Retainer and Contract

[GoldDredger]

I am about to enter into a $100,000 commercial development contract with a developer we've never done business with before. For this project, the developer has indicated they will be forming an LLC(Limited Liablity Company)they have yet to create and name.

In my contract, I stipulate that invoices are monthly and due upon receipt. I also indicate that prior to releasing signed and sealed drawings to the approving authority (city)or contractor, they have to pay all the design fees in full.

I have two questions:

1. Have any of you in the land development business asked for or required a retainer up front? Perhaps some percentage of contract amount?

2. With a new client, is there anything I should do on my end to verify their legitimacy? For example, an LLC is being formed, but what exactly does that mean for us in terms of eventualy collecting the fee's? (Fred Flintstone signing for Dewy, Cheatum and How)

I suppose what I am trying to avoid is putting in 1 months of WIP effort, only to find out it was a fly by night developer who we can't collect from.

Any thoughts?

 

[msquared48]

In answer to your questions:

1. Absolutely. Although my contracts are not in that range, I commoinly ask for 25 to 33% dowm (retainer) and sequential billings thereafter.

2. Do not grant any more credit than you can afford to lose, and that is exactly what it is, credit. Be willing to set the project aside, in spite of his "schedules" for leverage to get the payments. If late payments persist, insist on payment in full prior to restarting on the project. Write these clauses into the contract. Write more if you wish. If he walks, he walks.

Have you checked him out with the BBB - his former businesses? Does he have a reputation, good or bad, with other engineering firms in the area? Do a little research here.

Mike McCann
McCann Engineering

 

[rday]

Golddreger,

1) Yes, 10% is our typical amount for civil work. Some states limit the amount you can require.

2) Agree with Mike. Milestones for payment should be laid out in your contract, assuming this is a lump sum job. Otherwise, mothly billings per hours worked.

 

[Hoagie]

"... I also indicate that prior to releasing signed and sealed drawings to the approving authority (city)or contractor, they have to pay all the design fees in full...."

Be careful. You may want to phase/task the project and get paid-in-full at the end of each phase. In regards to encouraging timely payment, be sure to work in a term (something along the lines) of 'suspension of services' and link it to your payment schedule. Remember that most banks consider any outstanding invoices beyond 180 days as non-recoverable and will have a direct affect on your lending power, so be sure to get paid within 90 days if you can.

Regarding your second point: Do everything you can to get the work, regardless of credit history, references, background, etc... just don't allow yourself to get too far into the red--keep charges near the retainer amount and you shouldn't get burned.

It your job to monitor budget, so when you see that you are approaching the acceptable limit, remind the client that he either has to increase the retainer budget or he needs to make a payment to 'so you can keep going.' Do whatever you can to keep posting charges to his account even if you exceed the retainer budget--a little risk is okay, so suck it up, be adventurous and apply some reasonable trust. Remember, no balls: no blue chips.

G'luck.