Good communication shows compassion to your client – something that’s likely to be returned back to you.
About a year ago, my husband and I began renovating a dilapidated 1800s barn on our property. Dubbed “The Old Apple Barn” after a story our 80-something-year-old neighbor told us the barn had been used to store dried apples when he was a child, the structure had fallen into terrible disrepair and was slowly and destructively disassembling itself with every storm. After an initial clean-out and a couple big dump truck loads of construction materials, we realized we were in over our heads. A local architect with a construction company, someone we knew, gave us a bid to get the barn structurally stable and put a new roof on it.
The contract was fixed fee and we thought it was a fair price. At the end of the job, we were ready to make our final installment, but instead were delivered a change order – representing a 35 percent increase to the initial contract, along with the final request for payment. Although at one point in the project one of the workers had mentioned he might need more material to finish a section of the roof, we had no idea this represented a change in our initial contract and never would have expected an increase of this magnitude.
On a large scale, this kind of thing happens all the time in the AEC industry and it could be the client, the subcontractor, or the contracted firm that ends up getting left holding the bag. Either way, the situation isn’t good. Fee discrepancies and disputes create conflicts, ruin relationships, delay or reduce accounts receivable, and disrupt efficiency and profitability. In worst case scenarios, legal action ensues.
These kind of communication breakdowns happen for a lot of reasons, some of which are nefarious, but many of which aren’t: Project managers get busy – so busy they forget to inform all parties about project changes or delays, or maybe a verbal discussion takes place but the necessary contract changes aren’t filed in a timely manner. Sometimes changes or unexpected events seem trivial and it’s expected that fee increases won’t be an issue to the client – maybe this has happened previously and there was no issue, so the same result is expected. Introverts who wish to avoid conflict may delay informing clients that requested (or not) changes will result in an increase in fee.
In the case where clients approach a firm with change orders, additional work, or scope changes, Zweig Group’s 2020 Fee & Billing Report of AEC Firms found that 70 percent of AEC firms negotiate fees, 15 percent charge for them at cost, and 15 percent use a cost plus mark-up percent (usually around 10 percent). In situations where change orders aren’t requested, but other “unknown or undisclosed conditions” lead to a change, the situation is murkier, but can still be handled with adequate and timely communication.
Here are a few communication tips:
- The mandatory weekly check-in. A lot of firms do this, but many don’t. You have to be religious about timely and regular check-ins with clients and any project stakeholders. Everything that could cause a future issue or conflict needs to be discussed. This can be a phone call or as simple as an email. Most importantly, it builds trust – which will help you out in spades if conflicts arise.
- Share information internally – preferably at least to all members of the project team. According to the 2020 Fee and Billing Report of AEC Firms, 78 percent of firms allow all firm members to see the firm’s billing rates and 77 percent allow everyone to see project fees. Make sure anyone who is working on the project knows what is included in the contract –and what’s not.
- Share your fee breakdowns with clients. Fee transparency on the client side is remarkably less – just over half (56 percent) do this on a case-by-case basis. Fifteen percent of AEC firms always show a client what goes into their fee, and 8 percent never divulge what goes into a project’s total fee.
- Avoid discounts, and when they are given, explicitly state them in the contract. Zweig Group data shows 78 percent of firms discount project fees, most often by discounting the final price (69 percent) but also by providing lower billing rates/multipliers. This is important because if another similar project is undertaken at a later date without a discount, the client needs to understand why.
It’s not all chaos out there, but it’s more important than ever to maintain project profitability, repeat business, and ensure timely payment. Zweig Group’s Q3 Impacts of COVID-19 on the AEC Industry Survey (post July 2020) asks firms to rank how much certain aspects of their business are impacted by the virus on a 1-5 scale (1 being little to no impact, 5 being impacted very negatively). It was surprising to see that ability to finish current projects within budget (2.32) and ability to finish on time (2.21) were ranked relatively low compared to collection period/accounts receivable (3.0) and ability to obtain new work (4.05).
In my particular situation, the entire issue could have been avoided with a single text message, Oftentimes, even on large projects, it really is that easy! Good communication shows compassion to your client – something that’s likely to be returned back to you.
Christina Zweig Niehues is director of marketing and media at Zweig Group. Contact her at firstname.lastname@example.org.Click here to read this week's issue of The Zweig Letter.