Episode 42: The Subcontract- A Breakdown (With Caroline Beavers)

Episode 42 May 02, 2022 00:36:44
Episode 42: The Subcontract- A Breakdown (With Caroline Beavers)
The Quit Getting Screwed Construction Podcast
Episode 42: The Subcontract- A Breakdown (With Caroline Beavers)

May 02 2022 | 00:36:44


Show Notes

New podcast! In this week’s episode, Karalynn is joined by construction attorney, Caroline Beavers, to discuss how the modern subcontract is broken and the best practices to break it down and negotiate it! If you are a subcontractor and tired of getting screwed over by your contracts, tune in and get informed on how YOU can best navigate the modern-day subcontract! The best way to level the playing field is to equip subs with the knowledge and know-how, and this episode does a great job of doing exactly that in a plain-English, easy-to-grasp format.
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Episode Transcript

Speaker 1 00:00:11 This is Carolyn from and welcome to the quick getting screwed podcast, where we talk about everything related to contractors, construction and information to help you run better or businesses. Speaker 1 00:00:23 Hello, this is Carolyn CRO means and welcome back to the quick getting screwed podcast, where we, we learn all the ways not to get screwed in the construction industry. Uh, and today we're gonna talk all about subcontracts, which is really, if you haven't had a chance to check out the book quick, getting screwed, um, it's available on, and it's got 20 chapters about all the bad shit that's in subcontracts. And we're gonna talk about some of those things today, uh, with my guest, miss Caroline beavers, uh, from C HB legal, uh, good morning. How are you miss beavers? Speaker 2 00:00:54 <laugh> I'm good. How are you? Speaker 1 00:00:56 Good. Um, so before we dive into all this good stuff, tell us a little bit about yourself and you kind of got into construction law and how you became the expert you are today. Speaker 2 00:01:05 Right? So, um, I grew up in small town, Arkansas. You could probably tell, I don't have that very, um, UN accented accent as most Coloradans have. So I'm originally from Arkansas. I grew up working on a rice and, um, cattle farm with my father. Prior to that, I spent days upon days in the truck with him at construction sites, as he was a residential construction, um, builder. Uh, he gave up that life and went to work on the farm. And I joined him along with my brother. Who's still working on the farm. I realized really quickly, I wanted to be in air conditioning and not walk rice levies, uh, with snakes all around me. So, um, that sort of told me, you know, I'm gonna have to take my talents elsewhere. And that, uh, found me at the university of Arkansas. Um, then I got my MBA and my a D in little rock. Speaker 2 00:02:04 Um, and then I did what most, uh, type a normal functioning people do. I made a spreadsheet mm-hmm <affirmative> and I, um, put five cities where I was trying to decide where I wanted to go take the bar and Denver, Colorado fit most of the bill. And so I moved to Colorado, um, worked for a small, um, construction defect, firm, all in civil, um, but worked for that firm for a couple years. And then, um, went to another firm where I opened my own practice with the law partner. Um, I have since, uh, it's been about three years with her, I am now, um, rolling out my new firm. It primarily gonna focus on, um, general counsel type work for my construction professionals and, um, business and real estate developers. Gotcha. And I'm here today. Speaker 1 00:02:57 Awesome. Yes. I know farming is a lot of hard physical labor. It's a lot of hard work cuz I, yeah, my, my dad was a farmer and we had the family farm and yeah, that did not interest me either. <laugh> Speaker 2 00:03:08 I loved it for the tan and you know, for, I, I, it, that hard work grit is ingrained in me and I I've carried that over into everything. I do, you know, uh, I, I won't be outworked and that's sort of what I base my, um, professional life on. Uh, really, um, it definitely taught me a lot, but yeah, I, I wanted to be in the air conditioning and that's where I found myself. There's Speaker 1 00:03:31 Something, there's something to be said about that grit, especially with, with who our clients are. Right. I think it really resonates because they're the same type of P people. Speaker 2 00:03:39 Right. And I, I carry that over with my practice because as a small business owner, I'm sitting across the table, uh, from small and medium size business owners, you know, they're like my dad, so I'm, I'm doing everything in my power to, um, protect them and put them in the best position to succeed because, you know, when they succeed, I succeed and that's what we, we want. We want that collaborative working together to, to get to a greater good and a, and a goal. Speaker 1 00:04:04 Yeah. Which brings us to the topic today, like dangerous subcontracts Speaker 2 00:04:08 <laugh> it is hard out there. Uh, that would be the, the easiest way to describe it in one sentence. Um, and it's sort of cyclical. I don't know if you've experienced that with, of the negotiating. Um, these subcontracts happens, um, and you know, geographical as well. So you might go to San Francisco and have no leg to stand on or the opposite compared to a Denver area or compared to a Birmingham, Alabama, um, contractor market. So it's, it's definitely a, a constantly moving area and it always is very case specific. And that's what I like, because I like to really dig in and learn about my, um, contractors, including, you know, subcontractors Speaker 1 00:04:52 Well, and I think, and we're gonna jump into second, but I think another thing is that where we can all gain some traction on subcontracts right now is the material escalation clauses mm-hmm <affirmative>. And definitely those have to be in a subcontract, right? Otherwise you're gonna have to eat the increased cost, Speaker 2 00:05:08 Right? It's, it's really opening up subcontractors who are the worst on the, um, food chain to withstand any sort of, uh, cost escalation. And if we're seeing 10 to 12% increase from mid-January to mid-March, you know, it's something that's, it's, it's crushing, it's soul crushing. It's gonna really hurt a subcontractor. And the, the negotiating I've done since 2022 has started even compared to 2021 is exponentially different in that the language we hit it so hard cost escalation. If it goes up over, you know, two to 3%, then the owner then covers it because we can't that we're not built that way. Our subcontractors aren't built that way. They are, they are not, they float, you know, obviously within the, the bounds of the law, but at the same time, you know, they don't have the money that, um, these developers and these contractors have, um, to the, to the level, you know? Speaker 1 00:06:07 No. And so, and, and rightfully so, if you're gonna move forward with building in this volatile market, it should be your risk, not the subcontracts risk to cover that. <laugh> Speaker 2 00:06:15 Right. And I, you know, contracts, you see so much floating around, out there, your number one priority. Just read it, have somebody read it for you. That's always my thing. If I, if you can be proactive, I tell my subcontractors and my GCs to be proactive. Let's review it, let's read it on the front end. Let's understand what it and play through some scenarios and walk through the provisions and go from there. You, you don't know what you don't know, and you can't predict the future or the weather. Um, but it it's, it's one of those things that you can be proactive and save yourself some heartache, you know, in this business, there's gonna be some regardless, but it, it helps. And it's a, it's a very low cost at that front end, compared to the potential cost down the road. Speaker 1 00:07:03 I agree. And, and, and, um, you know, I think a contract has a job, right? Mm-hmm <affirmative>, and it's supposed to manage expectations and it doesn't do a very good job if nobody can understand what it says. Right. So, you know, these things have gotten written in such a way that even if they read 'em, they don't know what the hell they mean, because most of the time it takes me two hours to sit here and figure out what they mean. Speaker 2 00:07:22 Right? Yeah. It's a playbook essentially. And I always, I, I say you always need a playbook. You always need to know all the, all the playbooks involved. Um, that's another, another issue that comes up with the prime contract. But as an attorney, I think we've gotten so stuck in our ways of thinking and writing that we make it more difficult, but, you know, it's, it's a two way street, you know, if, if a, if a subcontractor comes in and says to me, I want a three page subcontractor agreement, just give me something simple. Then we have to make the decision of what we remove and that kick it, pumps up the jam quite a bit. It, Speaker 1 00:07:59 No, but I do think that that for 10 or 12 pages, you could get a decent subcontract because most of the subcontracts say the same thing over and over again for 50 pages. Yep. Well, just say it once in 10 and then clear and, you know, and, and, and actually the clear it is, the more likely it is to be enforced. So just spit it out. Speaker 2 00:08:16 Right, right. No, I, I couldn't agree more. It should, there should be a level of simplification that is, is definitely missing in the, the contracting world that would save us all lot of time, but that's not necessarily the nature of the beast that we're living in. It's document heavy, um, fast paced, you know, it technology, if it's done anything, it's allowed people to make more decisions on the spot. And I don't think that's always a good thing, you know? Speaker 1 00:08:43 Yeah. So do you remember the first time you read a subcontract? Speaker 2 00:08:47 Um, you know, I, I think probably the first time I did review a subcontract was in law school. Uh, I had a unique experience where I did more, uh, transactional clerk ships. I worked for a large, uh, department store based out of little rock Arkansas, read through these subcontracts as an anchor landlord. Okay. Uh, coming from a PO a position of extreme influence and pay power. It was an interesting way to look at those, um, subcontract agreements. So I probably thought way different than I do now, because I'm typically, I'm, I'm typically lower on the food chain with, with my guys. Um, but yeah, I, I think it, it, it still is too long. Those, those subcontracts were too long. I, um, it payment provisions are, are a big sticking point for me. Yeah. If you can't figure out the software that the GC is requiring for you to submit payment to, that's a problem. Speaker 2 00:09:47 If you get behind one month, if it's net 30, oh crap. We missed this payment period. Boom. You're you're 60 months. You're 60 weeks at out. I mean, 60 days out, you know, it, it, you can't withstand that. And that's one of those things that I think you really have to know on the front end. Okay. This is the, the, this is how we submit invoices. I think the days, depending on how you're scaling your business, I think the days of submitting a, a QuickBooks template specific, um, end voice saying this is how much you owe line item one line item, two line item, three, submit, then boom, uh, electronic fund transfer. I just, they're just not gonna do that. They're gonna make you work for it. Speaker 1 00:10:26 No, I agree. Agree. Okay. So, and I have another note before we dive into the most dangerous provisions. I wanna know if you've been seeing this as well. So I've had several occasion of, um, somebody hacking my, like my subs emails and sending different payment instructions to the general contractor. And then the general contractor then pays, have you had that happen? And what have you been doing? Speaker 2 00:10:53 I have seen variations of that. That being one of the, the ways that I've seen it happen, all of our banks are really pushing call for wire instructions. It don't use a wire instruction if it comes over the email. Um, unfortunately the level, the level of sophistication doesn't necessarily play into a subcontract overhead, um, picture when they're looking at, oh, do I need security? Um, I, you know, I've been known to be a clicker from time to time. If I get a link that comes through on an email, I might click on that and that's starts the whole ball rolling. And I think that's one of those things that you really should consider as a, as a small business owner myself, I have internet security through a, an it company. And it gives me such peace of mind, but yeah, I I've seen that. And it's another way to kick things into litigation, you know, another way to make everybody, Speaker 1 00:11:49 But then that's the next question? What is the legal ramifications? Because I'm not paid. Right, Speaker 2 00:11:55 Right. Yeah. So I think there's fraud. There's, there's all conversion. There's all you name it. And it's, you might go after this pie in the sky person that nobody could put a face to the name. That's often some other country, but guess what guess who you're really gonna be fighting against across the table, the, the sub and the GC and the owner, they're all gonna be involved in this. It's all gonna be drummed up costs and fees. And it's at the end of the day, it's, it's very upsetting and, and heartbreaking for a lot of people because it's a new threat that we're just, we're just learning about. Speaker 1 00:12:30 No, I agree. I agree. It's and I, I'm not sure how it would play out if somebody filed the lien or how that would work because they did pay, but not to the right. Yeah. How don't even know how that would play Speaker 2 00:12:40 Out. I would be very curious how that would play out. And obviously you'd start with the lean statutes and just read, like, down to a T that the, that every single word and phrase that you would look at. Okay. What is, because it's, it's, it's just the way the statute, if, if Speaker 1 00:12:57 You find the lean waiver that we a lean release and then you, so then I think you're out, right. So there's, there's a lot of interesting nuances to it, Speaker 2 00:13:03 So, right. And it's receipt of payment. Well, is that a waiver? If it's a conditional exactly. You know, it just really depends. And each scenario is so different, but yeah, that's, that's happening, you know, I've, I've gotten a few emails of proposed scopes of work where they've said, Hey, can you hold this hundred thousand dollars check in trust for me? And it's like, not today, Satan, you know, it's just not something I'm willing to do because it's part of that whole racket. Speaker 1 00:13:31 No. And it's been going around for years and then, and you, they, you, you would hold it for months and then pay it and it would still come back withdrawn. Then you're on the hook for this a hundred grand. Yeah. Yep. No, Nope, definitely. Nope. Yep. Uh, okay. So in your mind, what are probably the three most dangerous things in most subcontracts? Speaker 2 00:13:50 You know, I kind of have gone back and forth over these items. Um, there, some that are, are, are, are helped by, um, statutory provisions, depending on state specific. Obviously this is exclusively as to Colorado. Um, you know, what's enforceable, what's not, you know, you have some states where broad versus limited indemnity, um, eh, is, is not enforceable. You've got anti indemnity, uh, statute. So I, I think indemnity is a big one, uh, because there is a bit of a nuance as to look Colorado, doesn't allow broad for construction co uh, contracts. Pretty, pretty set on that. However, if you add some language into the contract that says in whole, or in art negligent, you could be potentially on the hook for not your, um, comparative negligence, your piece. So let's say you're 75% negligent. Let's say your GC is 25% or whatever. Um, you'd be on the hook for all of that, depending on how that language is, is put together. Speaker 2 00:14:56 So you wanna say everybody's responsible for their own negligence negligence. I've actually got a client right now where I'm going back and forth with, um, another attorney, um, about the indemnity provisions. And we don't want to be indemnified it for our own negligence, our own willful conduct, anything like that. We want it just strictly mirrored because that's fair. And I think if you can operate under that approach, you'll get a lot further with people than fire and brimstone. Um, no, one's, you're not gonna get indemnified for your own negligence. It should be your proportional share. And that's what I always push. So I think that's a big one. Um, you're not allowed broad in construction in Colorado, but, um, like I said, the language can change things. Um, you know, 75%, uh, 75% first is a hundred percent still makes a difference, especially if you're a subcontractor that doesn't have a lot of money coming in. Speaker 2 00:15:48 I'd say the other, um, provision. I always look to it's about payment terms, pay if paid versus paid when paid, uh, it's not if, but when, so if I'm very anti do not touch it, if it's a pay, if paid provisions, I exclude those from all of my provisions. Anytime I add an additional list of exclusions in a, in a contract revision, I, that excluding all pay if paid provisions because they could easily not ever pay you pay when paid is different in that eventually within a reasonable time, depending on what state you're in, determines the timeframe. But when versus if I'm more comfortable with when, Speaker 1 00:16:30 So what happens though, if you're under a pay one paid clause and they don't get paid for six months a year, Speaker 2 00:16:36 Right? And I think that's one of the things you have to look at. So we look at our subcontractors from the very beginning, you know, you've got AER, like you've got subcontractors that are elephants, and then you've got subcontractors that are housecats both are very important and make our construction business run and move forward and helpful for, you know, um, supply and demand mm-hmm <affirmative>. But if you're a subcontractor that is, you know, maybe taking a few big job jobs a year and, and does smaller projects, you know, smaller crews and it's all, it's all, um, subjective, what you mean by smaller or versus large subcontractors. But what you have to look at is can you withstand that float for that long and most can't, I mean, it's a great time to be in construction, but at the same time, six months of non-payment on your, so you say, you're, I'm gonna take this big project. This is the huge project I'm getting. This is gonna make my year. And then that single project, when you forgo other smaller projects that might have cumulatively added up to half, or maybe even that full amount you're in big trouble, you know, because your, your accounts payable don't stop. Speaker 1 00:17:48 No, exactly. And you can't stop the job either. Speaker 2 00:17:51 No, exactly. Cause it's not triggering it doesn't trigger the requirement for payment. So there's no breach. So you can't say we would preserve the right to, um, stop work upon non-payment. Well, the duty is not there yet, so it's all pay yet, Speaker 1 00:18:05 Right? Yes. And so like in Texas, a pay if paid is not, but a pay win is, and then they actually made this rule that, that, that, um, if, if the owner hasn't paid the GC for 45 days, then it's not your fault. You can write a letter saying you don't want it enforced against you. Right. It doesn't work very well in, in real life. But sounds like a good idea in theory, <laugh> Speaker 2 00:18:25 It, it rarely does. Um, I, I love these ideas and these stats language updates that I'm like, oh, this could really help. And then in actuality, there's very few things that really work out the way you would, you could Speaker 1 00:18:36 Just say, oh, the owners considering assessing liquidated damages. And you're part of that. So, you know, it Speaker 2 00:18:41 Doesn't matter. Yeah, exactly. So the, the demands not worth the paper it's written on. Exactly. Yeah. Speaker 1 00:18:47 So I agree pay would, right. Speaker 2 00:18:50 And I'd say the other one, I I'm a big stickler and I already kind of briefly mentioned it. The prime contract responsibilities. I cannot tell you how many times I've had a subcontractor that is so excited, so keen to get this job. There's a, you know, a half page list of exhibits, contract, uh, define contract document things. They've never seen plans, prime contract, general terms and conditions, all of that. And they say, let's sign it. Let's do this, let's do this. And I say, no, hold on a second. We need to see, uh, the prime contract documents because you don't know what you're, you know, entering into because you're gonna be held to that standard. You might say, no, LDS. You might say no consequential, all of this stuff, but the contract something different. Yeah. And it governs they'll, they'll write on that first page. It'll say in, in any ambiguity, any, uh, conflict, this is the document that governs, and it is the prime contract. It is not your subcontract. It is not, it will not be <affirmative>. So I think that's a big, that's a big one for me as well. Speaker 1 00:19:55 Have you seen the, the, and I'll ask reasonably inferred, have you seen that labeled? Speaker 2 00:20:01 I'm seeing that occasionally in that I see that in a lot of different, what specific type clause are you talking about? Speaker 1 00:20:08 So it says this contract is all you're supposed to do the work in the plans, specs, and anything else that could be reasonably inferred. Speaker 2 00:20:15 Okay. So that's a big one for me, that scope creep to me, that will is a, is a chilling chill down my spine. Um, yeah. Speaker 1 00:20:24 Who gets reasonably infer and what is reasonable? Like I'm the, Speaker 2 00:20:27 You should reasonably expect that there's gonna be asbestos in this property was built in 1955. So because you didn't add that as a line item and didn't add to that scope, you're on the hook for this that's I would call that reasonably inferred if I were them. Exactly. You know, exactly. Speaker 1 00:20:44 Like I was like, if I have everything in writing, what should have to be reasonably inferred, Speaker 2 00:20:49 Right. Nothing, nothing. Yeah. And that's another big part of, you know, putting scopes together, you know, I've seen, so anytime I get, so I, I work with some homeowners and some property owners as well. So I'll, I'll get some weird scope, crappy scopes come in where it's like line items, materials, labor, boom, boom, $55,000. They're like they put a lie on my property for $55,000. And I'm like, this should number one, they should not have submitted a scope like this. Number two, they don't have the backup data to substantiate those amounts. But at the same time, we've already, you started this train wouldn't, you know, it you're, the owner wants to refinance to take advantage of these rates. Boom, roasted. Now you're over a barrel. Speaker 1 00:21:37 Yeah, no, I know. Um, and so, and, and then I've had a real, a lot of the times I see that people don't understand that they're not hired to do their bid. Right. And the school could be completely different. Right. And they just, they just sign it as if it's the same thing and like makes Speaker 2 00:21:54 Me CR. But if you really, you know, you think about it and we all have this in our nature. You know, as, as small business owners, it's, we're excited to get this work. This is the, this is our hard work, come to fruition. And I firmly believe, and this is a, a saying, my dad always told me, there are some people you cannot afford to do business with. And you have to think about your gut. And if your gut's telling you this isn't right, this doesn't smell right. Then you need to walk away. And that's an ego decision and it's hard. We bought everybody in this room, Speaker 1 00:22:28 All got guys all the time. You know, how many guys walk into my office saying, I knew I shouldn't have done that job. I knew I should. Right. At the very beginning, they knew very beginning. They knew at the very beginning, they did it anyway. <laugh> Speaker 2 00:22:39 I have that so many times as well. And then on the, when you're in six months into litigation, you know, principled making principal decisions, you Speaker 1 00:22:49 Like to build, Speaker 2 00:22:50 Get principal decision. Yeah. Principled gets you purse stone Speaker 1 00:22:54 Away. Exactly. I try to be very upfront with other clients that like, you don't want go spend your money on growing your business. Principal's not where you wanna be. The best you can. Hopeful court is to break even, and most 99% of the time that does not happen. Speaker 2 00:23:08 And I will, I will be very honest with you. I think a lot of the, the system in place is leads a lot to be desired and is currently broken to where it does not benefit just about anybody to go to litigation because you will probably loo you could win, but you'll still lose. Speaker 1 00:23:27 You're never, you're you're never gonna get back your lost. You could have been doing something else. Yeah. And so, okay. So I'm guessing it's the same in Colorado, as in Texas, is that when you get in front of a judge, they have no idea how the construction industry works. So you not only have to do the, in the industry and then the law. I mean, has that been your experience as well? Speaker 2 00:23:51 Right. You know, judges, um, it's, you're, it's a pipe dream to think you're gonna get a, a judge or even a mediator that, um, or arbitrator that is well verse in the construction industry. So you're essentially teaching them. And there are some things that are intangible items that are just understood by the nuances of the construction industry. Yeah. I mean, I've the majority of my cases that have gone pretty deep into litigation were before. Non-construction it just very, it's virtually unheard of it's it's you know, your criminal attorney. Yeah. I'm trying to think of other areas, but it's not mostly Speaker 1 00:24:32 Personal, but it's not because like, even if you follow like what my experience is, even if you follow all of the steps that have a Val, the judges are still like, oh, the owner's paying twice. This is not fair. This equitable, how can this be? Right. You don't even have a contract with the owner. And you're like, oh my God, this is, this, isn't the founding of our country. That liens have existed. You have no idea what they are, right. Or how they work. Speaker 2 00:24:55 Yeah. And, you know, liens are, are confusing for even attorneys. There's so many different little things that go into factoring, whether it's enforceable, whether you filed it in time, all the deadlines, you know, different states. I, I think Wyoming and a couple others have pre we have to tell you that we can lean your property at some point down the road. So it's just all different. And so many moving, moving parts to it that I, I think the, the lean law is very confusing. And at the same time, you know, then you have to analyze of, okay, well, what was the value of the work you did provide? Oh, and at the same time you've got a homeowner or a property owner that says, I'm trying to refinance, I'm trying to sell this property. Wait, you're telling me I can't sell it while this lie is on the property. Well, get it off. Well, that's gonna be 125% in Colorado or a surety bond doing the same thing. Well, I have to pay what I don't have that money, you know, it's, it, it, it, yeah, Speaker 1 00:25:49 No, I know. And, and, and so we kind of really, especially our, our courts were backed up in, in Texas for a long time, but then even more so after COVID, so I've really found arbitration, even though it's more expensive on the front end to be almost a more efficient option, cuz at least you can get it done in under a year Speaker 2 00:26:06 And you don't have to necess to really follow all the rules of evidence. Speaker 1 00:26:09 Absolutely. Speaker 2 00:26:10 Which I prefer. Um, yeah, it, it, it is more costly on the front end. You know, you've got those, those big conglomerate, um, arbitration companies that we're talking, oh, okay. The claim is over a hundred thousand, we're talking 7,500 to just get everything going. And it's like, that's a hard one for a lot of people, especially if you're not getting paid. Speaker 1 00:26:30 Exactly. But, but then in the long run, it's, it's so much shorter. You don't get discovery disputes. You can just really get to the heart of dispute and have somebody to decide. Speaker 2 00:26:39 I am very brass tax when it comes to disputes. I do everything in my power to keep my clients outta litigation because I don't think it's beneficial to anyone. Like I said, sitting in front of my clients, whether virtual or, or in person at my office. It's what are you forgo today? And for the next year and a half, um, that you, you will be forgoing because you're in litigation. Is it worth that is that principle hill that you're gonna stand on worth. It probably not. Is your relationship with your family, you know, all the stress because it's, it's like, okay, um, I know you're already stressed. Let's maybe hit the easy button simplify and really try to work on something. Speaker 1 00:27:21 Yeah. That's not exactly it Speaker 2 00:27:22 You want Speaker 1 00:27:23 Live with, but it's, it's not at the end of the day. Cause I'm like, yes, your case looks so clear to you, but you have no idea what attorneys can make it look like. Right. We're good at our jobs, Speaker 2 00:27:33 Our jobs. Exactly. And it's there. I don't give guarantees if I did, I would be out the door to the seven 11 down the street and buy lottery ticket because I could to tell the future, I could not tell the future. I don't, what side is the jury gonna work? Wake up on the day of trial or the judge, you know, it's no. Speaker 1 00:27:51 And, and if you're, if you're a residential contractor, those pictures of like the small scratches blown up and they're all like, oh my God, I can't believe you left the house that way. <laugh> Speaker 2 00:28:01 I, I, I'll be honest. You know, you get those punch items where it's just kind of makes you laugh. It's just like, oh, because I mean, as someone who this morning, um, I'm, don't get me wrong. I'm, I'm, I'm very thorough, but this morning forgot to put the coffee pot underneath the coffee dispenser. You know, I'm not gonna notice this tiny little scratch on the CD, under belly, the, the railing of the, of the stairs, you know, and, Speaker 1 00:28:28 But if we get a big picture of it and be like, can you believe this contractor left at this? I mean, it just melts, Speaker 2 00:28:34 I would say punitive damages. It Speaker 1 00:28:35 Just, even if it's a punchless, like I said, all of those things are small things that you would finish and punch. You just didn't get a chance to do it. And they don't, they don't understand what that is or what that means. Speaker 2 00:28:45 Right. And you know, it, it's all about, you know, getting the contract understandable for people to understand expectations. If you can understand expectations and you can work with other people. I think a lot of it is interpersonal skills. Um, you know, there are people that are gonna take projects, um, or work with other parties that are good to, to work with. And they dis established a good rapport and a good relationship with, you know, those can backfire cuz relationships when money's involved, when high stress is involved, those can deteriorate quickly. However, it's good to have those relationships and to work together and, and, you know, understand what the contract documents mean for both sides. Speaker 1 00:29:25 Yeah, absolutely. And on the resident or commercial, I mean, we're a lot less likely to end up in a dispute if both parties understand what they're supposed to do. Speaker 2 00:29:31 Right. And understand what it would cost if you can't resolve it. Speaker 1 00:29:34 Exactly. Nobody wants to, nobody wants to know what that actually looks like. Right. Sounds all. Sounds good. In theory, until you're writing the huge checks for Speaker 2 00:29:41 Litigation, I have, I've never been enamored with being in the courtroom because I know it's just a, a house of cards. And as a like small business owners, it is the, it's your worst nightmare. If you're a small business owner, you cannot withstand it. The cost, the stress you're forgoing business, you know, Speaker 1 00:30:01 Much rather spend your business like money growing your business and not, and not dealing with Speaker 2 00:30:04 This. Right. I mean, scared money don't make money, but at the same time, you need to be able to compromise and figure something out mm-hmm <affirmative> to move, to, to fight another day. Speaker 1 00:30:14 So on the subrate tracks, how successful have your clients been in negotiating fair terms in the sub, Speaker 2 00:30:21 You know, earlier I made that comparison from 2021 to 2022, I have seen more, um, success in 2021 with negotiating contracts, um, for my subcontractors because they had a little more bargaining power. I think this price escalation has really thrown things, uh, um, for a loop. And I think people are trying to figure out how to put things together, um, to make it work for everyone involved. And again, your lower end of the, the food chain. But at the same time, you know, I've, I've got a client who, um, the owner is taken out an SBA loan. So there's a lot of provisions that have to be followed very specific, um, documentation. So it's, that goes into the analysis and you just wanna protect your subcontractors. So it's a harder push, but it's definitely something that can be done because people are still building, even if material costs are astronomical. Speaker 2 00:31:18 Um, I constantly will see these stats all over the internet where it's, you know, an increase of from 188 square feet, a price per square foot from 122 years ago. It's just, it's crazy. It's, it's not, I don't necessarily think it's sustainable, but at the same time, I think it it's the world that we live in and you, it becomes more of a cost benefit and risk analysis that I, as a very diplomatic person, I have a really good job of putting things in front of the client and saying like, let's look at it based on this, let's talk about this scenario. Can you withstand a 30, a, a 45 day net, uh, to get paid because the provisions are crazy and the SBA is requiring this, or, you know, the, the lenders requiring that if you, your answer is, I'm not sure then maybe you don't risk it, but then it's, and then it's like, oh, this might be a really big project. Kind of just working through a type of scenario that you have where clients keep asking those kinds of questions and you kind of just have to work through it together and see where they end up. Speaker 1 00:32:18 Yeah. So another thing that I've seen in, in subcontracts is really, um, on the change order per revisions. Mm. Um, now being that, if we can't decide on a price, you have to do the work anyways and figure out later, what, what have kind of been your workarounds on that? Or if, if it's a big deal or not a big deal for the clients, Speaker 2 00:32:36 Um, it can be, I, uh, often will have contracts where the best case scenario is a change order and the parties agree. The second scenario is the change order. The parties don't agree and it becomes a directive. Um, and I lean towards the first option because depending on how, how long the project is, it could change again. And I think you kind of just have to look at it, not in a vacuum, you have to look at it through the totality of the situation. Um, if you've got a very complex piece of the scope coming up, or if you've, you know, put in enough of a cushion understanding that these potential escalations it helps, but just generally speaking, I, I, you know, when I see a, a, a directive versus a change order, the owner is it's always gonna be in their best interest. For the most part, I would say to say, you know what, you're just doing it, and we're gonna figure it out later. And I just say, paper, the crap outta that file, put everything together, give me all, get all your receipts together, get your ducks in a row, get 'em the documentation for the, the change, and just try your very best to keep it moving. You know, so Speaker 1 00:33:49 What I, what I've been trying to do, and I haven't had it successful, I haven't had anybody take me up on it or, or realize what a big issue this is, is to formulate the formula of what it would be like labor and expenses, plus a certain percentage. Right? Speaker 2 00:34:03 I think that's a fair option. And I've seen a carve out of that in, in, in contracts before where it's, you know, a plus whatever of whatever that is, and kind of con considering what your overhead and profit is, but at the same time, that does take, you know, if you're in the thick of a project, it's really hard to get an owner to be like, I'm gonna pay you more money plus a little bit over the top. It's really hard. Speaker 1 00:34:24 No, I know exactly. Huh. All right. So you have any other words of advice or anything for subcontractors in the realm of subcontracts or liens or anything? Speaker 2 00:34:34 Um, my, my advice that I give all of my clients is be proactive. Um, paper, pay, paper, paper, put everything, write everything down, take lots of notes. I take a lot of notes. I, I think it's really important. Don't be afraid to walk away. I think it, a lot of our bad decisions come from a position of ego. Um, you don't wanna get in over your skis and that's where you find yourself because you have people that rely on you. You have, you know, you have people that you gotta make pay role. You've gotta figure out, you've gotta take care of your vendors, your suppliers, and you want to keep those relationships. One bad project can throw 20 years of a great vendor material, supplier, um, subcontractor out the window. Those relationships are, are crucial and they help you survive. Um, and I think you just really have to build those relationships. Speaker 1 00:35:25 Yeah. I guess who gets to put, put front of the material line, if there's a Speaker 2 00:35:29 Shortage exactly. Who will allow you some credit, um, if you don't, if you're kind of maxed out or, you know, yeah. It, it, it pays to have those relationships. I think that's another big thing to put into place. I mean, you'll realize who you're not wanting to work with again pretty quickly. Speaker 1 00:35:48 Absolutely. Well, thank you so much for being on the podcast. I'm sure we'll have you on again. And maybe we'd a collection topic or something. Speaker 2 00:35:55 I'd love it. Speaker 1 00:35:56 Think we, I think we think a lot alike, Speaker 2 00:35:58 I would say so as well. Yeah, absolutely. No. I had a great time and, um, happy to help in any way I can. Speaker 1 00:36:04 Absolutely. And we'll put all your contact information, the show notes when he wants to reach out to you, sweet. Like know how to get ahold of you. Awesome. Um, and then Chelsea, you'll send you the link and you'll have it as well, so. Right. Awesome. Thank you. Speaker 2 00:36:15 Well, thank you so much Uhhuh. <affirmative> right. I, bye. Bye. Speaker 1 00:36:20 Thank you for listening to this episode of quick getting screwed. I hope you found it helpful if you like what you hear, please like us and follow our podcast. If you want further information. So you can find [email protected]. We're also on Facebook, LinkedIn, and Instagram, and the book is available on Amazon. Thank you.

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