Five Questions for Better Client Selection- Question 2
Posted on Aug. 21, 2012

How will your client pay for your services?

Your client must have a solid financial status or backing to pay for your services. If your client has obtained financing for the project costs––including your services––ask for proof of the financing. Your client should be able to produce documentation supporting the financing that has been obtained, together with information on the lender, to your satisfaction. If there is any doubt, contact the lender to verify the financing has been approved and see how it will be paid. In many cases, the lender will make payments directly to you if payment applications are submitted.

It is prudent to ask for a deposit or retainer to be applied against your fee if your client has resources at the time of entering into a contract. This is especially important for large projects where extensive services will be provided in a short amount of time or where dealing with a large client that will only pay for services on a bi-monthly or less frequent basis. The deposit or retainer ensures that if the client becomes behind in payment, the reserve funds can be drawn on to compensate you for the services rendered.

In the event your client has the resources to pay your fee in full at the time of entering into the contract, request the money be set aside in a dedicated escrow account. Your client will earn interest on the money while you perform services, and you will have the comfort of knowing the money has been reserved specifically for you.

A personal guarantee can provide much comfort when a client is a single-asset limited liability company or other entity with limited or doubtful assets. The guarantee allows you to pursue and collect from the guarantor and their individual assets. If a limited liability company member or corporation officer does not have enough faith in the future of his or her company to personally guarantee the debt for your professional services, why should you be asked to have faith in that same company or corporation for payment?

Beware of projects that have conditions precedent to payment for your services. For example, must the planning commission grant a variance? Must the zoning be changed? Does the plat need to be finished and recorded? The danger to you is what happens if any of these conditions are not met. There is a chance your client will abandon the project and leave you ‘holding the bag.’ If you are not assured of payment, you essentially become an investor in the project and accept the risks that accompany the project’s failure without sharing in any of the potential financial rewards.

Should a payment dispute arise, your client’s financial status will generally limit any recovery. Sole proprietors and partnerships largely rely on the financial strength of the individuals that make up these businesses. Their personal assets are also exposed to any judgment obtained against the individuals. They will be personally liable for the failures of their businesses.

In most circumstances, the recovery from a corporation or limited liability company is restricted to the assets of that business. It is now common for developers to organize a limited liability company with the property to be developed as the single asset. The reasoning is if the project fails, only the property is exposed to those seeking payment.

Construction Law
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About Adam

Adam
Attorney Adam T. Mow

Adam is a trusted resource for architects, engineers and other members of the construction industry in litigation, risk management, contract negotiations and mechanics’ liens. Adam is also a licensed architect and a past president of the Utah chapter of the American Institute of Architects. He has been elected by his peers to the Utah Legal Elite since 2009.

Awards and Recognition

AV Rating

Excellence in the Study of Architecture, American Institute of Architects Certificate of Merit, 1999

CALI Award for Excellence in Mediation and Advanced Negotiation, 2003

Community Mediator of the Year, Utah Dispute Resolution, 2007

Graduate of the Last Decade, Ball State University, 2008

Utah Business Magazine, Legal Elite, 2009-Present

Mountain States Rising Stars (Construction Litigation), 2009-Present