When a Berkeley, CA, contractor went bankrupt recently, ten clients who had paid deposits lost their money. One young couple lost over $120,000. These owners would have been protected if they had used New Avenue’s bid form and construction agreement. If you read this post and take our advice, this kind of disaster won’t happen to you.
Contractor bankruptcy is common.
Sadly, paying for work that is never completed is quite common. In talking to a sales manager from Hilte Tools, we learned that 30% of the small contractors that buy tools from him go bankrupt at some point. Thirty percent! Hilte tried to understand this and found that the contractors usually have plenty of work. They go bankrupt due to the lack of payments and the inability to collect for their work. This is sometimes the result of bad clients who refuse to pay, and sometimes it’s just disorganization on the part of the contractor.
When a contractor goes bankrupt, the clients who have paid deposits are just out of luck. They lose their money, and there’s no chance of recovering it all.
Here’s what New Avenue does differently.
A few years ago, New Avenue hired a local general contractor to build one of our projects. They had great reviews, had a history of completing projects for high-end modern architects, and had been in business for years. They passed our filters and likely would have passed yours, 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 paid them as the work was completed on site. The project turned out well and even ended up in numerous magazines!
And then the contractor went bankrupt.
After this initial success, this contractor started building their own business independently of New Avenue and sold ten more projects outside of New Avenue.
Without a system in place to protect their clients, they took deposits and mismanaged the business. When the contractor went bankrupt, they left their clients with nothing. Now those clients, including the young couple that is out over $120,000, are hoping to recover some money from a bankruptcy auction. They’ll get pennies on the dollar if anything.
If those clients had used New Avenue, they would have paid for the work after it was completed and visible on site. They would have been protected.
So, how can you avoid being burned by bankruptcy?
Every client should be sure to receive a detailed bid and a clear construction agreement. Your documentation should state what you are building and that you will pay for work that is done. But as a homeowner, you are probably doing this type of project once in your lifetime (or maybe twice). So there is no reason why you’d know how to do this.
New Avenue makes use of the best practices in getting bids, establishing construction agreements, and arranging payment with an easy, transparent process.
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