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Guys, I am committed to a large project, up to a year and up to $200,000.00. It involves much more work than one man can handle. In the past I’ve handled these projects with a loose knit organization of fellow woodcarvers and there have been bumps in the road but we’ve learned and we’ve done good. On this project the millwork co. wants to deal with one woodcarver – me; but they know that others will be working with me. The actual form of the working agreement has not yet been worked out. The property and the millwork co. are both located out of state in two different states.
I think relying on attorneys and the courts in case of extreme difficulty on a job like this is not realistic. I want to plan as though the system of contract law and courts is non existant when everything falls apart. My feeling now is to require samples on everything and that the work never advance ahead of payment except for the final payment and that should not be for more than 10% or one week’s work. With that one guiding principle I think I’m pretty well protected as well as minimizing risk for all concerned.
What are your thoughts?
Replies
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Ron, I agree with you to keep the payments ahead of the production. After all, there is nothing here that you can "return to the store for cash credit" once you start working the materials. I don't know how materials intensive or how specialized the materials are that you will be using, but I would keep the payments ahead of materials ordering also. Especially if you are increasing your stock specifically for this project. Now this may appear to be nitpicking, but if you are talking weekly draws, then the final payment should be 2% or less. If they are receiving product and approving as you go along, there is no reason for a retainage to be held. Also, even with weekly draws, I would be holding a substantial "deposit" in the event they decide to stop your production abruptly or something happens to delay a payment or two. This may seem one sided, but you can't protect yourself and always "minimize the risk for all concerned". Keep in mind that you are the one guaranteeing payment to the suppliers and associates, so your company - not the customer - should be holding the money needed to pay for the supplies and the labor (including your own labor and overhead) as it comes due.
*ken is laying it out for real..to deliver your end , you have to have the cash flow.. either you have to finance it or the property owner / millwork supplier has to provide it....the only thing that is going to keep your associates happy and in line and producing on schedule is the cash flow..get it and keep it..use ken's formula... or similar..
*The others have covered your relationship with the buyer/owner. But there some questions that must be answered that relate to the other woodcarvers. Since you are going to be the customer contact person the burden of complying with your contract will lie with you. With a contract of this size I assume the buyer won't be at all shy about enforcing the terms of your contract, even if all the rest of the woodcarvers bail on you.So, I would have a very carefully thought out plan on what to do if any, or all, of the other folks are run over by a semi, have illnesses, or just plain get bored and decide to bail out. If you are prepared for the worst it probably won't happen. If you can't bear to even think of the worst better get out your rain gear because you are in for a hurricane.
*Very good points, FredB. Ken
*This is way over my head, so this may be a stupid question.....could he write a contract as a GC would, and have the other carvers sign an adapted sub-contractor contract? Seems that may benefit both Ron and the other carvers. Jeff
*Not stupid at all. A good suggestion to have a contract, and a subcontractor agreement is a good place to start. Better to think out the contingencies that FredB mentioned, however, because having a good subcontractor contract will not solve those dilemmas. Those are the kinds of things that require a contingency plan as a part of your overall business plan. Even with the best subcontractor agreement, if one of the subs decides to bail on you, or becomes disabled or worse, you're still on the hook to produce while you battle over the agreement you made with your help. Nope, this is management and politics. You need a contingency plan. Maybe you could include a clause in your contract with the customers allowing you to modify the delivery schedule in the event of circumstances out of your control, and even avoid penalties for delays with such a clause. Even so, you will still be under the gun to perform or show cause why not.
*This is the same amount of total annual sales for many small remodelers. I'd do as Ken suggested and create a busines plan for this job. I'd make contingency plan #1 AND a plan #2. In fact, I'd do worse case scenarios. Taking the time to do that will bring up the - "OH, I forgot about that" and make those possibilities surface and subsequently having them addressed now - before any one happens. It's not only $200,000 in sales. It's not only the profit from that sale. It's ALSO the ramifications if things - big things - go sour. Think in terms of $$$$$$$ going "out" of your pocket.Different states - different "staff" - different potential problems.
*Guys, Thanks a million for your advice. I've drawn up a business plan identifying specific risks. Also, thinking that I would not buy a piece of property for $200,000 without an attorney, I had a meeting with a lawyer who further expanded my thoughts. He mentioned that, in his experience, retainage might be called for. He said that retainage should be thought of as the absolute cream, after all expenses, normal profits and risks are covered, in short, a bonus. Is this the opinion of you guys and what has been your experience in retainage percentage?
*it depends on which side of the table you're sitting on...i've been involved with public works as the rep. of tehowner.. retainage is good..as a contractor , undercapitalized at best, reatianage is a serious problem to my cash-flow.. and liquidity..so i agree with your attorney.. if i sign a contract that includes retainage.. i have to proceed as if i may not get the retainage ,due to circumstancess beyond my control... at least not when i need it..a contract that is complicated enough to require retainage.. will certainly have more opportunities for mischief than an uncomplicated one.. so the retainage should be an amount that you can live without.. and the loss or non-acquiring of it should not endanger your business..so, yeh.. add it to the bottom line..it is still a valuable tool to the owner.. if you want it , you have to produce.. and it is usually worth getting.. but if you can't get it... life goes on...
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Guys, I am committed to a large project, up to a year and up to $200,000.00. It involves much more work than one man can handle. In the past I've handled these projects with a loose knit organization of fellow woodcarvers and there have been bumps in the road but we've learned and we've done good. On this project the millwork co. wants to deal with one woodcarver - me; but they know that others will be working with me. The actual form of the working agreement has not yet been worked out. The property and the millwork co. are both located out of state in two different states.
I think relying on attorneys and the courts in case of extreme difficulty on a job like this is not realistic. I want to plan as though the system of contract law and courts is non existant when everything falls apart. My feeling now is to require samples on everything and that the work never advance ahead of payment except for the final payment and that should not be for more than 10% or one week's work. With that one guiding principle I think I'm pretty well protected as well as minimizing risk for all concerned.
What are your thoughts?