At Underhill Law, we do quite a bit of work involving collection related to construction contracts. We usually represent the contractor, but we sometimes represent the customer. In cases like these, we find the most important thing is to focus the parties on the original deal: workmanlike construction services in exchange for prompt payment. The further that parties’ drift from understanding the deal in these terms, the greater the danger of a problem that will eventually lead to litigation.
From the contractor’s perspective, I usually see customer nonpayment arising from a few key states of mind. Each situation is unique, obviously, but you would be surprised how common certain situations reoccur. I would call these situations generally (1) buyer’s remorse; (2) micromanaging; and (3) self-interest. In this post, I wanted to discuss the first of these common mentalities that prompt a customer not to pay as agreed.
What is Buyer’s Remorse and Why Does it Happen?
The first situation is what I would broadly call “buyer’s remorse.” After committing to hire a particular contractor, the customer regrets their decision and wants to hire someone else. This is sometimes caused when a competitor makes a better sales pitch. A competitor might say nasty things about the existing contractor, offer to do the work for a lower price, or even offer illegal incentives such as waiving insurance deductibles.
Everyone’s salespersons are competing with each other, and some people decide to fight dirty. There isn’t much that a responsible contractor can do to prevent this other than make sure its own sales staff are communicating regularly with the customer about the customer’s benefits in sticking with the contractor originally hired.
The contractor or contractor’s business attorney can get involved to remind the customer they would be breaching a contract if they tried to switch contractors. By the time a customer has to be warned that they could be sued for breach, though, there’s already been a fundamental problem with the trust between the contracting parties. Perhaps the parties can still repair the relationship, but in my experience if this trust has corroded to the point where a customer is withholding payment the contractor needs to closely monitor the project for further problems. It’s difficult to know if a customer cowed by the threat of a breach of contract lawsuit actually intends to cooperate or is looking for other opportunities to avoid doing what was promised.
A wandering customer is more likely to act properly if the buyer’s remorse is a predictable reaction to things happening in the project rather than an attempt to lowball the project. This might happen because the customer is annoyed with something the contractor did or said. It might be because of delays that are outside of the contractor’s control, like material or labor shortages. The customer may have signed a contract warning them of these types of problems but that will not mean they stop caring about delay. From the customer’s perspective, once they’ve hired a contractor or paid a deposit, the contractor is on the clock and they expect results. They won’t know or understand the reasons why work is not happening quickly unless they are kept in the loop.
What can you do about it?
It is very difficult to keep customers informed about their project, particularly in years like 2023 where the number of construction and repair projects in Colorado is so high. A contractor should still try. I encourage project managers to keep a close eye on the status of all customers they’re working with and make sure to touch base with them on a regular basis, weekly if possible. You don’t want the customer to worry or feel ignored. Regular updates explaining the actual work being done behind the scenes is important. If the work is scheduled and there is nothing to report, it might still be a good idea just to see how the customer is doing and give them an update on the industry trends that might affect their project. Even a call reminding the customer of a future date when construction is scheduled and checking to make sure that still works is better than nothing.
Each project manager and salesperson needs to consider each customer’s personality individually, of course. Some customers might be annoyed or get anxious with frequent updates about delays. A contractor doesn’t want to overload or scare its customers. As a Denver business attorney, though, I prefer seeing more communication rather than less. I want to see a record that the customer was in the loop about the project on a regular basis, even when that contact is about delays. This means everyone had lots of opportunities to discuss and mitigate any issues or concerns when they came up.
A contractor shouldn’t rely solely on the language of your contract that “time is not of the essence” or something like that to justify just ignoring a customer until it gets around to doing the work. Even if this language should be enforced as written, I have seen judges use Colorado’s implied covenant of good faith and fair dealing to impose what the judge thinks is a “reasonable time” for work to be completed. The better your customer communication, the less likely this result will be.
And, as a practical matter, the need to ping customers on a regular basis probably helps remind project managers about what is on their plate. A project manager can get overloaded or distracted and might put off something that could advance the ball for a customer from time to time. Particularly in the case of insurance claims, the project manager might feel like, once the supplement or claim is submitted and the ball is in the carrier’s court, the project manager does not have to do anything until the carrier responds. There is usually something that the project manager can do to reassure the customer things are moving or remind the party causing the delay of the need to act even when waiting for a third party to act. It might not be significant from a legal or practical perspective, but it might make the customer feel better and better understand the process if they keep getting regular updates.
In future blog posts, I will discuss some other common issues I see that lead to breakdowns between customers and contractors in construction contracts. You don’t have to wait for me to post them, though. If you have a question about breach of contract dispute involving a construction contract, contact Underhill Law today for expert assistance from our experienced Denver business attorneys.
Not only can we advise Colorado residents and companies on these issues, but we even have attractive flat fee deals for businesses who want help in handling collections short of a lawsuit. We look forward to hearing from you.