by George Hedley
Doesnít it seem like there are three phases to most construction projects?
General contractors and subcontractors are optimists. They often bid jobs regardless of difficulty, location or size. And, when theyíre the low bidder, they think theyíre the only company who bid it right, regardless of how much money they left on the table. And to top it off, they’ll sign just about any contract put in front of them, often after their work has started when they have no leverage to negotiate fair terms and conditions! As a general contractor who issues more than 250 subcontracts each year, this amazes me. Either subcontractors trust me, they canít read, or it seems they just donít want to deal with contracts and paperwork.
Construction is a four-letter word: RISK. It’s a very difficult business, with lots of moving parts. On every project there are 5,947 chances for things to go wrong. Contractors find themselves at the mercy of project plans, changes, payments, scheduling, weather, labor, equipment, materials, and deliveries. So much can go wrong. So much is out of their control. At the end of the every job (when it’s too late to do much about it) the bottom-line reality of what the project manager, superintendent, or foreman has, or more typically, has NOT done, to manage the contract properly becomes apparent. Not paying attention to key contract clauses about notice, documentation, and change order procedures is a sure way to watch your profit dwindle.
Contracting is About CONTRACTS!
Most contractors donít like paperwork. But unfortunately, contracting is about CONTRACTS, and contracts are paperwork! As much as 50% of all profits made or lost on construction projects can be as a result of managing the contract properly. The contract or subcontract defines how you must do business with your customer. Too many contractors and subcontractors sign pre-prepared 5, 10, 15, or 20 page contracts without reading them, or having their attorney review them, or without understanding the specific contractual requirements.
Did You Notice?
One of the first things to look for when reviewing your contract is: What requires notice? “Notice” is proper notification to your customer about a change, conflict, incident, accident, or problem, within a specified number of days, and in a specified format (usually in writing). Before you start a project, review the contract and prepare a chart listing items which require proper notice. This “Notice & Documentation Chart” can then be used by the project manager, superintendent, foreman, project administrator, and bookkeeper throughout the duration of the project.
Notice & Documentation Chart(Sample*)
||Written Notice Required Within:
|Changes in Scope of Work
||5 days after awareness of change
||2 days of delay incident
|Requests for Information
|Differing Field Conditions
||2 days after evidence of condition
||7 days after event
|Disputes & Protest
||10 days after occurence
* Note: This is a sample chart only. Review the general contract or subcontract on every project to complete this chart.
W.I.N with no V.A.'s!
In our construction business, we use the slogan: “W.I.N.” – “Write It Now!” Phone calls, job meetings, or meeting minutes are typically NOT proper notice or documentation. Contractors tend to postpone or delay documenting conflicts, issues, and changes as they occur. Often they call their customer about problems, but fail to put it in writing until weeks or months later. Often contractors donít put things in writing until after the fact and then invoice for extra work without proper notice weeks later. This creates major problems trying to collect for additional work or schedule delays that most likely is warranted.
Another saying we enforce is “No V.A.’s” – “No Verbal Agreements!” Verbal agreements arenít worth the paper they’re written on. Properly record all verbal agreements in writing and e-mail or fax them to your customer the same day. No exceptions. Confirm these in your regular project meetings and monthly recap reports.
A phone call to your customer is NOT sufficient notice or an official request in any situation. I got a call the other day from a drywall subcontractor asking me if I would “help him out” as his material prices had significantly increased. He insisted we had discussed this when negotiating the subcontract several months prior. My memory and his differed on this point. He then accused me of not being “a man of my word.” I suggested he read his subcontract and follow the requirements for notice and requests for changes if he felt he was due extra money.
In retrospect, his request came several months after he was aware of the price increases. I told him if he wanted extra money, send in a written request clearly outlining the original prices versus the current prices for materials with invoices and backup from his suppliers. And I asked him to realize price increases do not warrant an increased contract amount without prior written agreement by all parties. I also asked him if I would have gotten a credit if his prices went down!
Documentation and Notices Must Be:
- Timely - Within the timeframe required by contract
- Complete - A clear, organized discussion of the issue
- Reasonable - A fair & warranted request
Our written subcontract actually had addressed the price increase issue. Unfortunately for him, his prices increased more than he had anticipated. After he realized the problem, he wanted to get reimbursed for more than he was due. If in doubt, you must put requests and notices in writing, via email or fax in a timely manner to document your position and protect your contractual rights.
Take the time to be complete.
Assembling all documentation, paperwork, change order requests, notices, and information required by your contract often seems overwhelming. But once you get in the habit of following the contract, it becomes easy and a normal part of your construction routine. In order to get everything you deserve while building a project for your customer, you must be timely in your requests. Missing the notice time requirements may result in a loss of your right to collect for things out of your scope of work or control. When documenting items, take a little extra time and be complete in your description of the event. Take digital photos to show the issue in question.
Often project managers donít describe an event in enough detail so that a neutral party would completely understand it several months later or in court. An example of good and poor ways to document are as follows:
"We request a change order for 7 extra yards of concrete required at deepend exterior footings."
"On October 22, the soils engineer issued a field memo requiring the exterior footings along the east property line to be deepened 3 feet. This was required to avoid a conflict with the storm drain pipe which runs parallel to the footing. Enclosed is a digital photo of the conflict and the deepened footing work which we performed as requested. This extra work added 7 yards of concrete to our scope of work. Please issue a change order to cover this."
Protect your rights!
When you proceed without proper documentation on conflicts or changes knowing there may be disagreements or misunderstandings, you accept full responsibility. Most construction project owners assume the plans are perfect, there aren’t any conflicts, and the contractors and subcontractors should anticipate all field problems in their bid. They also assume small conflicts which cause minor changes shouldn’t cost anything. They generally don’t realize that they also have project contractual representations, warranties & responsibilities (RWR).
The project developer/owner’s RWR’s include:
- The proposed contract schedule is reasonable
- The plans and specifications are complete and accurate
- The owner won’t interfere with the contractor’s work
- The owner will professionally manage the contract
- The owner will quickly respond to contract issues
- The owner will pay per the contract
- The owner will be reasonable
The general contractor and subcontractor’s RWR’s include:
- They will follow all contract requirements
- They will build per the plans & specifications
- They will provide enough trained workers to meet the schedule
- They will be reasonable
By not documenting conflicts or changes in a timely and complete manner, contractors inadvertently shift more responsibility onto their own shoulders and can lose the right to collect.
Providing proper notice starts at the beginning of every project. Meet with your customer, discuss the contract terms and what it requires. Review and agree on the project notice & documentation required for every conflict or change. And then be ready to follow the contract. Putting things in writing takes a little extra time, but in the end, will save you headaches and make you more money.
George Hedley is the best-selling author of “Get Your Business to Work!” As a professional speaker and business coach, he helps entrepreneurs and business owners build profitable companies. E-mail: firstname.lastname@example.org to request your free copy of “Everything Contractors Know About Making A Profit!” or signup for his e-newsletter. To hire George to speak , attend his 'Profit-Builder Circle' academy or find out how he can help your company grow, call 800-851-8553 or visit www.hardhatpresentations.com