A contractor we know from Berkeley, CA recently accepted over $250,000 in deposits from 10 different clients, spent that money on trying to build a business instead of the actual projects. He ended up going bankrupt quickly. One young couple lost over $120,000. The big mistake that each client made was they paid for work before it was completed.
All of these owners would have been protected if they used New Avenue’s bid form and construction agreement. If you do that Read this post and use the format provided and this won’t happen to you.
Sadly, paying for work that is never completed is quite common. In talking to a sales manager from the Hilte Tools, we learned that 30% of the small contractors that buy tools from him go bankrupt at some point. 30%! Hilte tried to understand this and found that the contractors usually have plenty of work and they are bankrupt due to a lack of payment and inability to collect for their work. This is due to either bad clients who refuse to pay or just disorganization that makes it hard to bill. For the clients who have paid deposits at the time of the bankruptcy, they are just out of luck and lose their money.
A few years ago, New Avenue hired this local general contractor that just went bankrupt and worked with them to build one of our projects. He had great reviews, they had completed projects for high end modern architects that are part of our team, and they have been in business for years. They passed our filters and likely would have passed your filters too!
When working with us, the contractor finished the project without a hiccup. As part of our standard process we received a detailed bid and we paid them as the work was completed on site. The project turned out well and even ended up in numerous magazines!
Then this contractor started building his own business independent of New Avenue and sold 10 more projects outside of New Avenue.
They took deposits on these projects and then mismanaged the business side. When the contractor went bankrupt he left his clients with nothing. Now those clients, including the young couple that is out over $120,000, is hoping to recover some money from materials that are sitting in a garage and slated for a bankruptcy auction. They’ll get pennies on the dollar if anything.
If those clients had used New Avenue they would paid for work after it is completed and visible on site. They would have been protected. They would not have lost their money.
Every client should have a policy to have a detailed bid, clear construction agreement that states what you are building and pay for work that is done. But as an owner you are probably doing this type of project once, or maybe twice. So there is no reason why you’d know how to do this.
That is why New Avenue provides the best practices in getting bids, construction agreements and paying with an easy transparent process.
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