In my last blog post, I started talking about the customer mentalities that I see commonly leading to refusal to pay a contractor. The first case involved what I would term “buyer’s remorse,” which is where the customer decides they would be better off with a different contractor due to financial or communication issues. Except in the case of a customer who is trying to pocket extra cash by hiring a cheaper contractor after the fact, these situations are probably easy to minimize by keeping the customer in the loop and making sure they understand the contractor’s value and the progress on the construction project.
A more challenging situation can come up where the customer tries to micromanage the construction project.
What is micromanagement?
By “micromanage,” I mean a customer who does things like:
(1) tries to give direct instructions to the subcontractors on site;
(2) makes frequent changes to the scope of work as things progress;
(3) works directly with the adverse insurance adjuster without involving the contractor;
(4) makes frequent complaints about the work as it goes on; or similar things. Micromanagement creates problems for the contractor because it makes it hard to keep the chain of command intact. The customer, too, is poorly served by micromanaging because they are eliminating a lot of the efficiencies they purchased when hiring a general contractor in the first place.
Why does this happen?
I should point out that the fact a customer is micromanaging a project should never, by itself, be interpreted as a sign that the customer is doing something wrong. Either party could theoretically be at fault for the micromanagement. The customer might be especially picky, indecisive, or paranoid. Sure. But, it could also be that the contract is doing a poor job keeping the customer in the loop, managing its subcontractors, ensuring its subcontractors are doing quality work, or preventing subcontractors from causing damage or making messes at the property. Each situation is its own and either party can be at fault for the emergence of micromanagement.
Why is this a problem?
If micromanagement becomes a problem, it’s a bad sign for the project. Micromanagement means that, for whatever reason, the customer does not feel like he or she is entirely on the same team as the contractor. The customer may grow increasingly frustrated with what seems to him or her like increasing errors or refusal to follow instructions. Subcontractors can get annoyed with customers slowing down their work or raising a risk of injury or mistakes by coming into ongoing work sites. This frustration can grow to a point where the customer starts nit-picking the work in a way that he or she might not normally do. The contractor might start discounting all of the customers’ complaints as frivolous without seriously evaluating each of them. Whereas it might be possible for the project manager to investigate and chase down a single alleged defect, it becomes overwhelming when he or she has to evaluate dozens of them on a regular basis.
Left unchecked, the natural result of a growing micromanagement problem is that the contractor begins to view the project as growing in scope and becoming unprofitable while the customer starts to view the contractor as unsympathetic and refusing to do their job. It is not hard to see how this leads to dueling allegations of breach of contract, withholding payment or work, and other acts that eventually require an attorney to clean up or litigate. Worse, a customer might start viewing third party contractors or adverse insurance adjusters as their allies, with disastrous results for the project and everyone involved.
What can you do?
As a contractor, the best defense against micromanagement is preventing the customer from feeling like they need to micromanage in the first place. Make sure the customer feels that they and the contractor are on the same team and that the contractor is looking out for the customer’s best interests. As with avoiding buyer’s remorse, consistent communication with the customer can help. A customer’s confidence can be shaken by things as simple as not knowing when a crew is showing up to do work or part of a project taking longer than the contractor originally anticipated, especially if the project manager doesn’t explain the situation as it unfolds. A contractor might also try to make it very clear to the customer that the management of subcontractors is one of the benefits of using a contractor in the first place and that this includes fixing errors or keeping the subcontractors in line. The customer should understand that concerns need to be directed to the project manager alone so that they can be managed and that if this is not done then the contractor loses the ability to keep track of what is happening on the project.
The work must also, needless to say, be done to industry standards. One of the easiest ways to convince a customer that he or she needs to start micromanaging is for the subcontractors to screw up their work. A project manager should make sure the subcontractors are qualified and can be trusted to perform the work properly and are aware of any special instructions, such as using specific materials or respecting specific customer dates and events.
If micromanagement is becoming a problem, the project manager should first figure out whether it is motivated by something within his or her control like poor communication or poor work by subcontractors. If so, these issues should be addressed and the project manager should make sure the customer knows how they are being addressed. The project manager should also, gently, remind the customer of their own obligations. The contract should contain provisions requiring the customer to keep clear of construction areas. This is primarily for their own safety, of course, but it also means that subcontractors should be unmolested in their work.
In the worst case scenario where a subcontractor truly is providing deficient work, it is usually better for the contractor to take the burden of dealing with the subcontractor rather than trying to pass the buck. This can be expensive and time-consuming. A contractor wishing to preserve claims against a subcontractor might, depending on the situation, need to provide notice under the Colorado Construction Defect Action Reform Act and wait for the necessary notice and cure period. If this is the case, the customer needs to understand why the process of fixing the error is taking so long. Or, a contractor could simply replace the subcontractor and take the chance on enforcing the contract alone as its sole remedy against the subcontractor. Either way, it is usually better to make the customer happy first and deal with the subcontractor later.
A contractor should avoid ignoring the customer’s complaints. Micromanagement can get to a point where the customer has made so many frivolous complaints that the contractor stops listening. This is natural. After all, if the customer’s last five complaints were about cosmetic issues concerning the shape of the caulking along the window edge or dissatisfaction with materials they already approved, it is easy to assume all of their complaints are similarly unimportant. This is incredibly dangerous because, buried among the frivolous complaints there may be a small number legitimate issues with workmanship. If these are ignored, then the customer’s attorney will be able to seize upon them and make them the centerpiece of a defect claim in any later dispute. It won’t be a good defense to show that 8 of the customer’s issues were not real concerns if 2 of them were.
If the micromanagement is being motivated by something outside of the project manager’s control, then things are even more difficult. The company may have to consider whether it makes sense to continue the project or seek an amicable exit. In making this analysis, the contractor needs to weigh carefully the potential profits on the project, the risk of nonpayment or disputes, the cost of collection, reputational effects, and other concerns.
A business attorney with experience in these matters, like Underhill Law, can help with this. This firm has learned that many of these kinds of disputes can be resolved without litigation and has developed a flat fee system called the LegalPlan that includes many of the steps required to overcome damaged relationships with customers. If your company needs this kind of help, give us a call and let’s talk about whether we can help.