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Hammerhead Newsletter

Waivers of Lien

Change Orders

Contractor Tips

Protect Yourself From Fraud

How To Get Paid More Quickly

What Does An Actual Project Cost


Waivers of Lien

The Hammerhead Newsletter Volume 1 Edition 9

Author: "Q."

No one likes doing paperwork-- but the alternative can be devastating.

Johnny B. Goode, the electrical subcontractor, provided Depressions Construction, the general contractor, with a Final Waiver of Lien without receiving payment. The subcontractor was asked for the waiver by the general contractor with the explanation, "I can't receive payment from the owner without your waiver and I will pay you as soon as I get paid".

Well, Johnny B. Goode was being a "good ol' boy" and not a good businessman. He complied with the general contractor's request. The general contractor got paid and Johnny B. Goode is still waiting with his hand out, saying "What happened? I paid my labor and materials and now I have nothing. To make matters worse, I waited and waited while the general contractor kept saying he had not yet been paid and that I should be patient. I waited so long that I eventually couldn't find the general contractor and had to hire an attorney for help. Well, I paid the attorney up front only to discover my lien rights had expired and the cost of recovering some of the money due me would be too expensive!"

But wait-- there's more. Johnny B. Goode found out that when things can go bad, they usually do. Because on this same project he paid his primary supplier for material and even received a lien waiver from the supplier. But what Johhny B. Goode did not know was that his supplier did not pay the manufacturer! He only found this out when the manufacturer contacted him and treatened to take legal action to get paid for the materials Johnny had used.

Wow.

What is a lien waiver? Lien waivers, their use, enforcement and execution vary from state to state, but in general a lien waiver is a release of claim for payment. Here are some lien waiver-related facts that every contractor should know:

Did you know if you pay a subcontractor for labor and material and do not receive the appropriate lien waiver(s) with supporting documentation you may be liable to pay again?

Did you know if you pay a supplier for materials without the appropriate waivers you could pay a second time?

Did you know that in some states a general contractor can waive the lien rights of a subcontractor?

Did you know that in some states a subcontractor may have limited lien rights or none at all?

Did you know that suppliers, general contractors and subcontractors may have different rights and parameters within each state? You may want to ask your suppliers and subcontractors for waivers of lien.

Of course, you may want to consult an attorney prior to executing a waiver yourself.

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Change Orders

The Hammerhead Newsletter Volume 1 Edition 5

Author: "Q"

One experienced plumbing subcontractor has advised us that on a certain project his general contractor was directed by the owner to perform additional plumbing modifications. The general contractor neglected to get an executed change order from the owner but asked the subcontractor to perform the extra work. The general contractor did not inform the subcontractor that he had no written change order from the the owner. The subcontractor, inorder to avoid delays and in the spirit of cooperation, performed the changes and then asked for a change order.

The result: the owner denied the request for the change order and did not pay the general contractor. This meant that the subcontractor did not get paid either.

The plumbing subcontractor tried to collect by approaching the project's lending institution. He was told that the additional work did not have funding provisions and that therefore there was no money available for the extras.

Do you work for the money or work for the practice? Get organized. Get Smart. Do no changing-- unless it is in writing.

A change order is is by definition a written document, executed and signed by the contracting parties. It describes the contract adjustment specifically by describing in detail the adjusted amount, description of the work to be done and modifications to the agreed-upon deadlines.

The change order may be initiated by any party to the contract. Typical reasons for a change order include:

  • Additional work needs to be done which was not part of the initial agreement
  • Deletions need to be made to the initial agreement
  • Project delays have been caused by other parties at work on the project
  • Changes in working conditions which are out of your control
  • Changes need to be made to the scope of work issued to others on the project

At times an improperly executed (or non-existent) change order can create bumps on an otherwise smooth path to profit. If neglected or not handled properly, it can cause work delays, delays in getting paid or loss of payment, even liability claims and legal action.

Some things to keep in mind when creating change orders:

If directed by others to perform any additional work or to modify the existing agreement in any way, get it in writing.

Prepare the change order in detail and get it signed. No signature may mean penalties or no payment.

The absence of a signed change order should mean no additional work or modifications. Period. Remember that time has a way of altering memory and each party's recollection will be different. The best way to avoid the disputes that tend to dog verbal agreements: put it in writing and get it signed.

If you are verbally directed to exchange one type of work for another without making a price adjustment, get it in writing and get it signed or you may be responsible for what was deleted and not get paid for the replacement work.

Don't get caught in the middle and learn the hard way like our unfortunate plumbing subcontractor-- managing your projects with accurate and timely paperwork can increase your cash flow in the long run.

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Contractor Tips

The Hammerhead Newsletter Volume 1 Edition 7

Author: "Q."

As you know, construction is not always a clean and smooth operation. Conflicts between the parties involved in a project will inevitably arise as the competing interests among participants make themselves felt.

Experience teaches that what people say is subject to interpretation-- when you're told by a contractor, "I'll be right over" or a supplier says, "It'll be there by Friday", what does this really mean?

Imagine you've just signed a construction contract and you need to meet a schedule which contains a daily penalty clause for not meeting the completion date.

You start by lining up the subcontractors and suppliers, some of whom will be the regulars. You make your calls to verify prebid information and availability. Everyone is cooperative with the exception of the excavator and brick supplier. The excavator is too busy to meet your immediate schedule and you rush to find a suitable replacement. The brick supplier has upped the price and availability is now 60 days.

You must start within 30 days of the contract signing, so you prepare to excavate, pour the foundation and start laying brick. You decide to change the excavator to Begone Excavation, who said they were ready to start within one week. Great, one dilemma solved, but what about another brick supplier? It turns out that Hardstone Makers, from an adjacent town, can meet your supply and delivery schedule and even save you 0.05 per brick. Another "great!"

But one week passes and Begone Excavation is not answering phone calls or voice messages. You decide to try and visit their shop, only to find a message on the door: "Gone fishing".

Now what do you do?

You call back your original choice of excavators and cut a deal to get him to start, but you're now two weeks behind schedule.

In the meantime you're receiving calls from the project owner asking why you haven't started. He reminds you that he has expenses tied to the project completion time and that the penalty clause will be invoked to defray some of the extra cost. Now you start to panic and try cutting deals with your other subcontractors in hopes of expediting their performance. They won't do this for nothing, of course, and their work can only be done if the excavator gets started, weather permits, and there are no other delays.

And the plot thickens still further: the new brick supplier, Hardstone Makers, is threathened by bankruptcy, and may not be able to deliver product. You will not know until they settle their large past-due payment dispute with another contractor. You decide to deal with your normal supplier but find that the warranty has been changed and site delivery is not possible-- pickup is the only option. Now you need to find a trucking company that can load and unload at the site.

Needless to say, the schedule was not met and penalties were paid. The project was completed but the profits were lost. You may have lost a little hair, too, but your reputation remained intact. You could have walked off the project without starting, but chose to perform to the agreement as best you could. Because of this decision, you're awarded another contract because you can be relied upon to perform.

Not all contractors are able to do this. The moral of the story is: know who you are dealing with and make sure to work with those who don't only "tell you" but "show you". Words are cheap.

Actions are more expensive but speak volumes.

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Protect Yourself From Fraud

The Hammerhead Newsletter Volume 1 Edition 6

Author: "Kathy H."

We've all heard horror stories about fraud that's committed using your name, address, Social Security Number and credit cards. Unfortunately, I have first hand knowledge of this, because my wallet was recently stolen and within a week the thief ordered an expensive monthly cell phone package, applied for a VISA card, had a credit line approved for buying a Gateway computer, and even received a PIN number from The Department of Motor Vehicles allowing changes to be made to my driving record online!

We're all advised to cancel our credit cards immediately in cases like this, and to always carry the toll free phone numbers and account information required (and to keep these where you can find them easily-- having to hunt for them is additional stress you WON'T need at that point!).

And we're tald to file a police report immediately in the jurisdiction where the card was stolen, to prove to credit providers that we undertook due diligence and as a first step toward an investigation, if there is one.

But there's some critical information that can help limit the damage in case this happens to you or someone you know, a tip I wish I'd been told about: Call the three national credit reporting organizations immediately to place a fraud alert on your name and Social Security Number. The alert means that any company that checks your credit will know that your information was stolen and that the company can only authorize a new credit purchase by contacting you by phone.

I had never heard of doing this until a bank called to tell me that an application for credit was made over the Internet in my name. Of course, by the time this bank advised me to do this, almost two weeks after the theft, all the damage had been done (there are records of all the credit checks initiated by the thief's purchases, none of which I knew about before placing the alert). Since then, no additional damage has been done, and the thief threw my wallet away soon after (someone turned it in). It seems to have stopped him in his tracks.

We pass along jokes, we pass along just about everything-- please think about passing this information along... it could help someone else.

The numbers of the three national credit reporting agencies are:

Equifax 1-800-525-6285
Experian (formerly TRW) 1-888-397-3742
Trans Union 1-800-680-7289

The Social Security Administration also has a fraud line at 1-800-269-0271

Pass it on!

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How To Get Paid More Quickly

The Hammerhead Newsletter Volume 1 Edition 4

Author: "Q"

When you perform the work according to the contract, you want to be paid according to the contract.

Not to much to ask for, is it?

But of course it's not always that simple.Consider this example:

You review a job's requisite forms and documents, and make the necessary adjustments to the paperwork. You submit the documentation and prepare to be paid. After you wait a few days, the phone rings: it's the disbursing agent.

"Mr. Contractor, your paperwork has not been accepted." "What?", you respond. "Why not?" It turns out that the reasons for the delay are manyfold: unreadable descriptions, incorrect calculations and a failure to notarize a certain form. The next payout schedule will be in thirty days-- if the proper corrections are made and accepted.

You have bills to pay, another project to get started. Panic sets in-- what do you do now?

Well, if you'd taken as much care preparing to receive payment as you had performing the project work, you wouldn't be having this trouble. You may believe that there's no justifiable reason for this delay, but the reality is, however, that there will always be forms that must be filled out-- more forms than you probably feel is necessary.

Government agencies, title companies, lending institutions, and authorizing agents have internal rules which they are responsible for following to protect the monies they disburse. Your paperwork must meet their payout requirements to a "T". Asking why is almost always a waste of time-- it's better to just do it right the first time.

Fifteen Things To Do If You Want To Be Paid Quickly:

  1. Verify the completeness of your payment package. Always make sure your payment package includes all the items on the document checklist that the contractor is responsible for including.
  2. Make sure that all your contractor documents are legible. No one who reviews a pile of documents per day is likely to spend much time trying to decipher cryptic handwriting-- if you can't print legibly, type (or use an automated form-- wink!).
  3. Be sure your calculations are accurate. All documents must have calculations that add up properly-- vertically, horizontally and across individual documents.
  4. Be sure all payment costs conform to contract or prevailing wage regulations. Don't expect anyone to approve costs that are not specified in the contract.
  5. Double check for missing signatures. It's often the contractor's signature that's missing! Make sure you sign every place where a signature is required, and don't neglect a notary's signature and stamp, if required.
  6. Don't let any forms go missing. Have a system to track the presence and completion of all forms required for the project. Check it twice. Then check it again.
  7. Don't allow missing or incomplete Time and Materials (T & M) records. If your document checklist involves T & M payments, make sure to include all the required details.
  8. Don't neglect a copy of registered and approved change orders or overrun forms. Payment for change orders or overrun work must include a copy of the signed change order form or overrun form.
  9. Don't forget a copy of registered task or work orders for requirement contracts payments. The payment cannot be processed without these documents.
  10. Don't submit a payment request when a time extension is required but has not yet been requested or approved for the period during which the work was done. If the time extension hasn't yet been approved, payment cannot be made.
  11. Watch out for missing certified payroll reports (contractor payments) or missing timesheets and payroll registers (consultant payments). Payments cannot be processed without these.
  12. Avoid failure to include missing receipts, paid invoices, etc., for reimbursable expense payments. Payments cannot be processed without them.
  13. Never submit unbound, loose or disorganized payment packages. If someone has to figure out what you've included, where it is, and if anything's missing, it will take them longer to process your payment.
  14. Make sure to renew insurance in time to submit payment requisition. Payment will not be issued, if insurance has lapsed and has not been renewed.
  15. Review all supporting documents from your subcontractors and suppliers to see if they are properly executed and signed. Don't assume that other people's documentation is complete even if it has been in the past.

Don't give anyone a reason to reach for the No Payment stamp! If you are not to sure of anything, ask for a preliminary review. It never hurts to ask for assistance.

Spend a little time. Be prepared, be thorough and collect your money.

You earned it.

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What Does An Actual Project Cost

The Hammerhead Newsletter Volume 1 Edition 8

Author: "Q."

What does an actual project cost you?

Often, when estimating the cost and profit margin for a project, many actual costs are overlooked.

Ever have a customer ask you "Why does this project cost so much"? The customer often has estimated the costs based on product purchased retail. Not being a business person, the customer often has no idea what a contractor's true costs are. Would you know how to properly respond to such a question?

The following is a guideline to help you compute your costs. These percentages will vary from project to project, of course, depending on various factors.

Labor

Who measures or does the take off, and how many estimates are needed to win a bid? Who signs the contract and administers to it? Who purchases the product, arranges to have it delivered, unloaded and stored on site? Who supervises and coordinates the project?

Material

Don't forget to add the cost of the accessories to the basic product purchases. Remember to add in a waste factor as well as the cost of any possible unauthorized material removal.

Cleanup

How many dumpsters? Who loads them and how? Are there any dumping fees added to the cost of the dumpsters? Don't forget daily clean up: tools, materials, time and labor need to be factored in (when you are cleaning, you probably are not building).

Insurance

General Liability, Workers Compensation, Health, Vehicle: all are expensive.

Licenses

Are you licensed in the community you're going to be working in? What will be the cost per year?

Permits

What is it going to cost you for permits, inspections and reinspections. Don't forget, someone must apply for the permit, and during inspection (both rough and finish) you will most likely will have to have present someone familiar with the project.

Bonds

What will be the cost of a surety bond for you and each tradeperson? What about performance and payment bonds?

Transportation

Cost to purchase, service, fuel and maintain vehicles. Oh, and someone has to drive them!

Equipment

Do your tools and equipment cost nothing? I doubt it. Do you ever have to replace them? Only if you use them!

Communications

Telephones, cell phones, pagers, fax machines, internet access-- how much will these cost you per month?

Service Calls

Customers call for help, justified or not. You will return to the project for some reason. Whether the warranty is the manufacturer's or yours, you still have to attend to the customer's request.

Promotion

You should always be selling yourself. It's not cheap to acquire and develop new business.

Bad Debt

Ever collect only part of your contract amount? Ever hire an attorney to help you collect? Chances are you will someday. Potential theft is another related possibility.

Cost of Money

Working capital can be expensive. To finance a project, you may have to borrow the money. Even if you have the working capital, using it for a project means you lose the interest the money would earn sitting in the bank. In both cases money costs money!

Overhead / Profit

What office support do you have, what percent markup do you normally factor in? Remember, when calculating the costs and potential profits, don't forget that you are calculating pretax profits. The federal, state and local taxes to be paid will reduce your net profit.

Is all the risk of being a contractor worth it? Yes, but if you want to be in business next year, then properly figure your real costs. Those who lose track of real costs will sooner or later have problems and go to work elsewhere. Financial reality catches up with all of us sooner or later.

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