The old days of ‘the customer is always right’ and working with your customer are over! Twenty or more years ago, most contractors had a small group of repeat customers they regularly worked to negotiate fair terms and prices for construction contracts. When work was plentiful, general contractors even had to beg subcontractors to bid their projects and often just received just one or two bids for each trade or scope of work. Therefore, price was not always the determining factor in a majority of jobs awarded.
Most general contracts and subcontracts are now awarded based solely on the lowest price for the exact scope of work and terms specified for a project. As the economy has flattened and leveled off, there’s now more contractors than work available to build. This produces an excessive number of bidders looking for any chance to bid any job available at thigh margins. Therefore, customers have increased the project requirements pushed onto contractors, gotten aggressive, and taken advantage of the situation with the excessive pressure to land work. The typical scenario now is for developers and construction project owners to solicit as many bids as they can get, and then push the low bidders to include more than proposed at lower prices to win contracts. The trickle-down effect then permeates down from the general contractor to subcontractors to suppliers, and thus reduces the opportunity for every company to make a reasonable profit.
The results are often not pretty as these low-price contractors now struggle to provide the best possible quality and service without getting paid appropriately for providing excellent professional workmanship. So what is the solution? In the old days, contractor’s bids included a little slop, extra money, and enough profit to take care of their customers and not be too aggressive enforcing their contracts, managing change order requests, and demanding prompt payment. Without any extra cushion or money, contractors are now faced with an ethical dilemma. Should they continue to put their customer relationships first, even though they’re treated as a commodity by customers who award solely on the lowest price? Or, should they manage their contracts like their mean and nasty attorneys would like them to?
An eye for an eye!
It’s time for contractors to take a stand and treat customers as they are treated. This means: No More Mr. Nice Guy! When customers ask you to cut your bid, lower your price, and throw in a few extras at no charge, do they deserve to be treated like royalty? When they don’t approve legitimate change order requests promptly, delay getting back to you on requests for information, ask you to change your schedule or work overtime for free, or pay you slow, enough is enough! It’s time to give them the same treatment they give you. The time is now to start managing your contract like a junkyard dog and start getting what you contracted for and deserve.
Stop being a second–class contractor!
The days of being treated like second class contractors are over-rated and unprofitable. In order to make any money in construction today, your bid must complete but lean to win any work. Therefore, bids only include the minimum required by the plans and specifications, no more or less. Remember, you were hired to do only what the contract says. And you don’t have any extra money to throw in a few additional items to make the customer happy or avoid conflicts out in the field. In other words, you have to be firm but fair, get tough, and only do what you’ve been hired to do for the money you agreed to charge. You are only required to do what your contract includes – no more and no less. In addition, most contracts require timely responses to all requests by both parties, prompt approvals of change orders before you start the work, no verbal agreements, no free work for items not required by the plans or specifications, pay by the 15th of the month, proper coordination and supervision of other trades, a reasonable schedule, a complete set of plans with no errors or omissions, and adequate funds set aside and available to finish the project.
If the plans are wrong or incomplete, you deserve more money, no questions asked. (Don’t forget, the project owner probably hired the lowest price architect and engineers, and therefore the quality and completeness of the working drawings likely reflect the fee they got as well.) If you don’t get paid per the contract, you should stop work or pull off the job per your contract terms. If you don’t get answers to field questions and conflicts in a timely manner, you should put your customer on notice, document the situation per your contract, and stop work until you get answers you need so you can stay productive and move on with your work. If your customer expedites the schedule to make up for other slow non-performing contractors, you should document the claim and get overtime pay or additional time to complete your work. If your customer or another contractor damages your work product, you should put them on notice per the contract and get paid to repair the damage, or don’t do the extra work. If you submit a claim and don’t receive a prompt answer that is fair or meets with your approval, you should proceed under protest and demand mediation or arbitration per the contract.
Manage every contract per the contract!
Start by getting a complete set of plans. Read the complete specifications, the contract, and general condition section to clearly understand what you must do to protect your rights and be in conformance with the project documentation, notices, and contractual requirements. If in doubt, put it in writing and document, document, and document even more than you think’s necessary. Take photos of every field condition that’s in conflict or doesn’t match the plans and forward them to your customer with a notice or demand. Be quick to make written requests, and don’t give in to make the other side happy or the conflict go away. Remember, you can’t pay your bills with happy customers! Friends pay and enemies don’t!
Pay the man or get taken to the cleaners!
Get an attorney who’ll help you understand your rights, be more aggressive, and improve your overall success rate. And keep them on speed dial. Set aside a monthly attorney budget amount as an investment in your bottom-line. Meet with them twice a year to review which contract clauses to look out for, and which you will or won’t sign. Whenever you feel trouble coming on, call them to get their opinion and suggestion on how to proceed. And, have them take a look at any new clauses you don’t clearly understand before you agree to them.
Don’t be afraid to stand up for what’s right. Don’t be afraid of being tough. And be cautious of customers who beat you down on price, expect something for nothing, and then treat you poorly. Remember, if you do what your contract says, you have the power to finish first!
As a professional construction BIZCOACH and popular industry speaker, George Hedley helps contractors increase profits, grow and get their companies to work! He is the best-selling author of “Get Your Construction Business To Always Make A Profit!” available at his online bookstore at www.HardhatPresentations.com. E-mail GH@HardhatPresentations.com to sign-up for his free e-newsletter, join a peer mastermind BIZGROUP, attend a BIZ-BUILDER Boot Camp, implement the BIZ-BUILDER BLUEPRINT, or get a discount for online courses at www.HardhatBizSchool.com.
George Hedley CSP CPBC
Phone: (800) 851-8553