Payment disputes with residential clients
While we’d all prefer otherwise, payment disputes are an unfortunate component of the building game. Anthony Igra describes a typical scenario and ways to avoid it in the future.
Mrs Jones seemed nice enough. She made you cups of coffee. She inquired as to your family’s well-being. She shared a joke with you most days. That was then. Now you haven’t been paid in two months, she’s ignoring your calls, and her lawyer-brother-in-law is threatening to sue you for $450,000.
Welcome to domestic building.
In recent times we have had a number of these stories come through the door and they all have things in common that contributed to the payment dispute. These are the saddest stories because they all start out so well. The parties like each other, the relations are good, the work seems to go well, everybody is happy.
Let’s take a closer look at how this all goes wrong.
This is perhaps the root cause of most of your problems. You have allowed the relationship to get too close. You must remember that Mrs Jones is your client. She is not your friend. You have been engaged to carry out a defined scope of work for a defined price or rate. You are not doing someone a favour, or helping a friend.
By letting the relationship cross the line into friendship you inevitably invite poor practices into your work that will cause a payment dispute.
Keep the relationship friendly, but business-like at all times. Many contractors are told that they can’t get paid because the couple who hired him are now getting divorced. Many contractors have had the client cry in front of them, and feel sorry for them, and then back away from payment.
This happens because the contractor has allowed the relationship to become personal. You must insist on payment no matter what. After all, your own divorce would not be an excuse for not completing the contract work, would it?
Now because Mrs Jones is such a nice person you have most likely done additional work for little or no cost.
Or maybe you have bought her some materials at trade prices to be nice, or maybe you have done additional work but not bothered to get it signed off as a variation, because it seemed too formal for someone so nice.
These are all key errors.
The biggest cause of payment disputes in domestic work is variations. It is very common for clients to get carried away with extra work orders only to come crashing to earth when you invoice them. At this point they will pick a fight with you and try to find some reason not to pay you; alleging defects is common.
To keep this under control, do the following:
a. Always quote additional work and get it signed off by the client. I am amazed at how few contractors insist on getting Mrs Jones’ written approval before doing variations. It must be because she is just so nice.
b. Always try to get to a firm price. If this is not possible then agree on a rate or a ‘capped value’.
c. Avoid ‘do and charge’ methods for domestic variations. Your client will always underestimate what it costs, so get it on paper beforehand.
d. Each month, somewhere on your invoice or claim, note the value of the initial quote or budget, and then show the current value of completed work.
That way you can say that your client was well aware that the works had exceeded the contract price. Many clients argue that they had no idea that the work was a variation, or that the contract sum had been exceeded. You need to knock this one on the head.
Variations will either make you more money, or lose you everything. So keep them under control and keep the relationship ‘business-like’.
Scope of work
Another typical cause of dispute is the agreed scope. Too many contractors use quotes that only vaguely describe the work they have agreed to undertake for the agreed price. This leads to your client insisting that a whole pile of work that was not in your scope must be in your scope. Because your quote was vague you feel you need to accommodate the client and do the extra work; and lose yourself money.
Avoid the issue by:
a. Scoping your work in detail. Refer to plans, measures, site locations,
materials etc. It must be easy to see exactly what it is you are off ering to
do for the price.
b. If there are any exclusions, then list them in detail.
c. If there are inclusions, then list them in detail.
In this situation you must insist that any additional request is a variation, and do not do it unless a variation is agreed.
Because Mrs Jones is so nice, you have allowed your documentation to slip. You have not made site diary notes, not issued contract notices, not done reconciliations, not adhered to the contract, not had variations signed
This is the cause of so many problems that we need not name them all: Because this is a problem in itself. Payment disputes thrive on the big empty space where there is no documentation. The dispute becomes a ‘he said, she said’, and they are very hard to win. This is especially true in tribunals where these disputes are so often heard. Unless you can prove something with documentation, you are on the back foot.
Pull out your pen and write it down, or type it up.
For the last six months everything has been fine. You haven’t received any complaints about the work. But now that you are fighting over payment all the work is suddenly defective. This is very common. Defects will continue to be the lever clients use to withhold payment.
The best way to counter this is to off er to have an independent inspector or expert look at the work, and write a report. Offer that immediately.
And make that offer in writing. Many clients will reject the offer and this immediately undermines their credibility. Make the offer again in
writing. Call the Department of Fair Trading and have the work inspected.
This is a powerful strategy for the following reasons:
a. First it immediately removes defects as a threat. Clients assume you will be scared by the threat of defects. So don’t be. Hit it head on. Show them you are not afraid of it.
b. Second, if there are defects then they are documented, valued, and
defined. This means that your client cannot argue later that the $3000 worth of defects are now $125,000. So it blocks the issue from escalating.
c. Third, in any future proceedings that report will be great evidence to show what was really defective and what it was worth. It also shows that you were open and proactive about defects straight up. This adds great credibility to your position in any formal proceedings.
d. If there are defects, then it is easy for you to rectify them and document that they are rectified. Have your client sign off that they are rectified. If he client refuses then get the inspector back to sign off that they are rectified. Now the problem has vanished.
So when it comes to domestic building work, tread carefully with Mrs Jones. Keep things formal and business like, and keep it all on paper. Document the work thoroughly and don’t give freebies and silly discounts. Mrs Jones may seem nice, but a remorseless angel of vengeance lurks just below the surface.
Anthony Igra is the General Manager of Contractors Debt Recovery
Contractors Debt Recovery