Written by: Bryant H. Byrnes, Esq. (practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors) and Brian J. Trowbridge, Esq. of Trowbridge Law Office (practices construction law, business law, succession and estate planning, and employment law in the San Francisco Bay Area)
We all know who these critters are; I am referring to nouveau rich techies. They are spreading over the known universe. We all know one, or have met one, or know someone who has met one. And because they are all richer than god – and godlike, they need their temples and monuments. This is a generalization of course and not all techie’s are bad clients, but the following scenario is real. Regardless of the client’s background, these issues are more common in large, high end projects.
Generally speaking, the building trades want these people as clients. At least that’s true in the abstract.
The Situation. The reality can be much grittier and unpleasant. A recent scenario (and not the first I have seen in recent times) is as follows. The job was a dream come true – the techie residence was in the right part of Silicon Valley (i.e. accessible). It was a terribly, terribly high-end home; large scope, lots of money. It filled most of the dance card schedule of the general contractor for the next year.
The contract used was the standard one, including a schedule of payments and provisions for written and signed change orders. The agreement was signed by both parties.
And the job went well, at least for awhile. It included a number of owner requested change orders. Mid-job, there were a slew of them. They amounted to several hundred thousand dollars.
Because the client had signed and paid the previous change orders, the contractor did the work without the new signed change orders in hand.
Punked! Suddenly the techie/CFO/self-appointed big shot said, “I am not paying the full amount of the change orders. In my opinion, you are otherwise being fairly compensated.” He then marked up the Change Orders, reducing them as he deemed “appropriate”, signed them and paid them. The reduction was about 20% overall.
This fine fellow also made clear if there was any work stoppage or other such nonsense, the general contractor would be buried by the client’s attorneys.
Front-End Measures. One can be proactive and preventative in both contract negotiations and early performance.
- In the pre-job contract negotiations, make change orders and payment a key point of discussion. Be sure the parties are in clear agreement.
- Screen the client. Is he or she a hard ass from the beginning? – contractor beware.
- In the contract, make the payment schedule require frequent invoices and equally frequent payments. If possible, you want to send the invoices once a week and have a very short time frame (perhaps four days) as the turn around for payment being due.
- Always get all Change Orders signed before the work starts. This requires that you have a representative of the clients available or the means to have the client to review and sign. While this is tough love, it is also fair and expedient.
- Consult your attorney (of course). He/she my have further suggestions.
Past the Apocalypse. If, worse luck, your client turns on you and declines to pay, you have several choices. They include:
- Stop work for nonpayment (hopefully per a contractual term) and negotiate payment.
- Claim a breach of contract; terminate the contract, proceed to the dispute resolution; file a Mechanics’ Lien. The danger here of course is that the big shot may follow up on his or her claim to overwhelm you with pit-bull attorneys.
- Simply accept the situation. But if you are going to take the hit, at least first put up a fight. Pushing back on a bully will probably lessen the likelihood that the client continues this kind of behavior for future payments.
- Discuss the situation with your attorney (of course).
Also be sure that you accept no more unsigned Change Orders. You might consider simply not accepting following Change Orders at all.
In summary. You need to screen the client (of course). If you get a lot of guff during the contract negotiations or at the beginning of the job anticipate this kind of bad behavior. Consider if this is really a job that you want to take – as is obvious from the above comments, your options are limited if things go south.
Questions? Bryant’s website is www.bryantbyrnes.com. Feel free to contact him by email at Bryant@bryantbyrnes.com. Brian’s website is www.trowbridgelawoffice.com and you can email him at email@example.com.
For Bryant’s previous articles, please visit SFBA NARI’s website and click on the link “In the News/Newsletter” under “For the Trade.” They are also available on his website under “Articles,” and on Brian’s website under “Publications.”
As always, these articles are summary discussions only – to simply give you a heads up on various construction topics. The information contained herein is not legal advice. Every scenario is different and if you need legal advice, you should contact an attorney immediately.