The Great, the Good, the Dangerous, the Bizarre, and the Neurotic
Part 3 of a 5 Part Series
LATF, Sharks, and Chronic Re-Negotiators

 

The Dangerous
Note: This blog post is a work of fiction. Names, characters, places and incidents are products of the author’s imagination or are used fictitiously. Any resemblance to actual events or locales or persons, living or dead, is entirely coincidental.

In the 34 years I was CEO at Giffin & Crane, Geoff and I built about 3400 projects for 700 clients. The projects varied from small jobs to multi-acre estates. Our hallmark was that both our trades and our clients liked working with us.

Out of those 700 clients, the vast majority were good people, a handful were dangerous and a handful were Clients from Hell. Those are the people who apparently needed to make other people’s lives miserable. 

When you’re young, hungry and still feeling invincible, there’s a temptation to take on all jobs, even from Clients from Hell. My advice: DON’T. 

But you think that they can’t be all that bad. That surely they won’t act that way with you. That you’ll build them a beautiful house and they’ll be pleased with the results. 

I’ve got news. They will be that bad. They will act that way with you. And they won’t be happy once you’ve built them a beautiful house. 

And for you and your crews… You’ll be fried, frustrated and frazzled.  Your mental, physical and emotional health will be affected.  As a result, your family life will be impacted. Your crews and trades will be experiencing the same thing, perhaps even worse, as they’re on site all day, dealing with the Client from Hell. And chances are better than even that you will not be paid in full. So you’ll spend more time dealing with more problems with more headaches for less money. 

I learned the hard way that these occasional Clients from Hell suck up so much of your time and energy that your good clients, the people that you enjoy working for, get shortchanged. Ironically, you get shortchanged working for these Clients from Hell. So it’s a lose-lose-lose deal.

So, absolutely, the best thing is not to take them on in the first place. But, learning to spot them is an acquired skill, because these Clients from Hell are good at covering up their real personalities until they have you under contract and you’ve invested time and money into their lives. Then their real side shows up… Like Dr. Jekyll and Mr. Hyde. So remember it’s a two way street… You’re interviewing potential clients for suitability and sanity as much as they’re interviewing you.

So, here’s what I’ve learned and perhaps you’ll spot these personality types sooner in your client interviews.

 

 

LATF
In my early 40s, I got involved with a number of building industry associations, including the National Association of Home Builders. I became a national director and four times a year went to meetings and conferences with other home builders from around the country.

At one of those conferences, I met a successful custom home builder from Ohio who was about 25 years older than me. Not having found real success yet, I asked him what he owed his success to.

He said, “LATF.”

“LATF?” I asked.

He replied, “LATF. As in Low Asshole Tolerance Factor.”

I let that soak in for a moment.

Then he said, “If I get a sense that a potential client is an asshole, I send them on their way. Life is too short to work for assholes. Plus the money you make putting up with an asshole isn’t worth the exasperation. Too little appreciation and too much aggravation makes for a sour life. So, yeah, LATF.”

A really wise man.

While the lesson was imparted in less than a minute, it took years for it to truly sink in. 

Back then, I thought there was no job too tough and no client too difficult that we couldn’t handle. Plus we were still building our reputation. So coming out of the Big Recession of the ‘90s, with families to raise and support, we took it all on.

And assholes pick up on that kind of vibe. They’re looking for people who they can feed off and manipulate. They’re looking for hungry people who will put up with their bullshit.

Sometimes when I would meet an unhappy prospective client, I would think, “well, I’m going to build them a beautiful home on a really nice property and then they’ll be happy.”

And after jumping through multiple hoops and building a beautiful home and property, they would still be unhappy.

But now they were unhappy at me, because I hadn’t made them happy. Having a beautiful home and property built didn’t make them happy. They were just plain unhappy people.

And slowly I learned, because I’m a slow learner, that I did not have the power to make unhappy people happy. That no matter how hard you you work at pleasing isn’t going to make one iota of difference to an unhappy person.

What might make an unhappy person happy? It’s when you’re unhappy. In other words, they’re not happy until you’re not happy. Then they’re in their comfort zone.

I will say this… Assholes tend to build architecturally significant homes. They do this because they need the exterior strokes that trumpets that they’re powerful. So you may need to work for a few if you want to prove that you can build something monumental. 

You have to be vigilant though. Some assholes enjoy putting people out of business. We had a few who tried. We were well defended though.  Here’s what worked for us:

1.    We always delivered the goods.
2.    We never quit a job, even when we wanted to.
3.    We kept great records.

Those three things mostly kept us out of trouble. We were fairly sophisticated. Did we escape unscathed? No, often we would take a hit from assholes, but never a knockout blow. I can’t say that about a few of my builder friends who got taken out or ended up in litigation and lawsuits.

It helped that we also had a fairly high threshold for pain. We were persistent and dogged. We didn’t give up on the job or on collecting our money. 

In 34 years of business, we were only involved in litigation once. Of course, that was instigated by an asshole client. It’s a very long story. Perhaps over a drink someday, I can tell you about it. 

What we learned is that litigation is an expensive, time consuming, mind consuming process and generally not worth the headache. Much better to buckle down, get the job done, learn from the experience and move on.

In the end, you may decide that building monumental homes is just not that important to you. A lot of my builder friends prefer clients who just want a home, not a monument. People who want monumental homes tend to be complicated. It can be all consuming to build a complicated home for a complicated person. After a while you might decide it’s just not that important to you. I know I did. 

Dealing with Sharks in Slow Times

Nothing lasts forever. For every boom, there is a bust. For every bust, there is a boom. 

When you’re living through either one of them, it feels like either the good times or the bad times goes on forever. Knowing that they don’t and preparing yourself for the inevitable change in economic fortunes allows you to position yourself to take advantage of both the good times and bad. 

Every builder lives through multiple recessions in their life time. It’s part of the economic cycle of boom and bust. Surviving recessions is doable provided that you were smart during the boom times.

The keys to success in that regard are:

Squirreling away money when times are good and getting it out of the business and into some other alternative investments outside of real estate.  Saving money and investing elsewhere requires discipline. In business, savings are called “Retained Earnings”.  They are crucial to your success. The old mantra “Cash is King” is old for a reason.  That philosophy has value.  

It means you didn’t live above your earnings during the boom time and use up all your income to pay for your new rich lifestyle. You made sure to get some enjoyment every day, but you didn’t feel the need to take on additional debt to finance a new truck, or boat, or RV or expensive vacation. 

By having Retained Earnings, when the inevitable recession comes, it means you’re better able to ride through it. There may be some distressed sellers looking to give someone like you buying opportunities. Or you will be perceived in the market as being a smart, financially strong builder. Why is this important? Because even in downturns there are still people that have to build. And since it’s riskier times they will choose a builder that’s financially strong. 

That doesn’t mean that you won’t have to adjust your pricing to fit the new reality of the market. You may still need to reduce your fee by a few points or offer up some other terms in order to get contracts in a recession. But as long as you’re not going backwards, you’re maintaining your capital. And that’s what you’ve worked so hard to acquire. 

And you’ll have to pay particular caution to a type of client who typically shows up in slow times. They’re the sharks who smell blood in the water and are looking for a deal. Their favorite prey are young, guileless contractors who need cash flow and work. The sharks run counter-cyclical typically. During boom times, they don’t do projects, they make money. Then during busts, they buy land and hire hungry contractors to build.

Sharks tend to negotiate price on everything. They start out negotiating price on your fee. They dangle the contract in front of you like bait on a line. If you start to bite, they pull that contract out of your reach and ask for another concession. 

But it doesn’t stop there. Once you’re signed up, sharks want to negotiate on every sub-contractor, trade and vendor’s quote. And the great white sharks of the world then want to negotiate on every payment to every trade. Every draw request from you turns into a long drawn out battle. 

You’ve done the work. You expect to be paid. Their desire is to drag making that payment out as long as possible, haggle over every line item and ask for a discount. As one shark told me once, “Everyone needs a haircut. Just a little trim.” 

Sharks keep great track of all the trades’ shortcomings and any mistakes. A human shortcoming is looked at as reason for discounting the bill. Of course, all mistakes are also reasons to discount the bill. Sharks are really good at pulling all these reasons up at any time to rationalize getting a discount.

A shark's primary goal is to get the work done at or below cost. They have no compunction about putting people out of business. That’s not their problem. In their opinion, if you’re stupid enough to do business with them, then you deserve what you’re getting.

Sharks tend to bare their teeth, threaten litigation and to destroy your reputation through bad mouthing you in their community. If they can bully you, they will. They know litigation is expensive, so they may offer to settle up at the end for 50 cents on the dollar. If you’re hungry, you may opt to take that deal rather than spend the thousands of dollars and several months of time to get what you’re owed. It’s what sharks count on.

How do you avoid being eaten by sharks?
1.    Well, the best way is to not swim with them in the first place.
Sometimes you have to learn the hard way that this is the best way. Being slow learners, I know we had to re-learn that lesson over and over again in our building career. However, we got better over time and figuring them out ahead of time. At the end of the day, working with over 700 clients, our rate of working with sharks was 1%. There were 7 individuals in our 34 years that were miserable human beings and they made life miserable for other human beings.

Now, there were all kinds of other difficult clients that we dealt with. Doing high end custom homes, we found that high net worth individuals have high expectations. I’m okay with that. I have high expectations of the work we do myself. I also have some empathy for the common man, the man in the trench, swinging a hammer, mixing cement or setting tile. 

Sharks do not tend to give praise. They tend to point out flaws. We found that when sharks were constantly pointing out flaws in unfinished work, that they beat the trades down. And when guys are feeling down and unappreciated, then more mistakes start to happen. It becomes a vicious circle.

2.    If you’re already contracted, be prepared to fend them off, with a stinger or paddle.
There’s a great YouTube video taken by a kayaker off the coast of California of his kayak being repeatedly attacked by a great white shark all the way to the beach. The kayaker saw it coming and every time the shark attacked, the kayaker smacked it in the face with his paddle. The shark never gave up and neither did the kayaker. In a way both prevailed, however the shark didn’t get his lunch and the kayaker got to live another day. The kayaker was respectful but resolute. The shark was relentless but ultimately yielded. 

So if you’re dealing with a shark, you’ll have to be prepared to respectfully smack back. Every single time.
If you mistakenly signed up a job with a shark, don’t feel bad that you didn’t see it coming. Sharks know themselves.  They typically will be gracious, charming and witty until after you sign the contract. Sharks often do that with their prey. They swim right up to them, rub alongside them, almost lovingly and then they bite down hard on you. 

No, you can’t quit a job. Sharks have more money and lawyers than you do. They’ll find someone else to take your place, hire experts to say your work was substandard, won’t pay your final bills and will sue you for 10X the contract amount for alleged construction defects and damages. That’s a no win deal for you.

So you’ve got to grin and bear it and gut it out through the job. It will be a battle, but ultimately you’ll succeed if you have a good standardized job processes for “no work before paperwork”. In other words, all change orders signed before any begins. They’ll hem and haw, debate and delay signing a change order. If you and your trades have started doing the work without a signature, then you give up power. You have much more power before the work is begun than after the fact. 

3.    Document the job, thoroughly!

Sharks count on people in the trades not documenting the job. Sharks tend to re-write events and situations to fit their story. Sharks don’t think of themselves as sharks. They think of themselves as being natural. It’s their job to be sharks.

Your job is to document the work, the manpower on site, the problems encountered, the solutions offered, the agreements made, any delay, especially those caused by the owner, as well as any changes asked for by the owner, their rep or design team members, and why they were not part of the original scope. You need to document. Every day. 

Ideally, you’re using Procore, a cloud based project management system. If not Procore, then BuilderTrend or other cloud based software. You will need access to all those records in order to get final payment. 

That’s your ace card in the hole. You did the work. You did it well. You documented it. You asked to be paid fairly.

And that’s the rub for sharks. Because they know if you did it by the book and documented it, and if you did not agree to discount the work unnecessarily, then sharks know that the legal system is set up to protect the little guy.

But only if you did it by the book.

So, how do you avoid being eaten by sharks?

See Rule #1.

 

Chronic Re-Negotiators
The Chronic Re-Negotiator (CRN) is the person, who despite having negotiated a price, terms and conditions on a contract, continues to re-negotiate every transaction and every trade throughout the job. They can’t help themselves. They have to do it.

They may be charming and even fun to be around. However, everyone who does business with them has to get a little haircut, just a trim, in the eyes of the chronic re-negotiator. If they don’t get the opportunity to do that, then they’re not happy. And then they have a way of making you not happy too.

As the general contractor, you have some value to them. They’ll leave you alone for a while, but they’ll want to start on your trades. They’re good at finding something that wasn’t done to their standards. They’ll want to hold monies back out of a payment. 

You’ll go to your trade. Perhaps the chronic re-negotiator has a point. Perhaps they didn’t get the best work. You’ll end up asking the trade to re-do the sub-standard work. Of course, that’s not usually good enough either. 

Now you’ve got a disgruntled trade and your chronic re-negotiator client is re-applying the squeeze play, because now he’s beginning to focus on the next trade in addition to the first one. The game repeats itself, because as I said the chronic re-negotiator can’t help themselves. They have to do it.

Eventually, the chronic re-negotiator has taken a toll out of nearly everyone who has worked on the job. The more disorganized a sub-contractor is, the more likely they’ll pay a bigger toll. As the general contractor, you do what you can to protect your trades. If you’ve got good relationships with your trades, they’ll understand that occasionally every good builder gets a client like this. Everyone knows that not all jobs are winners.  

So, how do you spot chronic re-negotiators early on? Well, if they’re really good, it will be difficult because they know how to charm and manipulate. Some clues are though when they want to know all about your subcontractors and trades. Perhaps before you’ve signed a contract, they’ve asked you to shop around for alternate trades. They’re looking for weaknesses. 

They’re looking for contractors who may not be as business savvy and who don’t keep records. Chronic re-negotiators will want you to use these alternate subs. They’re already plotting their strategies. Ideally, if you spot a chronic re-negotiator before you’ve signed a contract, it’s best to turn the job down. 

If you’re dealing with someone who you suspect is a chronic re-negotiator, here’s a play you can make to flush them out…

“Mr. CRN, I’m getting the sense that you’re not happy with my team of trades. You keep asking me to look around and bring in lower priced contractors. Am I getting this right?”

“Well, Bruce, that’s true. I like you and I know your company can do a good job. It’s just your trades are really expensive. I’d like to have a Giffin & Crane home, but I want you to go back and grind your subs or find some ones who can do the job for less.”

“Mr. CRN, I see what you’re saying. It’s pretty hard for me to deliver a Giffin & Crane home when I’m not using my regular group of trades. They know our expectations and can deliver on time.”

“Bruce, I just think they’re too expensive. It makes me wonder if you really want to build my home or not.” 

“Mr. CRN, I’d certainly like to build your home. It just needs to be a fair deal for everyone. It needs to be a fair deal for you, for me and for my trades. So what if I made you my very best offer and we settled on that?”

“Bruce, that sounds appealing. What’s your offer?”

“Mr. CRN, I’m going to give the very same offer that I gave to my most business savvy client, Mr. Jones. You know Mr. Jones, right?”

“Sure. Mr. Jones is the most successful businessman in town.”

“Okay, Mr. CRN Here’s the deal we gave him. Because it was such a big job, we cut our fee by X percent.”
“Well, Bruce, now we’re talking”, Mr. CRN says, licking his chops.

“That was one part of the deal. The other two parts are that: one, we will be paid every two weeks.”

Long pause, as Mr. CRN considers this.

“And two, once we reach an agreement at the beginning of the job, there will never be any re-negotiations on price on any of the trades.”

Longer Pause.

“That’s the same deal that I gave to Mr. Jones and he certainly got a beautiful home out of it.”

Even longer pause as Mr. CRN absorbs this and wrestles internally with the terms. Then Mr. CRN finally says, “I can’t do that.”

And I think to myself, “Yeah, not without a personality transplant.” But I say out loud, “Well, I guess we won’t be able to do business then. I certainly wish you the best.” 

And then, you turn and walk away, because ultimately, the chronic re-negotiator plays the game until the final check is written. They’ll drag the process out for as long as possible. Eventually, after you’ve stuck out the job and delivered on your promise and it’s time for the final payment, guess what? It’s time for your haircut too. 
****

Title Photo by Laura College on Unsplash

For more, click on: Clients and Contractors: Part 4 - the Bizarre