The COVID-19 pandemic has caused many businesses and individuals to reconsider their purchases. If you’re a contractor working on large projects scheduled this year, it is likely that at least one of your clients has considered walking out of the deal. If a client has already signed on the dotted line – even if physical work on the site hasn’t begun – a significant amount of work has probably already taken place. That work could include time spent gathering permits, securing materials, hiring or assigning the appropriate workers and subcontractors, writing a scope, and preparing a project plan – not to mention the potential work lost after clearing your schedule.
If your client expresses buyer’s remorse or is heading for the exits, here are some things you can do to try to salvage the contract, protect yourself, and maintain your reputation.
Protect Yourself on the Front End
A good construction contract will act as your guide to handle any unexpected issues that can arise before construction is complete. While there are perfectly good construction contract templates available online for free, it is always a good idea to hire a lawyer to review your contracts before they are signed – especially for large, complex projects. It may cost an additional $250-$500 to hire a contracts lawyer, but it may save you thousands of dollars if for any reason your client gets cold feet.
Most construction contracts include a construction schedule – a timeline that includes milestones for completion of the construction process, projected dates, and an estimated completion date; as well as a payment schedule – that states the estimated total cost of the project, instructions on how and when payments should be sent, penalties for missed payments, and whether or not a deposit is required.
The construction and payment schedules should clearly incorporate the time and cost of preparing for the work. If those costs are not clearly stated in the schedules and the client decides to break contract before site work begins, the contractor may be left holding the bag or forced to haggle to recoup those losses.
One way to avoid a hasty exit from a contract is to stipulate a 60-day notice of termination clause. This means that one party must provide written notice to the other party about their intent to terminate the contract at least two months in advance. This covers the 6-8 weeks that typically elapses between contract signing and the actual project start date for a standard home project (roofing, siding, windows, etc.), weather permitting.
To avoid the costs and time associated with going to court to settle a dispute, add a binding arbitration clause in the contractor agreement. If there’s a problem, you and your client will plead your case in front of a non-biased arbitrator, whose decision will be final.
Try to Offer a Solution
If a client hired your services in the first place, they obviously see the project as a need. In the wake of uncertain financial times, it’s okay to find a work-around. Both parties take a loss if the work is not done, so it’s in both of your best interest to work together to get the project on track.
Pick up the phone and try to understand what the client wants out of their contract, come up with a suggested plan to fix any issues, and see if the client will re-commit to the terms of the agreement. If the client feels like expectations weren’t set correctly, consider restructuring or changing the agreement. You can suggest an alternative payment schedule, extending the length of the agreement by a month or two, or adding an additional product or service not covered in the original agreement.
A construction contract is a legally binding document between two parties, so you also need to be firm and unemotional. Clearly outline to the client all that they committed to paying and bring to their attention that they are still responsible for the terms of the agreement and the resources you have assigned to the project. Before any conversation, write down the topics you want to address and bring them up word for word. Don’t get drawn into a conversation where the client may try to haggle for more concessions.
Be Prepared to Walk Away
If your customer is negotiating in bad faith and taking advantage of your company, you need to be prepared to walk away from the deal. In the age of online reviews, it’s tempting for contractors to stay in a bad marriage, but trying to appease an impossible client takes time and energy you could be spending on acquiring new clients.
Keep an eye out for red flags, like if your client challenges or haggles you on the cost to do a certain job or is overly anxious, badgering, or persistently indecisive. In times of struggle, trust your instincts and make sure your contracts are as dependable as your work product.