How many general contractors do you know who have been in business for 50 years? Of those in business for 50-plus years, how many of them would you expect to file bankruptcy or simply not pay you even though you've always had a great relationship?
I believe it was 1987 when I started a job for a GC who was celebrating its 50th year in business. I had done many jobs for this company and believed it was great to work for. While the job was in progress, I sent them a bill and 30 days later I called to find out why I hadn't yet received payment. The GC's controller told me the owner hadn't paid them yet. I waited a couple more weeks and still no check. I finished the job and billed it 100 percent and waited for a check. Still no check. I started digging deeper and found that the owner of the building had filed for bankruptcy protection; the bank was foreclosing on the building and the GC who had been in business for 50 years also filed bankruptcy.
The owner of the 50-year-old company was a well-respected individual who had a good reputation with the subcontractors in our area. We all knew him, liked him and trusted him but that didn't get us paid. He had been the right customer for many years and without warning he and his company failed.
I agree it's important to know your customer as best as you can but there is always a lag between the beginning of financial problems and the end. You might know your customer but most likely you won't know when your customer's financial problems begin. At some point, your customer's financial problems will most likely affect you and that's when your rights under the law and your contract come into play. Negotiating a fair contract with all your customers is smart business. I'm sorry to say that handshakes, gut feeling and instincts are not substitutes for fair contracts.
The honeymoonThe only thing more inspiring than a newly wed on honeymoon is an expected child. Newly weds on their honeymoon appear to be on top of the world and are full of dreams and high expectations.
Subcontractors oftentimes connect with a certain GC and a sort of honeymoon begins. The sub is willing to please and makes every effort to meet the GC's needs. Sometimes, a sub will go overboard to make the GC happy. The GC appreciates the sub's willingness to cooperate, as well as the sub's ability to perform the work. The sub and the GC then fall in love and begin working together regularly. Both the sub and the GC have high expectations and the relationship blossoms.
There's a saying that, "familiarity breeds contempt." When a customer becomes our best, a stew of familiarity can brew and before you know it, we're either eating or serving a bowl of contempt.
Becoming overly familiar with someone may be viewed as disrespect or taking it granted. Once this happens, it's difficult for both parties to return to their original successful roles. As the relationship worsens, the word "contract" comes up and it's usually in a bad way.
The GC says, "Your contract says that you have all lay out."
The sub says, "I have the layout but you're supposed to provide all the layout information."
At some point, the sub and the GC get so personally invested that both of them read the contract from cover to cover, as well as each party's specifications looking for leverage.
The honeymoon is well over at this point and the sub and GC resort to contract language to keep the job and payment process going. Now it's a matter of how well the subcontract was negotiated. When the honeymoon stops, the real work begins and a fair contract keeps both parties focused on what's important.
Thanks for askingSubcontractors are at the bottom of the money food chain. Money passes from the lender to the owner to the GC to the subcontractor. What could possibly go wrong?
- Lender and owner have a dispute.
- Owner and GC have a dispute.
- Owner authorizes changes without having the money to pay for changes.
- GC directs subcontractors to proceed with changes.
- Subcontractor proceeds without a contract change order.
- Owner asks bank for more money.
- Bank tells owner "no."
- Owner looks for other financing.
- Job is running behind schedule.
- Owner decides to sue GC for delay.
- Owner buys a lot of time while GC and subs finish job.
- GC and subs don't get paid for added work.
- Owner keeps retention and gets the added work for free as a settlement.
Most subcontracts include a condition that can be death to a subcontractor. That condition is the "paid-if-or-when-clause." The condition basically means the GC is not responsible for paying the subcontractor unless the GC first receives the money from the owner. In other words, the GC is not contractually obligated to pay a subcontractor until the GC is paid by the owner.
How is this fair? It's not. A kid selling lemonade on a street corner knows better and we know better. Subcontractors pay for labor and material as the work progresses. The GC will not pay the subcontractor until it first receives the money from the owner and if the GC doesn't receive the money from the owner, the GC is not required to pay the subcontractor.
The Associated General Contractors of America is primarily supported by general contractors, though there are many subcontractors that are members. It's my personal opinion that the AGC could have a tremendous influence in changing or lobbying against unfair subcontract payment language. However, unfair subcontract language continues to prevail in most subcontracts.
Famous quotes for $500Is it lucky for rulers that men do not think? There are all kinds of rulers today. Rulers of countries, oil, interest rates, business and technology. There are media rulers and drug rulers. There are automotive, computer, communication and construction giants who rule their industries.
Television broadcasters are one of the most interesting rulers. They influence every aspect of our lives, including the most personal parts of our lives. You've probably noticed that mainstream media has recently lost some credibility because people are beginning to think. In fact, I recently read that nearly 70 percent of Americans question the factual content of reporting.
It's good to think. It's good to think critically before entering into a contract. It's OK to cross out contract language that puts you at risk. It's smart to have your attorney review a subcontract before you sign it. It's OK to question something or someone.
The critical thinking process is something you can use without anyone knowing you're doing it. Rulers don't like thinkers and thinkers don't really like rulers (unless the ruler is fair and just).
Fair contracts are good and we need contracts when relationships break down. I do agree it's important to work for the right customer but not without a fair contract. Have you guessed who said, "Lucky for rulers that men do not think"? None other than Adolf Hitler.
An unfair contract with enough thought can be modified to be reasonably fair, if you think about it.
Remember: Teamwork begins with a fair contract!