All in Agreement: Characters in Construction
July 2, 2009
“Blackmail” is not a popular or widely used word in this day and age. To be politically correct, the word “coerced” is much more effective in describing a situation where one person forces another person to do something they would not normally do. The dictionary defines coerced as: to compel by force, intimidation, or authority, esp. without regard for individual desire or volition: They coerced him into signing the document.
Maybe you’ve experienced coercion in your construction career. In fact, coercion is somewhat of an up and coming process owners and general contractors have begun using knowing the case law against coercion as it relates to construction agreements is limited.
Let’s say you do the drywall work for a general contractor who is building a custom home for an owner. You submit your bill and the GC says that you need to sign this lien release before the owner will pay you. You respond that you’ll sign it when you get paid. The GC says, “I’m not going to submit your bill to the owner until you sign the lien release.” In the end you sign the release rather than file liens so as not to make a spectacle of yourself or alienate the GC in hopes of doing other work. You were coerced into signing a lien release based upon the threat of non-payment and the unspoken threat of alienating a client.
You’re a commercial drywall contractor working on a $10 million job. It’s time to do your first billing and the GC requires that you sign a conditional lien release. The lien release states, “any and all claims for additional compensation of any kind, including claims for delay, disruption, interference, or acceleration occurring through the Waiver Date exclusive of retention.”
Let’s say that you have $150,000 in pending change orders; meaning you have not received the change orders as of yet. Let’s also say that the job is one year behind schedule, at no fault of your own, and you’re entitled to $100,000 in labor escalation. As well, of the $150,000 in pending change orders, the GC is going to back charge you $10,000 for making a layout mistake.
At the time of billing, you fill out the lien release and you get to the part where you give up your rights for additional compensation of any kind and you decide to modify the lien release by including, “this release excludes pending change orders, labor escalation, claims for delay, disruption, interference or acceleration occurring through the waiver date.”
You submit your bill on time and you receive a phone call from the GC who says the company will not process your bill to the owner until you sign the release without modification. In other words, you’re not going to get paid until you agree not to disagree with the terms and conditions of the lien release.
I’ve been writing about New Generation Contracts for a few years now and have to admit how easy it is for multiple people to review a contract and not notice that the contract includes language that binds the signer to unmodified change orders and lien releases.
Many of us have the idea that a lien release or change order can be negotiated when it’s time to sign it but New Generation Contracts include the actual lien release and change order forms that you must either negotiate prior to signing the contract or accept as is.
It’s much more difficult to negotiate a contract in a soft market than in a hot market. If you draw a line in the sand, the GC will most likely find someone else to sign the contract unmodified if you won’t, which is just another case of simple coercion.
LEVERAGE OR COERCION
Leverage gives one person influence over the decision of another. Coercion is much more cruel in that it’s designed to nearly make it impossible for a person to make a decision based on common sense and what is most likely fair and right.
Think of coercion as what has happened to the global economy. Governments make their money by collecting taxes. Banks make money by lending money. In order for governments to pay their bills and grow, they need a strong economy where people and businesses are making money and paying taxes.
A good business owner knows what’s coming at him 90 percent of the time. They know if they have bad jobs or good jobs. They know how secure their backlog is and they know roughly how much money they should make at the end of the year. A business owner can know without a doubt they’re headed for trouble at a time when everything appears to be looking good and not be forthcoming about it.
Instead they position themselves to protect their own interests. This is what we will call a different type of coercion.
Putting yourself in a position where you are forced to do something you don’t want to do is self-coercion. Even though governments have all sorts of banking regulations to guard against bank failures they chose to let it ride, because they wanted to keep the economy going as strong as possible knowing there would be consequences down the road. Business owners do exactly the same thing and are doing it now more than ever because of the economy. Buying work on borrowed money and signing contracts they know are going to hurt them in the long run is self-coercion.
Self-coercion is the sum of what you did in the past that got you where you are now. For some, it may be the basics of just blaming others or finding someone else to assume your problems. For others, self-coercion may result in criminal activity to get what is needed.
Do you believe self-coercion is the sum of what you did in the past that got you where you are now? Do you believe that in most cases you know ahead of time where you’re going and where your business is going?
So many people in business start painting the floor only to paint themselves into a corner all the while thinking that it will be dealt with later. How we convince ourselves to keep buying work, borrowing money, work on cash flow, knowing the hole is only going to get deeper is a question I’ll leave to the psychologists of the world.
Can you sell off your problem jobs, cash flow, high overhead or contracts? Have you put yourself in a position where you have no choice but to fight or fly?
Trust is the most powerful and profitable tool available to mankind, yet, it only takes one wrong word or deed to destroy its power. Would you rather be politically correct or completely trustworthy? Part of being trustworthy is not putting yourself or your company in a position that you know will lead to disaster.
Remember: Teamwork begins with a fair contract. W&C