Be it a completely new building or renovation work, construction businesses are always at work. Construction requires intense capital and labor investments that vary depending on the type of construction project, i.e. industrial, heavy engineering/infrastructure, commercial or residential. Labor and capital requirements are just two of the many factors to consider while choosing clients your construction business should be working with. What if the client’s real estate doesn’t have a permit? What if they want the contract revised halfway through construction? Practically, choosing the right client to work with is an important strategic decision for a construction business. Let’s look at some points a construction business owner needs to look at while screening prospective clients.
Feedback regarding past contractors
Some clients may complain about their past contractors who they assumed never to know what they were hired to do. Or they may even brag about firing a contractor for not living up to their expectations. Bad construction contractors exist. So, a prospective client telling you about a bad experience with a previous construction company should not be considered alarming. This doesn’t mean that past disagreements are to be left uninvestigated. Ask the prospect multiple questions regarding the past contractors. Find out if it was caused by the inexperience of the construction company or if the conflict was due to unrealistic expectations of your prospect. If you notice a trend in the latter, it may not be a good idea to sign with the client.
Bargaining too much
It is okay and expected of clients to ask for discounts. That is why they are shown in estimates so that businesses can still profit when prices are reduced. Requests for discounts only turn into major problems when a client starts asking for work/upgrades outside of those mentioned in the contract. Dealing with these will eat up precious time. One smart way to stop clients from asking unrealistic demands is using a discount policy. The policy should expressly offer a percentage discount or dollar amount of the total cost of the project and should also have a clause refusing to enter into tedious conversations regarding line items.
Demands a contract revision
This too is something that construction firms always expect from clients. Minor alterations can be accommodated. The problem begins when the client asks you to remove or change payment and arbitration clauses. These clauses protect the interests of both the client and the construction company. If any prospective client wants to change the contract in such a way that your business stands to take on more risk, it may be a sign that they might default/delay payment or file a claim against you. It is always advised to consult with a lawyer if you don’t know how the proposed change is going to impact your business.
The indecisive client
These are clients who don’t exactly know what they want from your construction business and can be just as difficult to work with as clients who tell you exactly how to do your work. To guarantee that the client is satisfied with the end result, the client needs to give feedback. It is difficult to meet a client’s expectations if they don’t communicate their requirements clearly. This is a risky situation because you don’t want to deliver something the client doesn’t like. What if you have to do extensive rework? You will have to spend your own money. Such prospects are not to be immediately passed on. Spend time to perfectly understand their requirements and expectations to provide the highest level of client satisfaction as possible. A construction project blueprint can help clear out any confusion between you and the client down to the finest details.
Clients who ignore permit and code standards
It is a tedious task to file for permits. But, any responsible and ethical client would get the required permits as and when they are required. Some clients may choose to take shortcuts without understanding that permits can help them save money through property insurers, make selling the property easier and improve safety by meeting minimum safety standards. For example, a homeowner refused to follow regulations and instead started legal proceedings against the state and town. The house was never given a certificate of occupancy. Some of the most common consequences of a construction project not having permits are:
- Getting “red-tagged” and shut down until the necessary permits are obtained.
- Fines can be imposed.
- If the building doesn’t comply with code standards, that portion of the building can be ordered to be demolished by the city officials.
Most construction companies will not work on a project without permits because they’d still have to incur costs if the project is halted.
Clients without adequate funds
Before you start construction work for a new client, make sure that they have adequate finances to keep the work going. A check of their financial worth is required even if you will be initially bearing the cost of construction. This is because you may have obtained this from financial institutions like Banks, SBAs or opted for an easy construction business loan. You don’t want your finances to take a hit because of a client. Plus, it would be bad for your reputation as a contractor if a project you’re handling could not be finished on time.
It is perfectly reasonable to want to get as many clients as possible. But, you should also see the bigger picture. Consider the long term implications of working with each client. As with any kind of business, a construction business will be defined by the clients that they work with.