Legal Aid: Saying No - Clients worth rejecting
By Peter Lamont, Esq.
November 10, 2011
In the design world, saying no to a new client is an uncommon occurrence, especially in today's economy economic climate. However, there are times when saying no will save you a great deal of time, money and aggravation. The key is to determine when to say no. While there is no easy way to know when to turn down a new client, there are certain characteristics and qualities of prospective clients that can be red flags. The key to noticing the red flags is to listen intently to the questions and requests of the prospective client. The most common red flag personalities are discussed below.
Personality #1—The Negotiator. This prospective customer knows what he wants as far as design but has no intention of paying what you are asking. The red flag is typically raised during your initial conversation with this customer. After providing the customer with a project estimate the customer's first response is “can we knock the price down little bit?” This is often a routine question asked by many customers, but it’s the follow-up question asked by the Negotiator that should signal a red flag. Once you tell the customer that the price cannot be modified, the Negotiator starts proposing all sorts of price-lowering scenarios such as “what if I do the demolition myself” or “can we reduce the price if my son provides free manual labor.” At this point in the discussion, the designer should begin worrying about whether or not she will get paid once the work is completed. You can tell a Negotiator by their insistence on driving down your price. Quite often, the Negotiator will justify not making final payments by claiming that you or your staff failed to satisfy the contract or meet his expectations.
Personality #2—The Do-It-Yourselfer. The Do-It-Yourselfer is a very dangerous client. Recently, a kitchen designer met with a prospective client who was seeking a full kitchen makeover. When she arrived at the customer’s house he began pointing out all of the things he had done to his house and made sure the designer knew he did them by himself. The designer noted his work was relatively high-quality. The customer spent approximately 20 minutes showing the designer around his house before they got to the kitchen. In the kitchen, the customer pointed out his meticulous base and crown moldings. He told her that his friend, who paid $2,500 to a contractor to install moldings, commented that the customer did better work than his paid contractor.
The designer presented her drawings and received the approval of the customer. On the first day of work, the customer parked himself in the kitchen to observe everything that was going on. He began telling the installers how he believed the cabinets should be installed. When the installers ignored him, he became frustrated and eventually threw everyone off the site and fired the designer. He refused to pay the balance of the contract and, in fact, sued the designer for the return of his initial deposit. He claimed in his lawsuit that the designer failed to comply with the contract, employed installers who possessed subpar skills and alleged that they negligently damaged the crown molding in his kitchen.
Personality #3-The Written Estimator. This customer is looking for a written estimate even before you get to his house. A cabinet designer received a call from potential customer who stated that he had a lot of work that needed to be done and that he was looking for an estimate from the cabinet company for the whole job. He asked how long it would take for an estimate to be provided and if the estimate would be in writing. The designer was excited about the prospect of a large job and said she would be out to inspect the site the next day. When the designer arrived on site, she noticed the kitchen was in serious disrepair. The customer asked the designer to provide him with the cheapest ways to make the kitchen look presentable and demanded the estimate within two days. While the request was odd, the designer only saw dollar signs. She spent the entire afternoon creating a written estimate. When she submitted it to the customer the following morning, he told her he would get back to her. After two weeks and numerous unanswered follow-up calls from the designer, she learned that the customer was going through a divorce and had been ordered by the court to obtain estimates to repair certain areas of the house so that he and his soon-to-be-ex-wife could agree on a settlement. The customer had no intention of hiring the designer. Between the time it took to inspect the customer’s house and the follow-up calls, the designer lost two full days of work.
While it is not often that designers turn down a client, there are some jobs that are better left alone. Every designer has been involved with jobs that cost them time and money. Listen to what the customer is saying to you and do not be afraid to tell him that you cannot accommodate his requests at this time. As Kenny Rogers said, “You need to know when to walk away and know when to run.”
—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.
Legal Aid: Saying No - Clients worth rejecting
By Peter Lamont, Esq.
November 10, 2011
|
In the design world, saying no to a new client is an uncommon occurrence, especially in today's economy economic climate. However, there are times when saying no will save you a great deal of time, money and aggravation. The key is to determine when to say no. While there is no easy way to know when to turn down a new client, there are certain characteristics and qualities of prospective clients that can be red flags. The key to noticing the red flags is to listen intently to the questions and requests of the prospective client. The most common red flag personalities are discussed below.
Personality #1—The Negotiator. This prospective customer knows what he wants as far as design but has no intention of paying what you are asking. The red flag is typically raised during your initial conversation with this customer. After providing the customer with a project estimate the customer's first response is “can we knock the price down little bit?” This is often a routine question asked by many customers, but it’s the follow-up question asked by the Negotiator that should signal a red flag. Once you tell the customer that the price cannot be modified, the Negotiator starts proposing all sorts of price-lowering scenarios such as “what if I do the demolition myself” or “can we reduce the price if my son provides free manual labor.” At this point in the discussion, the designer should begin worrying about whether or not she will get paid once the work is completed. You can tell a Negotiator by their insistence on driving down your price. Quite often, the Negotiator will justify not making final payments by claiming that you or your staff failed to satisfy the contract or meet his expectations.
Personality #2—The Do-It-Yourselfer. The Do-It-Yourselfer is a very dangerous client. Recently, a kitchen designer met with a prospective client who was seeking a full kitchen makeover. When she arrived at the customer’s house he began pointing out all of the things he had done to his house and made sure the designer knew he did them by himself. The designer noted his work was relatively high-quality. The customer spent approximately 20 minutes showing the designer around his house before they got to the kitchen. In the kitchen, the customer pointed out his meticulous base and crown moldings. He told her that his friend, who paid $2,500 to a contractor to install moldings, commented that the customer did better work than his paid contractor.
The designer presented her drawings and received the approval of the customer. On the first day of work, the customer parked himself in the kitchen to observe everything that was going on. He began telling the installers how he believed the cabinets should be installed. When the installers ignored him, he became frustrated and eventually threw everyone off the site and fired the designer. He refused to pay the balance of the contract and, in fact, sued the designer for the return of his initial deposit. He claimed in his lawsuit that the designer failed to comply with the contract, employed installers who possessed subpar skills and alleged that they negligently damaged the crown molding in his kitchen.
Personality #3-The Written Estimator. This customer is looking for a written estimate even before you get to his house. A cabinet designer received a call from potential customer who stated that he had a lot of work that needed to be done and that he was looking for an estimate from the cabinet company for the whole job. He asked how long it would take for an estimate to be provided and if the estimate would be in writing. The designer was excited about the prospect of a large job and said she would be out to inspect the site the next day. When the designer arrived on site, she noticed the kitchen was in serious disrepair. The customer asked the designer to provide him with the cheapest ways to make the kitchen look presentable and demanded the estimate within two days. While the request was odd, the designer only saw dollar signs. She spent the entire afternoon creating a written estimate. When she submitted it to the customer the following morning, he told her he would get back to her. After two weeks and numerous unanswered follow-up calls from the designer, she learned that the customer was going through a divorce and had been ordered by the court to obtain estimates to repair certain areas of the house so that he and his soon-to-be-ex-wife could agree on a settlement. The customer had no intention of hiring the designer. Between the time it took to inspect the customer’s house and the follow-up calls, the designer lost two full days of work.
While it is not often that designers turn down a client, there are some jobs that are better left alone. Every designer has been involved with jobs that cost them time and money. Listen to what the customer is saying to you and do not be afraid to tell him that you cannot accommodate his requests at this time. As Kenny Rogers said, “You need to know when to walk away and know when to run.”
—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.
Personality #1—The Negotiator. This prospective customer knows what he wants as far as design but has no intention of paying what you are asking. The red flag is typically raised during your initial conversation with this customer. After providing the customer with a project estimate the customer's first response is “can we knock the price down little bit?” This is often a routine question asked by many customers, but it’s the follow-up question asked by the Negotiator that should signal a red flag. Once you tell the customer that the price cannot be modified, the Negotiator starts proposing all sorts of price-lowering scenarios such as “what if I do the demolition myself” or “can we reduce the price if my son provides free manual labor.” At this point in the discussion, the designer should begin worrying about whether or not she will get paid once the work is completed. You can tell a Negotiator by their insistence on driving down your price. Quite often, the Negotiator will justify not making final payments by claiming that you or your staff failed to satisfy the contract or meet his expectations.
Personality #2—The Do-It-Yourselfer. The Do-It-Yourselfer is a very dangerous client. Recently, a kitchen designer met with a prospective client who was seeking a full kitchen makeover. When she arrived at the customer’s house he began pointing out all of the things he had done to his house and made sure the designer knew he did them by himself. The designer noted his work was relatively high-quality. The customer spent approximately 20 minutes showing the designer around his house before they got to the kitchen. In the kitchen, the customer pointed out his meticulous base and crown moldings. He told her that his friend, who paid $2,500 to a contractor to install moldings, commented that the customer did better work than his paid contractor.
The designer presented her drawings and received the approval of the customer. On the first day of work, the customer parked himself in the kitchen to observe everything that was going on. He began telling the installers how he believed the cabinets should be installed. When the installers ignored him, he became frustrated and eventually threw everyone off the site and fired the designer. He refused to pay the balance of the contract and, in fact, sued the designer for the return of his initial deposit. He claimed in his lawsuit that the designer failed to comply with the contract, employed installers who possessed subpar skills and alleged that they negligently damaged the crown molding in his kitchen.
Personality #3-The Written Estimator. This customer is looking for a written estimate even before you get to his house. A cabinet designer received a call from potential customer who stated that he had a lot of work that needed to be done and that he was looking for an estimate from the cabinet company for the whole job. He asked how long it would take for an estimate to be provided and if the estimate would be in writing. The designer was excited about the prospect of a large job and said she would be out to inspect the site the next day. When the designer arrived on site, she noticed the kitchen was in serious disrepair. The customer asked the designer to provide him with the cheapest ways to make the kitchen look presentable and demanded the estimate within two days. While the request was odd, the designer only saw dollar signs. She spent the entire afternoon creating a written estimate. When she submitted it to the customer the following morning, he told her he would get back to her. After two weeks and numerous unanswered follow-up calls from the designer, she learned that the customer was going through a divorce and had been ordered by the court to obtain estimates to repair certain areas of the house so that he and his soon-to-be-ex-wife could agree on a settlement. The customer had no intention of hiring the designer. Between the time it took to inspect the customer’s house and the follow-up calls, the designer lost two full days of work.
While it is not often that designers turn down a client, there are some jobs that are better left alone. Every designer has been involved with jobs that cost them time and money. Listen to what the customer is saying to you and do not be afraid to tell him that you cannot accommodate his requests at this time. As Kenny Rogers said, “You need to know when to walk away and know when to run.”
—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.
Legal Aid: State & Federal Licensing Requirements
The impact of licensing regulations on the kitchen and bath design industry
By Peter J. Lamont
August 09, 2011 |
Most people can clearly distinguish between a home improvement contractor and an interior designer or kitchen and bath salesperson or installer. When one generally thinks of a home improvement contractor, they think of someone who builds walls, installs plumbing or electrical, adds an addition or builds out a basement. However, the law has a slightly different take. It is critical that those in the design industry understand they may be considered a home improvement contractor under state and federal laws and are obligated to register and be licensed as such. The fines for failing to obtain a license or comply with registration can exceed $20,000 per day, per violation and may be considered a criminal offense.
THE WHYS AND WHERERFORES
Who exactly decided that an interior designer or kitchen and bath professional should be considered a home improvement contractor? Over the years, consumers have lodged tens of thousands of complaints against kitchen, bath and interior design companies with their state's Department of Consumer Affairs. As a way of protecting their citizens, many states sought methods by which design professionals could be held accountable for their negligence. In addition, state and federal government is always looking for new revenue-producing programs to fund its various needs. The solution was to create regulations and administrative laws that broaden the definition of home improvement contractor to include the services of those in the design industries. These regulations, when violated, trigger statutory penalties and constitute a violation of state consumer protection laws.
Presently, just about every state requires those in the design industry to obtain licensing under its home improvement contractor laws. Some states, such as New York, have expanded the definition of home improvement contractor to include anyone who sells products or negotiates a contract for home improvements. Thus kitchen and bath salespeople in New York must obtain a home improvement salesperson license in order to comply with the New York City Department of Consumer Affairs.
As you would expect, states such as New York, California, Texas and Florida are at the forefront of home improvement contractor legislation. These states typically set the bar for the others. In California, individuals engaged in any statutorily defined home improvement, including design professionals, who are not properly licensed are subject to fines in excess of $25,000. Additionally, states like California and New York have made it a misdemeanor to operate without a home improvement contractor's license. In fact, only last month a California Appeals Court affirmed a lower court's conviction of a California contractor who was operating without a valid contractor's license. The individual was fined $5,000 for each of the five counts of operating without a license and was sentenced to 90 days in jail. If your state has not jumped on the bandwagon, expect it to do so in the very near future.
NEW FEDERAL GUIDELINES
Not to be left out, the federal government has also established new guidelines that affect design professionals. Under the EPA's new lead paint laws, contractors (remember, under your state's law, design professionals may fall within the definition of contractor) who perform renovation, repairs and painting jobs in pre-1978 housing and child-occupied facilities must be certified under an EPA-accredited training program. The fine for failing to have the requisite certification is $37,500 per day. The legislative intent behind this law is to protect homeowners and their families from health issues related to lead paint.
The severe penalties imposed by the EPA put most contractors out of business and subject them to criminal penalties for failing to pay the fine. On May 16, 2011, EPA announced that a Rockland Maine renovator, who was installing kitchen cabinets and related items, is facing severe penalties for not being properly certified. The EPA has stepped up investigations of non-certified contractors and is actually asking people to report suspected violations in an effort to “fight pollution by reporting potential environmental violations.”
Determining whether you need to be licensed can be a complicated process. Many states require design professionals to be fingerprinted and take licensing tests. Additionally, many local city governments have their own separate requirements for being licensed home improvement professionals. In order to ensure your protection with respect to these laws and regulations, you need to first determine if your business or activities fall under the definition of home improvement contractor. You should be able to find this information on your state’s Department of Consumer Affairs website. Next you should obtain the applications from the department and review the requirements for licensure. Once you have obtained your license you must be aware of its expiration date. Most states require the renewal of contractors’ licenses every one to two years.
While design professionals are not typically considered contractors, federal and state laws and regulations, are holding them to the same standards. It is critical that you review your state’s requirements as soon as possible to protect yourself from fines and possible criminal prosecution. You may want to seek the assistance of an attorney to help you obtain and maintain your licenses and certifications.
THE WHYS AND WHERERFORES
Who exactly decided that an interior designer or kitchen and bath professional should be considered a home improvement contractor? Over the years, consumers have lodged tens of thousands of complaints against kitchen, bath and interior design companies with their state's Department of Consumer Affairs. As a way of protecting their citizens, many states sought methods by which design professionals could be held accountable for their negligence. In addition, state and federal government is always looking for new revenue-producing programs to fund its various needs. The solution was to create regulations and administrative laws that broaden the definition of home improvement contractor to include the services of those in the design industries. These regulations, when violated, trigger statutory penalties and constitute a violation of state consumer protection laws.
Presently, just about every state requires those in the design industry to obtain licensing under its home improvement contractor laws. Some states, such as New York, have expanded the definition of home improvement contractor to include anyone who sells products or negotiates a contract for home improvements. Thus kitchen and bath salespeople in New York must obtain a home improvement salesperson license in order to comply with the New York City Department of Consumer Affairs.
As you would expect, states such as New York, California, Texas and Florida are at the forefront of home improvement contractor legislation. These states typically set the bar for the others. In California, individuals engaged in any statutorily defined home improvement, including design professionals, who are not properly licensed are subject to fines in excess of $25,000. Additionally, states like California and New York have made it a misdemeanor to operate without a home improvement contractor's license. In fact, only last month a California Appeals Court affirmed a lower court's conviction of a California contractor who was operating without a valid contractor's license. The individual was fined $5,000 for each of the five counts of operating without a license and was sentenced to 90 days in jail. If your state has not jumped on the bandwagon, expect it to do so in the very near future.
NEW FEDERAL GUIDELINES
Not to be left out, the federal government has also established new guidelines that affect design professionals. Under the EPA's new lead paint laws, contractors (remember, under your state's law, design professionals may fall within the definition of contractor) who perform renovation, repairs and painting jobs in pre-1978 housing and child-occupied facilities must be certified under an EPA-accredited training program. The fine for failing to have the requisite certification is $37,500 per day. The legislative intent behind this law is to protect homeowners and their families from health issues related to lead paint.
The severe penalties imposed by the EPA put most contractors out of business and subject them to criminal penalties for failing to pay the fine. On May 16, 2011, EPA announced that a Rockland Maine renovator, who was installing kitchen cabinets and related items, is facing severe penalties for not being properly certified. The EPA has stepped up investigations of non-certified contractors and is actually asking people to report suspected violations in an effort to “fight pollution by reporting potential environmental violations.”
Determining whether you need to be licensed can be a complicated process. Many states require design professionals to be fingerprinted and take licensing tests. Additionally, many local city governments have their own separate requirements for being licensed home improvement professionals. In order to ensure your protection with respect to these laws and regulations, you need to first determine if your business or activities fall under the definition of home improvement contractor. You should be able to find this information on your state’s Department of Consumer Affairs website. Next you should obtain the applications from the department and review the requirements for licensure. Once you have obtained your license you must be aware of its expiration date. Most states require the renewal of contractors’ licenses every one to two years.
While design professionals are not typically considered contractors, federal and state laws and regulations, are holding them to the same standards. It is critical that you review your state’s requirements as soon as possible to protect yourself from fines and possible criminal prosecution. You may want to seek the assistance of an attorney to help you obtain and maintain your licenses and certifications.
—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.
Giving In Not Up
The kitchen, bath, and design trades are unique in that what is really being sold is a design or idea. Unlike a retail store, most often our customers complain about the services, promises, and design concepts, not the merchandise. Of course, there are those who complain about the difference in color from the cabinets in your showroom as opposed to the cabinets she was provided, but for the most part the complaints are about your designs, layouts, measurements and promises. Your designs, ideas and other non-tangible work is valuable and you should not be forced to give refunds or discounts to your clients simply because they complain. On the other hand, when you are wrong must be willing to provide reasonable reparations to your client. The tricky part is knowing when to fold and when to fight.
Dealing with tangible items was once easy. For example, if someone ordered light brown cabinets but you provided dark brown, the problem was clear cut as was the solution. You simply would replace the cabinets at no charge. However, is this day and age, things are not so simple. Most customers complain about the impact of the delay in replacing the wrong color cabinets. They claim that they are entitled to loss of use or make other esoteric legal arguments. More importantly, many customers are looking for you to make even the slightest mistake in the hopes that they can complain and receive a partial refund.
The four main complaints/allegations made by customers against kitchen and bath companies and designers are: (1) Verbal promises made before or after the contract is signed; (2) Incorrect measurements (even when they were present when measured); (3) Improper/inadequate designs; and (5) Loss of Use/Emotional Distress.
When your customer comes to you and requests a credit because your measurements were off by an inch or because you verbally suggested that the customer's order could arrive before the scheduled date when in reality it does not arrive until three days after the scheduled date how do you decide whether to give the credit or fight the customer?
The following guidelines should be used in determining whether to give in to a complaining customer.
First, you must fully understand the customer's issues. Many customers rant and rave and say nothing about their actual problem. You need to get a handle on the customer's real complaint. Ask the customer to put his/her complaints in an e-mail or other form of writing. If the claims involve some visible problem (i.e. improper installation; poor design; damage to the home; etc.) you should ask to physically inspect the conditions and photograph them.
Next you need to determine if the claims have merit. For example, if you contract does not have a time is of the essence clause and the customer complains because her cabinets arrived 7 days after the expected delivery date, she may not have a valid cause of action and thus, her threats are devoid of merit and you should offer nothing. You may need to speak with an a attorney to analyze the merit of the claim.
You then need to review your file, notes and other documents as well as speaking to any employees or subcontractors who worked on the job to see if you in fact created the customer's problem (i.e. did you actually incorrectly measure the room). If you did, the customer should be entitled to some reasonable form of compensation. Reasonable means that which remedies the problem you created. It does not mean that you should give the customer the whole project for free. For example, if you incorrectly measure the height of a kitchen island, reorder the island at no charge and offer a percentage off the original cost of the island, not the who kitchen.
If you have verbal confirmation or written documentation proving that you made no mistakes, you now need to weigh the customer's demands with the cost of litigation. For example, if a customer claims she is owed $500 due to a mistake that you did not make you may decide that it is a better business decision to pay the $500 since the cost of litigation would exceed the demand even if you win. Conversely, if the demand is $25,000 and you did nothing wrong and can prove it, you need to fight the customer to the end.
Please note, however, that giving in does not mean giving up. If you do give a credit to your customer you have to be prepared for the customer to ask for more. Remember the old adage, "If you give an inch they will take a mile." You need to be ready to refuse any further refunds and defend your position in court, if necessary.
It is important to keep emotion out of your decision to provide a credit or refund. You need to view it as a business decision only. In order to do this, you must understand the customer's complaint, your potential liability, and the true cost of settling vs. fighting it in court. Remember, that the best defense to these claims is having a proper contact that addresses your liability when certain problems occur.
By: Peter J. Lamont, Esq.
For most business owners they would rather go to the dentist than hire an attorney. Attorneys have the dubious reputation as being "blood suckers", deal breakers and opportunists. Additionally, many business owners would rather use the "do it yourself" method when it comes to legal issues in order to cut costs on what they view as non-essential expenses. Unfortunately, many "do it yourselfers" ultimately end up having to hire a lawyer to deal with a lawsuit concerning one of their homemade contracts or other "legal documents" which they created with the help of legal software or the Internet. Typically, businesses wait to retain an attorney until they are in trouble end up paying through the nose for legal services. Additionally, because of time constraints they do not research the attorney but rather rely upon the recommendation of their know-it-all brother-in-law, their favorite bank teller, their priest or landscaper. So, what is a cost conscience business owner to do? Does a business need an attorney and if so, when?
First, we need to determine whether you need an attorney. The short answer is "yes." There are two professionals every business will need early on: an accountant and a lawyer. The reasons for hiring an accountant are obvious. However, the reason for hiring a qualified business attorney may not be so apparent. A good business attorney will provide vital assistance in almost every aspect of your business, from contract creation, review and negotiation, back office support, and litigation prevention to employment issues, licensing compliance, copyright and trademark issues and lawsuits and liability.
There is no substitute for a good lawyer. No computer software or Internet site can provide you with the knowledge, skill and experience that can be provided by a qualified attorney. After all, you would not want a nurse performing major surgery on you, would you?
The time to hire a lawyer is when you do not necessarily need one. If you wait until you need one, then something went wrong that a qualified lawyer might have been able to insulate you from. Now you have to deal with litigation expenses which could range from $15,000 to above $50,000. Clearly, when it comes to your business the old adage, an ounce of prevention is worth a pound of cure, is highly applicable.
When you decide to hire an attorney, make sure that he or she has experience in the design/construction industry. It is critical that you find an attorney who is well versed in your industry. It does no good to hire an attorney for your design business who specializes in insurance law only. A qualified business attorney should be able to provide you with counsel on every aspect of your business. Shop around until you find the right match. It is important to note that many attorneys who specialize in the design/construction industry are with small to mid-size law firms. Their rates will be significantly lower than mega firms.
Ok, so you decided to hire an attorney - but what do you need him for? It is not necessary for an attorney to be involved with every aspect of your business. In fact, there are a good amount of things that you can do on your own. For example, if you are willing to put in the time, you can register and set up your business with your state without an attorney. Most state website provide you with step-by-step directions concerning starting a business and obtaining a tax identification number.
You can create store policies, selling guidelines, sales training programs, forms for your employees, office procedures, as well as negotiate with new vendors, suppliers, and partners. However, you should use an attorney to create, review and/or handle the following: your contracts and purchase orders; employee manuals, collection letters and guidelines, leases; subcontracts, state licensing, contractor registration and licensing, litigation prevention plans and procedures, trademark and copyright registration, insurance issues, sexual harassment policies and employee training. This is certainly not an exhaustive list, but it should give you a good idea of what aspects of your business should be handled by an attorney. Of course, all liens, arbitrations, mediations and lawsuits should be handled exclusively by an attorney.
For example, a qualified attorney can create a set of form contracts and documents for you which could help eliminate contract litigation. You could pay an attorney a reasonable fee to create your contracts and be insulated from lawsuits or you could draft the contract yourself and end up litigating, at high cost both in time and money to you, with numerous customers over unclear, unenforceable, and/or ambiguous contract terms. Retaining the right attorney for the right tasks can end up saving you thousands in litigation costs.
DESIGNING AN EFFECTIVE INTERIOR DESIGN CONTRACT
By: Peter J. Lamont, Esq.
SCOPE OF WORK
It is critical that design contracts clearly spell out the limitations of the designers scope of work. Often designers find themselves practically replacing the general contractor on certain types of jobs. For example, if your scope of work is not clearly stated in your contract, a difficult homeowner may blame you for the failures of an electrical contractor or other trade even though that trade should have been monitored by the general contractor.
In order to avoid this, a good design contract should state exactly what the designer is responsible for. It should not contain generalities such as "designer will design and oversee the overall transformation of Mr. Smith's home located at . . ." This language was actually contained in a designer's contract. Unfortunately, her client was savvy and litigious and ended up negotiating a much lower final payment than he was originally obligated to pay because he threatened her with a lawsuit over drywall, insulation and lighting issues.
The designer could have avoided this situation if she had listed those items she was responsible for and included a disclaimer concerning the tasks that were not her responsibility. A general disclaimer could state, "Designer has been retained to provide interior design services only. Designer is not a general contractor and will not act in such capacity. Any issues concerning construction elements must be discussed between owner and his/her contractor."
One of the designers important tools is their subcontractor contact list. The list contains the names and telephone numbers of the designer's go to painters, electricians, etc. For most designers a good list takes years to develop. The last thing that a designer wants is to have to give up their list to a client and have the client start making direct calls to his or her subcontractors.
In another real world example, a designer on an large project was challenged by the homeowner concerning delays and the work of her subcontractors. He demanded her contact list. Unfortunately, her contract was poorly worded and the homeowner was able to force her into giving up her list. The homeowner then used it to make side deals with her own subcontractors.
Separately, some designers want their drawing and sketches to remain their proprietary property. The same designer discussed above was also forced to provide the homeowner with all of her drawings and sketches.
In order to protect your contact list and drawings your contract should include confidentiality and proprietary information clauses. The clauses should clearly state that the designer owns all of the drawings and sketches, as well as any other documents or information that the designer wishes to maintain control over. It should also forbid a client from directly contacting the subcontractors without the designers consent.
PAYMENT TERMS
This is one of the most important clauses in the contract yet is often the most neglected. Most contracts simply state the hourly rate , design fees and commission percentages. In order to fully protect your profit, your contract should be broken down into separate sections for design fees, commissions and hourly rates. Each section should specifically state when payment is due and the manner of payment accepted. It should also specify how often your will bill the client and how your bill will be broken down. The more detailed the payment terms the better.
REMEDIES FOR BREACH
Finally, a solid design contract should specifically state what happens if the client does not pay the designer in accordance with the payment terms. For example, "an interest charge of x% will be applied to all past due balances." It should also state that "failure to submit payment in accordance with the payment terms will constitute a material breach of the agreement."
The key to writing a good design contract is to spell out all of the terms and conditions that are important to you in plain language. You would not take shortcuts with your designs and you should not take them with your contracts. It is a good idea to have all of your contacts looked at by an attorney who is familiar with the design industry.
—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.
Are conditional payment clauses enforceable?
Nothing can be more exciting or rewarding for a cabinet company than being hired as a subcontractor on a multi-unit project. Generally, multi-unit projects can generate a substantial amount of revenue for cabinet companies. However, all things considered, being hired as a subcontractor on a multi-unit job is not much different from being hired by a general contractor on a single residential house. As a company, you must assist the decision maker with choosing the appropriate cabinets, then place the order, deliver the cabinets and, more often than not, install the completed cabinets in the units. Most companies believe that the hardest part of being a subcontractor on a multi-unit project is coordinating with the general contractor and the other trades, such as plumbers and electricians. Actually, the hardest part, especially in today's economic situation, is ensuring that your company gets paid for your work.
Why are so many subcontractors not getting paid for their work? The answer is simple: They entered into a contract with the general contractor that contained a conditional payment clause. Although historically general contractors assumed the risk of an owner's non-payment, many subcontracts now include conditional payment clauses that attempt to insulate the general contractor from having to pay its subcontractors if the owner fails to pay him. Look at almost any subcontract and you will find a "paid-when-paid" or "pay-if-paid" clause.
Often when a smaller cabinet subcontractor attempts to get paid and the general contractor refuses to pay, they cite the conditional payment clause in the contract. Believe it or not, many subcontractors then adopt the general contractor's position and fail to obtain legal advice to determine if the clause if actually enforceable. When considering entering into a subcontract, you should understand what type of clause it contains so that you can make an informed decision as to whether or not to sign it. It is always recommended to have your attorney review all prospective contracts before signing. The following is a brief explanation of the differences between the two clauses.
PAYMENT CLAUSES
In general, "paid-when-paid" clauses typically mean that the general contractor has to pay the subcontractor when they receive payment from the owner. These clauses do not insulate a general contractor from their obligation to pay their subcontractor even when they have received no payment from the owner. An example of such a clause is as follows:
"All progress payments of the Subcontract Sum shall be made within 10 days after payment is received by the General Contractor from the Owner."
Pursuant to this clause, the general contractor is required to pay a subcontractor within 10 days after payment is received from the owner. These clauses are generally interpreted as permitting a delay in payment by a general contractor for a reasonable period of time. Generally, "paid-when-paid" clauses leave the risk of the owner's nonpayment with the general contractor, meaning that even if the general contractor does not get paid, he still must pay your company.
Conversely, "pay-IF-paid" clauses can be determined to be conditional clauses that provide absolutes, which shift the risk of nonpayment to the subcontractor. This type of clause seeks to avoid payment altogether. Quite often, general contractors use the two clauses interchangeably and interpret both to be a means of avoiding payment.
However, recent court decisions have shed light on the enforceability of the clauses. In considering the enforceability of "paid-when-paid" clauses, various district courts throughout the country have held that "paid-when-paid" clauses do not allow contractors to avoid payment to subcontractors simply because the owner does not pay them. The general rule is that while a "paid-when-paid" clause allows the contractor to delay payment for a reasonable amount of time, the risk of an insolvent owner is still borne by the general contractor.
"Paid-if-paid" clauses are slightly more complicated. These clauses must be examined beyond the use of the word "if", and interpreted as a whole. In other words, by simply using "if" instead of "when", a contractor is not necessary relieved of his obligations to pay a subcontractor. The following is an example of a "paid-if-paid" clause.
"Subcontractor agrees that it is never entitled to receive payment from Contractor unless and until funds are in hand received by the Contractor in full. This is a condition precedent to any obligation of the Contractor."
STATE DIFFERENCES
Many state courts, including New York, have held that "pay-if-paid" clauses violate both state lien law and public policy. In particular, in order for a subcontractor to be able to file a lien many states require that an amount be "due and owing." Under a "pay-if-paid" clause, the money is not "due and owing" until the general contractor receives payment from the owner. The clause essentially acts as an illegal lien waiver and is thus, unenforceable.
However, in many other states such as New Jersey, courts have held that so long as the "paid-if-paid" clause is explicit in its terms, such as in the example above, it will not violate anti-waiver provisions of liens laws.
The bottom line is that cabinet subcontractors must become familiar with their payment rights under their subcontracts. There are no guarantees when it comes to conditional payment clauses and their enforceability will depend upon the language use in the clause as well as your state's law. As always, it is highly recommended that you have any attorney review all subcontracts before signing on the dotted line.
—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.
Getting Paid
By Peter J. Lamont, Esq.
November 16, 2009
Why are so many subcontractors not getting paid for their work? The answer is simple: They entered into a contract with the general contractor that contained a conditional payment clause. Although historically general contractors assumed the risk of an owner's non-payment, many subcontracts now include conditional payment clauses that attempt to insulate the general contractor from having to pay its subcontractors if the owner fails to pay him. Look at almost any subcontract and you will find a "paid-when-paid" or "pay-if-paid" clause.
Often when a smaller cabinet subcontractor attempts to get paid and the general contractor refuses to pay, they cite the conditional payment clause in the contract. Believe it or not, many subcontractors then adopt the general contractor's position and fail to obtain legal advice to determine if the clause if actually enforceable. When considering entering into a subcontract, you should understand what type of clause it contains so that you can make an informed decision as to whether or not to sign it. It is always recommended to have your attorney review all prospective contracts before signing. The following is a brief explanation of the differences between the two clauses.
PAYMENT CLAUSES
In general, "paid-when-paid" clauses typically mean that the general contractor has to pay the subcontractor when they receive payment from the owner. These clauses do not insulate a general contractor from their obligation to pay their subcontractor even when they have received no payment from the owner. An example of such a clause is as follows:
"All progress payments of the Subcontract Sum shall be made within 10 days after payment is received by the General Contractor from the Owner."
Pursuant to this clause, the general contractor is required to pay a subcontractor within 10 days after payment is received from the owner. These clauses are generally interpreted as permitting a delay in payment by a general contractor for a reasonable period of time. Generally, "paid-when-paid" clauses leave the risk of the owner's nonpayment with the general contractor, meaning that even if the general contractor does not get paid, he still must pay your company.
Conversely, "pay-IF-paid" clauses can be determined to be conditional clauses that provide absolutes, which shift the risk of nonpayment to the subcontractor. This type of clause seeks to avoid payment altogether. Quite often, general contractors use the two clauses interchangeably and interpret both to be a means of avoiding payment.
However, recent court decisions have shed light on the enforceability of the clauses. In considering the enforceability of "paid-when-paid" clauses, various district courts throughout the country have held that "paid-when-paid" clauses do not allow contractors to avoid payment to subcontractors simply because the owner does not pay them. The general rule is that while a "paid-when-paid" clause allows the contractor to delay payment for a reasonable amount of time, the risk of an insolvent owner is still borne by the general contractor.
"Paid-if-paid" clauses are slightly more complicated. These clauses must be examined beyond the use of the word "if", and interpreted as a whole. In other words, by simply using "if" instead of "when", a contractor is not necessary relieved of his obligations to pay a subcontractor. The following is an example of a "paid-if-paid" clause.
"Subcontractor agrees that it is never entitled to receive payment from Contractor unless and until funds are in hand received by the Contractor in full. This is a condition precedent to any obligation of the Contractor."
STATE DIFFERENCES
Many state courts, including New York, have held that "pay-if-paid" clauses violate both state lien law and public policy. In particular, in order for a subcontractor to be able to file a lien many states require that an amount be "due and owing." Under a "pay-if-paid" clause, the money is not "due and owing" until the general contractor receives payment from the owner. The clause essentially acts as an illegal lien waiver and is thus, unenforceable.
However, in many other states such as New Jersey, courts have held that so long as the "paid-if-paid" clause is explicit in its terms, such as in the example above, it will not violate anti-waiver provisions of liens laws.
The bottom line is that cabinet subcontractors must become familiar with their payment rights under their subcontracts. There are no guarantees when it comes to conditional payment clauses and their enforceability will depend upon the language use in the clause as well as your state's law. As always, it is highly recommended that you have any attorney review all subcontracts before signing on the dotted line.
—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him atplamont@peterlamontesq.com or call him at (973) 949-3770.
