Stopping Deviations From The Deal, Gets you Paid
When a client comes to me with the story of how they got so far behind on payments, there is almost always a common root cause: they lost control of their client and the contract.
When you and your client enter into an agreement for you to carry out work and/or provide products you need to realise that that agreement is the DEAL. It’s not just a piece of paper. That is the basis of your relationship. It describes the obligations required of both you and your client. So it is your job to give that agreement full effect; give it life by sticking to those obligations.
In most payment disputes I find that the contractor has totally lost control of the contract. That is, they let their client deviate away from the agreed terms. Pretty soon no one can be sure what the deal is as there are now a series of informal and un-agreed terms and understandings that have nothing to do with the actual contract.
This is where you either get into a ‘he said she said’ argument about those alternate agreements, or your client now retreats to the letter of the contract and tries to hold you to it when they have not kept to their obligations at all.
Here are the key areas where contractors lose control:
NOT ENFORCING THE DUE DATE FOR PAYMENT
This is critical. There will almost always be an agreed time for payment: Whether 30 days from invoice date, or the end of the month following the issue of the invoice, and so on. [If you’re quotes or contracts don’t detail this term then get it in there!]
No matter what the time for payment, it is essential that you insist that the client pays on that date. Your client no doubt is insisting that you meet your obligations to carry out the work. But they in turn need to meet the payment obligations. Too often you will subserviently keep working while letting your client decide when they pay you. This is not on! If they don’t pay on time they are in breach. You need to kick up a stink and make some noise.
If you don’t then within two months you’ve given your client to understand that you’ll put up with it, and they can decide when they pay and how much. This also does great damage to the power dynamic. The client gets to feel like you are the weak party in the deal. This is a slippery slope as the client will see what else they can get away with.
Keep payments to time.
UNDOCUMENTED CHANGES TO AGREED SCOPE & VARIATIONS
Almost as important as when you get paid, is what you are getting paid for: That is, your scope of works. This is also an area where loss of control can be fatal. As a project progresses your client may ask for additional work. Or you may find that to carry out the work properly you need to do more than is in your contract. For example a preceding trade may have overlooked something that you have to do.
All this needs to be quoted, documented, and agreed. Every time. Otherwise before you know it, the scope of works you have actually carried out hardly resembles what you agreed to do under the contract. Inevitably your client now only wants to pay you for the agreed scope, and ignore all the additional work. This happens because you allow it to happen. The contract will or should state what the process is to get additional work approved. If it doesn’t, then provide a quote and get it signed off.
By giving full effect to the variation process you will maintain control of what the scope of works is, and what your client has agreed to pay you for it. Unbelievable as it may seem, many contractors reach the point where they do not know 1) what their full scope is, 2) what it’s worth, or 3) how much they are owed. I once spent 4 days going through 3 boxes of paper just trying to establish those three simple things. The contractor had totally lost control of the job. He went on to lose over $600 000 on that one project.
So document all changes in scope and know what they’re worth.
Undocumented EXTENSIONS OF TIME AND DELAYS
The biggest problem I see here is a failure to record the delays as and when they occur; then a further failure to advise the client in a timely fashion. If the work is delayed then you MUST advise the client of the cause and the likely effect on your completion date. Even if the contract does not require this, it is good practice and will stand you on solid ground if there is a fight over delay damages; the costs borne by either party due to delays.
Contactors lose control over their ability to accurately show the days they were delayed. Often there are no records at all. This leaves the door open for the client to allege delays and deduct money for them. If the contract has provisions in it regarding delays, and you don’t give them any effect then you lose control over any claim you may have in relation to those delays, and you lose control over your client’s attempt to claim against you for the costs of those delays.
If there are liquidated damages then you may be in real trouble here. So don’t let it happen. Keep accurate records and notify you client when delays occur.
So the three action items here are:
- DO NOT ALLOW DEVIATIONS FROM THE DATE FOR PAYMENT
- DO NOT ALLOW DEVIATIONS FROM THE AGREED SCOPE UNLESS THEY ARE RECORDED
- RECORD ALL DELAYS AND FORWARD TO YOUR CLIENT
Observing these three simple rules will put you in control of the project, and from that you should get paid on time and in full. It also has the advantage of letting your client know that you are not a weak minor party. You are the other party to the contract.
You’ll do your bit, but you’ll make sure they do theirs!
© Contractors Debt Recovery 2011