The bigger your business becomes and the longer you stay in it, the law of averages dictates you’re going to run into a dishonest or crazy customer along the way.
I would like to start by saying that none of the following information is legal advice. I’m not a lawyer and my suggestions are based on my 40 years of dealing with contractors. All state laws are different, and you should consult a local attorney. Legal advice about “what-if” situations is always cheaper than “oh no” situations. In other words, know the law and obtain legal advice regarding contracts, documentation, lien laws, etc. Legal advice to stay out of trouble is always better than throwing good money after bad money once there’s a problem.
Know Who You’re Dealing With
If you get a call out of the blue and it seems to be too good to be true, it probably is too good to be true. Google the person’s name and see what they do for a living. See if there are other legal disputes going. You’re probably not the first person to be taken advantage of by this individual. If it’s a commercial customer, be wary of a long, complicated contract. If it’s a small job, maybe you can take the risk, but on larger jobs, have a lawyer review the paperwork.
Understand Lien Law Rules
Lien laws were a foundation of building America. In order to attract craftsmen, it was necessary to ensure they were paid. While France and other countries had such laws, England did not. In 1791, Thomas Jefferson introduced a lien law to Maryland (where D.C. was located) and it was a huge success. Later, a preliminary notice of lien was introduced into the lien process. Preliminary lien notice requirements vary greatly from state to state. Know your state’s lien notice requirements and do not haphazardly sign your rights away.
Be Wary of the Home Run Job
Don’t let the dollar signs of how much money you’re going to make cloud your judgment regarding who you’re dealing with. I talked with a contractor who does about $500,000 a year that took at $254,000 job. Now the customer is trying to not pay them the last $37,000. Why? The job is finished, and the customer is happy with the final product. It appears they just want to cheat the guy out of the last payment because they have money and believe they can do so. They had a quote but now say it was too much money. They have more money and can simply bury the contractor with legal fees. Either way, the contractor loses. Also, taking a job that’s more than half your annual sales is an enormous risk.
American Arbitration Association
On smaller jobs, arbitration can be fairly simple. The website www.adr.org has lots of information on contractor clauses and how the process works.
Trust Your Gut
If the customer seems difficult or unreasonable, they probably are. You may think, “Well, I’ll increase the price to cover it.” OK, but if they plan not to pay you, they still aren't going to pay you.
Communicating with the customer is always important, but communication is particularly important when money, contract and other potential legal issues arise. Confirm conversations with a short, precise email detailing your conversation.
In residential, it’s not uncommon when dealing with homeowner couples to have communication issues. It’s important to keep both homeowners in the loop. A common problem is one homeowner approves changes and then gets amnesia when the final bill is presented. This is why we recommend change orders be billed as they occur and when possible, paid for up front. This can also help the customer avoid making more changes than they can pay for.
Crazy, Unreasonable Customers
If people are being impossible to please, consider walking off the job early, or at least threaten to walk off. Sometimes it is better to take your lumps early on. Frequently, the threat of walking off is more powerful than walking off. Of course, if you walk off the job, seek legal advice, as you do not want the customer to hire someone else to do the job and then sue you. If there is a dispute regarding finishing something on the job, document and clarify you will be paid the remaining monies immediately upon completion. Be careful of blindly saying you will take care of it. Common rules of customer service do not apply when dealing with an unreasonable person. No matter how logical you try to be, crazy plus logic always equals crazy.
In closing, legal issues make the case that a good offense is better than a bad defense. Avoiding a bad situation is always better than trying to get out of one. Legally educate yourself, know who you are dealing with and document contract situations.