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Non-paying client

  • 1.  Non-paying client

    Posted 12-19-2019 10:24
    I would like the community at large to comment on how you handle non-paying clients.  We have found ourselves in a niche of restaurant and retail projects for a little over 15 years now.  And while we have always dealt with slow-paying clients, we have a new client that after 90 days has simply said I am not going to pay you.  How do you handle situations like this?

    Background:  This new client recently purchased a restaurant group we have worked with for 15+ years.

    I have written both property owners notifying them that our client, their tenant, has not and is now declining to pay and that we would be proceeding with liens on their properties.

    In advance, thanks for sharing your insights.

    ------------------------------
    R. Coco AIA
    Architect
    Coco & Coco
    Midland TX
    ------------------------------
    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 2.  RE: Non-paying client

    Posted 12-20-2019 17:23
    Do two things:

    Get a significant payment up front on future work.

    Get a lawyer - if you do not expect to work with the non paying "client" again.

    ------------------------------
    John Parnon AIA
    President
    BrandPoint Design LLC
    Brookfield WI
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 3.  RE: Non-paying client

    Posted 12-23-2019 18:16
    You may consider sending a 'Stop work' letter with  7 day notice (in most contracts).  We have done this with success in the past.  the reason it works for us, is that if the project is in construction and the owner quits paying, we simply tell them that we will stop work on the project.  The city typically requires and architect's final inspection report prior to issuing a Certificate of Occupancy.  They need you before they move into the building.
    However, it sounds like there may be more issues than just non-payment.  Hopefully, you have a signed contract with this owner.  If so, then he is in breech of his contract, and you can respond legally.  Don't be the nice guy; otherwise the abuse will continue.

    ------------------------------
    Michael Chapman AIA
    Principal
    Chapman Sisson Architects
    Huntsville AL
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 4.  RE: Non-paying client

    Posted 12-20-2019 17:29
    Well, that is a complete non-professional bummer on so many levels.

    Have you had a in-person or phone conversation with the non-paying client.You mentioned written communication, but have you had an in-person conversation?  If not - Why?  If so - what did they say?  What were their reasons for not paying you?

    Start with a conversation would be my suggestion.

    Sonya Jury, AIA
    Principal
    Bold Orange Egg

    ------------------------------
    Sonya Jury AIA
    Generator Studio
    Kansas City MO
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 5.  RE: Non-paying client

    Posted 12-20-2019 17:56
    Not that I've always followed my own advice, but...file the lien(s).

    ------------------------------
    Robin Miller AIA
    MSH Architects
    Sioux Falls SD
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 6.  RE: Non-paying client

    Posted 12-20-2019 18:34
    Unfortunately, we have dealt with this situation in our practice throughout the years - and it only seems to be increasing. Adding to the complications, Pennsylvania only extends mechanics lien rights to design professionals with a direct contract with the owner and (emphasis mine):
    "The term also includes an architect or engineer who, by contract with the owner, express or implied, in addition to the preparation of drawings, specifications and contract documents also superintends or supervises any such erection, construction, alteration or repair."
    From this discussion: https://www.levelset.com/blog/pennsylvania-seeks-to-expand-design-professionals-mechanics-lien-rights/

    I typically leave the superintending and supervision to the contractor - as I'd assume most other Architects do as well. Taking on these additional roles is an additional liability. Further, several of my incidents of refusal to pay have been in the course of pre-design when a client learns that they cannot do what they had assumed. So at that point there is no "erection, construction, alteration or repair" to consider and since they cannot proceed with the project, no work has been done - right? So there is no reason to pay for a project that cannot be completed - right?

    Finally, the cost of legal proceedings - both in time and expense - for a small firm often outweighs the value of recovery. Look into "judgment recovery" and you'll find that even if you go to court and are awarded a judgment, you're unlikely to actually be able to collect.


    ------------------------------
    Thomas Bank AIA
    Principal Architect
    Simply Stated Architecture, P.C.
    Lemoyne PA
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 7.  RE: Non-paying client

    Posted 12-20-2019 18:47
    12-20-2019
    In response to post by R. Coco

    Good afternoon, to be sure non-paying clients present a delicate, sensitive situation.  If a client has, as seems to be true in this case, firmly stipulated that they would not be paying for your invoiced services rendered, IMO, it begs a 'legal' solution.
     
    Your initial action to notify  the property owners of the situation and your intention to place liens on their property is an excellent first step.  
     
    I suspect your firm is also represented by legal counsel and they will assist you in the filing of the liens on the property.
     
    It would be my suggestion to seek advice from the firm's legal counsel regarding the advisement of filing an appropriate lawsuit to compel your client to pay the outstanding invoiced amounts.  That would likely start with a letter from legal counsel to client giving them notice of a pending lawsuit if the outstanding amounts are not paid by a reasonably stipulated date from the date of the letter.
     
    The client's response, or lack thereof, will indicate the next appropriate course of action.
     
    Nothing brilliant, or unusual about my response. I'm confident you have already started to implement a next course of action.  I am rooting for you to prevail without too much expense on your part.
     
    Here's to a quick, successful resolution to this aggravating situation.
     
    I hope this will not interfere with you and your enjoying a happy holiday season.
     
    Respectfully,
    Steve
    "Strive not to be a success, but rather to be of value." – A. Einstein  


    ------------------------------
    Steve L. Wintner, AIA Emeritus
    Founder-Principal
    Management Consulting Services
    Georgetown TX 78633-5712
    slwintner@managementconsultingservices.com
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 8.  RE: Non-paying client

    Posted 12-21-2019 08:15
    Hi R.A.
    Clients who do not pay their bills are not uncommon, but are part of running any business - I call it the "5%" Rule: 5% of people/clients cause most of the problems.
    I would assume you have a signed contract with a responsible party that initiated your services (if not, that's a bigger issue than just non-payment).
    If your client does not pays its bills, you really have two choices:  sue for damages (expensive and usually unsuccessful) or resign your commission.  Confer with your legal adviser on how best to proceed.
    But at the end of the day, this is a business decision - try to keep emotions out of it.  You must decide if you want to continue working for this client (with the hope of receiving payment) or chalk this up to experience, cut your losses and move on.
    It's a hard call, one with ramifications for the future of your business, depending upon the reaction of this and other clients of your practice.
    However, it's probably not the last time something like this happens.
    Best of luck as you deal with this issue,

    Thomas J. Massey, AIA, LEED AP



    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 9.  RE: Non-paying client

    Posted 12-22-2019 14:10
    Pretty easy RA,
    We are in the same market as are you...we require by contract (and receive without augment) 50% of our fee through completion of the CD Phase as a project deposit at contract signing prior to commencing any work on the project...and then payment of the balance, 100% of the fee through the CD Phase, before we release the sign-seal permit documents (again without objection...after all, it is the only thing they must have).

    We then only perform services during the Construction Phase at our hourly rates.

    This policy that we have had in place now for going on 9 years now, has really helped with the cash flow.

    I highly recommend that you consider the same.

    Happy Hunting !!!



    Peter
     
    Macrae ARCHitecture, LLC
     
    Peter S. Macrae, AIA
    Principal
    "MARCHing with a different perspective"
     
    74 Orchard Drive
    Worthington, OH 43085
     
    614-205-6805 phone
    614-848-8113 fax
     



    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 10.  RE: Non-paying client

    Posted 12-22-2019 16:02
    I completely agree with Peter's firm's contract terms and conditions as they relate to the client's payment of fees.  

    If a client will accept these terms, it will go a long way to avoiding the situation R. Coco is currently dealing with.

    Respectfully,
    Steve L. Wintner, AIA Emeritus

    Regards,
    Steve

    "Strive not to be a success, but rather to be of value." – A. Einstein  

    MANAGEMENT CONSULTING SERVICES
    Steve L. Wintner, AIA Emeritus
    281.723.2090 (O), 512.943.8714 (H)
    Georgetown, TX 78633-5712




    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 11.  RE: Non-paying client

    Posted 12-24-2019 01:16
    Agreed Peter!

    Since 1999 our firm works via:
    Hourly Services - For Pre-Design Meetings + Investigation & Sketches
    Advanced Retainer - 20 % Schematic Design Fee
    Advanced Retainer - 20 % Design Development Fee
    Advanced Retainer - 60 % Construction Document Fee
    Hourly Services - Construction Admin. + CalGreen Coordination
    Hourly Services - Additional Services + Post Construction Services

    ...And we bill Hourly Services weekly or monthly depending on the
    client and their responsiveness, etc...

    We've also been known to receive retainers for Hourly Services via
    agreed to "Allowances"...

    After the Dot-Com Crash in 1999 - e decided that WE as Architects
    are NOT the "Bank".  Period!

    And by working via "Retainers", it acts like a "Respectful Threshold"
    that dishonest clients will not cross... Because they never really intended
    to pay in full anyways!

    Do you have fewer clients.  Yes.  Blissfully and Wonderfully Fewer...
    Non-Paying Clients!

    Also for projects of an appropriate size, we print one invoice with
    checkboxes on each line items ie: SD; DD; CD; CA, etc... With the
    correct percentages shown... so we literally resubmit the initial invoice
    4-5 times - Checking off each successive line item.

    My suggestion?  IF the client is a good human, but they want you to
    "play the bank", have your Legal + CPA Team meet with every party,
    and determine what % of ownership they are willing to share with YOU!

    And remember, since you're taking a greater risk up front, I'd suggest at
    least a 1.5x - 2x or more value to be given for Your Risk! ;-)

    ------------------------------
    David Phillips AIA
    Principal
    DLP Associates - Architecture + Planning + Interior Architecture & Design
    Sanger CA
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!


  • 12.  RE: Non-paying client

    Posted 12-23-2019 18:54

    If the project is in Texas, you may have some legal remedies that could help.

    Have permits been applied for?  If they terminate you, do they have someone waiting in the wings to take the work over?  If they are intending to do it themselves with their own non-registered in-house people, let the TBAE staff know and their enforcement group will have some words.

    If you're on record as architect of record, begin discussions with the local AHJ about no longer being AOR.

    Go ahead with whatever lien rights you have.

    And you do need to call people.  Start with the property owners.  They may have a tenant improvement allowance as part of the lease which is supposed to cover design work and construction costs.  If the landlord "gave" the tenant something of value, and it's not being spend on the contractual purpose, that's getting into breach of contract territory.

    The original restaurant group's agreements should survive the takeover.

    Going forward, if you can include the landlords in your agreements somehow, you may have a better chance of recovery.



    ------------------------------
    Joel Niemi AIA
    Joel Niemi Architect
    Snohomish, WA
    ------------------------------

    Open: Call for applications deadline November 6. Learn more and apply to join the PMKC leadership!