Amerimix
BMJ Stone
Echelon Masonry
EZG Manufacturing
Federated Insurance
Fraco USA, Inc.
Hohmann and Barnard, Inc.
Hydro Mobile, Inc.
iQ Power Tools
Kennison Forest Products, Inc.
Mortar Net Solutions
Non-Stop Scaffolding
Pullman Ermator
SPEC MIX LLC
Stabila
Tradesmen's Software, Inc.
March 17, 2006 7:51 AM CST

Conditional Concessions

By

As a student of Full Contact Project Management, you've learned to ask clients to pay you additional money to cover extra work. That's the way it's supposed to be. However, sometimes the client wants to reach back into your pocket and remove some of that same money. Outrageous! But because you are on top of your game, you are now becoming hard-wired to be on the lookout for ways to receive additional revenue - not part with it!

Believe it or not, Coach is about to recommend to you that there are some times when you need to give back a little. You do this because you are looking at the big picture, and you are more concerned with winning a war rather than just one battle. This is just smart business. But there is also a correct way to give back a little while also paving the road to victory.

Maybe the best way to describe this is to tell a little story. Actually, it's more than a story; it's something that has actually happened to me and there is quite a lesson in it. In any event, this story is about one of my favorite subjects: change orders.

We had completed some extra work for a client. All of the work was performed on a time-and-materials (T&M) basis. We had in place all of the documentation: RFI, response from the client, notice to proceed on a T&M basis and daily extra work tickets - all signed by the client's superintendent. Our bases were covered. (I'd say that the setup for that extra work was masterful, but you might just think I was showing off.) In fact, the Change Order Requests (CORs) for the work had already been submitted to the client for approval and payment - so far, so good.

Well, as it often happens in many stories, the plot took a turn. The client decided, once his work had been performed (i.e., he already had what he wanted), that he now wanted to "discuss and negotiate" the value of our CORs. The client apparently believed that my company should be willing to donate to his favorite charity: the bottom line of his business. We, on the other hand, prefer to donate only to recognized charities actually performing some service to mankind. This resulted in a standoff.

How does the Full Contact PM deal with such a standoff? Well, most contractors recognize that going to court or even to claim is the last thing you want to do. Even arbitration can be expensive. Plus, most contractors would prefer to have the money now, rather than later. This story is a common one, and has happened to virtually all of us. So, what to do?

Let's get away from the specifics of my story and look at some general principles. When a client asks you to reduce your bill, there is only one way to do it: conditionally.

For example, assume that your extra billing is for $10,000. Your client insists that you knock off, for instance, $1,000. If you refuse, he'll fight you over it. Far too often, an inexperienced PM will grudgingly agree to the cuts, revise the CORs accordingly, and submit the revisions to the client. This is not the way to do this.

The correct way to handle this is to go ahead and make the revisions to the COR, but attach a cover letter with a statement that says something like, "While XYZ Construction Company does not necessarily agree that this COR should be reduced, XYZ is offering to do so in the spirit of resolving a difference of opinion, and with the expectation that this COR will be approved and paid immediately. In the event that XYZ does not immediately receive payment, then XYZ reserves the right to withdraw this offer and reinstate the original amount."

What happened here? XYZ Company has given to its client a "conditional" reduction in the amount of a legitimate COR. What's the big deal? A good Full Contact PM never wants to unilaterally reduce the amount of a payment without some kind of a concession. In this case, it's immediate payment.

Plus, should your client end up not paying you for your reduced amount, you still have the right to go after the full amount, should you need to go to court, arbitration or claim. If you ultimately have to go to that much trouble to collect what is rightfully yours, then how sad would it be to realize that you willingly reduced the amount of your COR, and your client is now using the reduced amount in court as the new, contested amount due. That would be doubly bad.

Remember that, even when a tough client asks for a compromise, they are expecting some kind of counteroffer or concession request from you. Getting paid now, or getting paid in full later, is a reasonable counteroffer, and will often be accepted.


About the Author

Gary Micheloni is a working project manager, speaker, author, consultant and coach. He has severals years of industry experience, including a background as a licensed general engineering contractor. For further information and insight on the Full Contact Project Management approach, write Coach Gary at FullContactTeam@gmail.com.

Copyright © 2006, Gary Micheloni and Full Contact Project Management

 

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