. These are the issues that
lead to misunderstandings and the owner deciding that you are
now a bad person, and that’s why he doesn’t have to pay you.

You may be the nicest person in the world and do the best construction
work within 500 miles of your office, but if you don’t
put the language you need in your contracts, it could come back
to haunt you. Write a good contract, have your attorney check
it, and do the jobs with the confidence that you will be paid.

About the Author

Michael C. Stone is with Construction Programs & Results,
Washougal, Wash. He also is the author of the top selling book,
Markup and Profit; A Contractor’s Guide.

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