Preparing Your Firm for Client Disputes

Occasionally we see trouble coming from the outset of a project, but that's rare. More often, the project starts with enthusiasm on all sides and usually finishes with a happy, satisfied customer and a profit for your firm. Occasionally, however, something will occur that causes the relationship between you and your customer to go sideways. When this happens, you need to be prepared to deal with the situation.

This month, we will look at potential and actual disputes, as well as ways to avoid them, diffuse them when they arise and manage them when they escalate.

Avoiding Disputes
It's always better to avoid a dispute rather than having to resolve one, and clear communication with clients can help you do so.

The first step involves the design process itself. It is here that there is a lot of conversation about dreams and possibilities, many of which do not wind up as part of the final project. For this reason, clarity is key and the accuracy of the agreed-upon plans and specs cannot be overstated.

Almost all of us have experienced a situation where a client says, "But I told my designer that I wanted that." This statement is often followed by a claim that the client did not really understand your specifications and thought the item, feature, etc. was included.

There are several steps that can be taken to stem this situation, including statements from your designers to their clients that the specifications and plans are the controlling documents.
The plans and specs should be reviewed line by line and page by page at the time the contract is signed, with the client initialing and dating each page during this review. If the designer is aware of items that were part of the original "dream" and were removed for budgetary reasons, this is a good time to note such items are no longer part of the project.

Next, it's important to have a statement in the contract, preferably directly above the client's signature, that states: "This is a complete and exclusive final agreement of the parties hereto, with respect to the work and products indicated, and supersedes any prior contemporaneous oral, written or implied agreements with respect thereto." While such a statement would seem to be pretty clear, if the client does not really focus on the meaning of it, you will still wind up with a misunderstanding and a potentially unhappy client.

Finally, we try to get this same point across at our pre-construction meetings by asking the clients if they have had a chance to review the plans and specs since the time the contract was signed to make sure that they are complete and accurate. We stress that materials are ordered and work is done from these documents, so it's important to make sure they are correct before work actually begins.

Job schedule and progress is another area where conflicts can arise. We will not go deeply into the scheduling process, except to say that, again, communication is the key to avoiding conflicts. Remodeling is a bit like triage in an emergency room, and each day brings new tasks to work into your schedule. We have found that if our clients are informed of what is, or is not, going to happen on a weekly (or sometimes daily) basis, they are much more understanding than when left in the dark.

Diffusing Conflicts
Sometimes, in spite of our best efforts, conflicts still arise. When they do, there are two rules to note. First, these conflicts will either grow into a full-blown dispute with your client, or they will be resolved amicably. Second, if they are not resolved amicably, you and your firm will be the losers.

What this means is that it's essential to address conflicts at the very first sign of trouble. When you get that voicemail complaining about the actions of one of your employees, the finish on the cabinets or the failure to clean up a job site, don't kid yourself that it will just go away.

The correct response is to contact the client immediately, apologize for the misunderstanding and assure them of your concern.

Next, follow up and correct the problem. Here, there is a tendency to stand your ground on "principle," when the cost of giving the customer something for nothing is really insignificant.

It's usually a better, and easier, solution to factor into your job cost a certain amount of contingency money to allow you to provide a few free favors to your clients. There will be times when you feel that you are being taken advantage of, but that is something you just have to live with.

However, there are times when you should not back down on significant issues. When a key issue arises, it's imperative that you have your documentation in order and that your actions do not jeopardize your position.

First, be sure your contract is properly written. While we will not get into all of the aspects of a good contract, there are a few areas worth noting. The phrase mentioned previously concerning prior oral discussions is key. Since it's impossible to address every subjective issue in a contract, you will often have to rely on industry standards. It's key to have an authoritative reference for these, such as the Residential Construction Performance Guidelines developed by the National Association of Homebuilders (NAHB). It is also important to define how disputes are to be resolved. Mandatory mediation and arbitration are a much better choice for resolving major disputes than allowing a client to haul you into court.

It's equally key to be very careful of what you say. If you actually get into an arbitration, your position may not be as sound as you may believe. Chances are, you wrote the contract your client signed, and you are the professional remodeler. Do not expect to be given the benefit of the doubt in a legal battle with a consumer. Even a simple mediation will cost you well over $1,000, and an arbitration can easily get to $10,000 (if you win). You might want to consider very seriously whether to dig in your heels when a dispute with a client arises.

The bottom line is to remember that managing disputes and resolving them must be based on business decisions, not emotional ones.