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Preparing for the Client and Project—Part I

In reality, the best collection strategies begin before a single hour is billed to the project. The pre-project strategy should involve three components. The first two are purely preparatory: client selection and project selection. The third is client education and should continue for the duration of the project.

Client Selection

It is amazing how many design professionals will become involved with a new client on projects valued at millions of dollars without exerting any genuine effort to investigate or evaluate that client.

As the old saying goes, you cannot get blood from a turnip. Accordingly, appropriate client selection is one of the most important steps in ensuring payment for services. Client selection is also one of the first and most important steps in any appropriate risk management plan for a design professional. Nevertheless, it is amazing how many design professionals will become involved with a new client on projects valued at millions of dollars without exerting any genuine effort to investigate or evaluate that client. It is equally amazing how many firms will return to do business with an existing client who has burned them in the past. Obviously, such an approach is shortsighted, particularly as it relates to the subject of getting paid and making a profit. Some of the most important considerations for client selection should be the following:

Client Expertise/Expectations

The most important factor in evaluating any prospective client is to establish the client’s relative expertise and corresponding expectations. The key is communication. Making certain that the client and design professional share common expectations, and that those expectations are realistic before beginning work on the project, are the two greatest keys to avoiding later problems on the project. Differing and unrealistic expectations are among the most frequent bases for a client’s refusal to pay.

The only realistic way to establish common ground is to spend actual and significant time discussing the project with the prospective client. Many firms find that a client interview is the best way to accomplish this. Regardless of whether a formal interview is used, some of the key components to the evaluation and building of common expectations are:

  • Client Background.
  • Project Background.
  • Client Goals and Intended Outcomes for the Project.
  • Expected Project Players and Participants.
  • Hoped-For Project Rewards.
  • Possible Project Risks.

A sample “Client Profile” and a sample “Client Information Checklist“ are attached as starting points.

Client Track Record

Whether it is a new or an existing client, any design firm should investigate the client’s track record for payment and litigation. This can and should be part of the client interview referenced above. For a subconsultant, this analysis should obviously include both the prime consultant and the owner.

For new clients, as part of getting to know them, their expectations and expertise, design professionals may ask them about past projects and their experience on those projects. Design professionals may ask them about both their positive and negative experiences. Such experiences will necessarily impact their new relationships on a new project, and just as necessarily impact how the design professional should proceed.

figure out if the assignment is worth your time

Armed with this information, the design professional can also conduct its own reconnaissance. Appropriately diligent firms will contact past project participants to check out their experiences. Similarly, with the location of the past projects, a quick electronic search of Court and County records will often reveal if there was litigation on the past projects and if there were problems getting paid. Even a simple internet search can be revealing.

For existing clients, design firms should review past projects before agreeing to another retention. Was the client fair? Did they make timely and complete payments? If not, why not, and what steps can be taken to avoid similar issues? These issues should be resolved before the project gets underway. Similarly, design professionals should not automatically assume that because one project went well, others have also. Design professionals should revisit the original due diligence and make any appropriate updates. (See page 3 of attached “Post-Project Evaluation”.)

Financial Stability

Unfortunately, many design professionals somehow feel it is unprofessional to ask a client how a project will be funded and for verification of that funding. On the contrary, the failure to investigate such issues is actually the unprofessional conduct. It is both unwise and unprofessional to get into a project which lacks solid funding to see the project through to completion. Fortunately, many of the current AlA and similar Agreements now call for such information and provide a convenient basis to initiate that discussion.

In evaluating such financial stability, design professionals should be wary of unfunded development companies (Limited Liability Companies, Limited Partnerships, etc.) where the contracts are with one company, but the funds reside with another. Design professionals should also investigate the actual ownership of the property. Failure to do so may hamper lien rights and make ultimate collection of payments more difficult. Where multiple entities are involved, the design professional may wish to have those other parties added to the agreement, at least for payment purposes, or seek guarantees from such parties.

Where the project is subject to phased or contingent funding, the design professional should build those events into its own schedule as milestones subject to verification. There have been many projects wherein design professionals have not been paid because their services got ahead of the project financing, or the project was abandoned due to funding issues and the design professionals’ claims to payment based on “value received” were thereby undermined. That was at least part of the back-story in the Victorville power plant referenced before.

Finally, as a preparatory tool to notices required to enforce payment rights as well as a point of investigation and validation, design professionals may consider securing a title report private projects. It will reveal lenders and other investors who may require notice of liens and other notices, as well as revealing properties which may already be financially leveraged to the point of project impairment.

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