Jeff and Sharon Rainey were in the middle of implementing a new marketing campaign when their marketing firm declared bankruptcy. The owners of Home Equity Builders, Great Falls, Va., had to move fast to pay the printer directly to have access to their new postcards and brochures. "We had not even proofed anything, and we had to pay 100% or it would have been locked down because of the bankruptcy," Jeff Rainey says.
The Raineys were five months into the process and had paid 30% of the money they owed. Instead of staying on a payment schedule, they had to come up with the rest of the money on short notice. "We did not have all that cash in reserve, so we lent our company our personal cash," Rainey says.
The Raineys were also redesigning their Web site, which was a little more complicated to resolve. Rainey says the Web site resided on the server of the marketing company. "It then became proprietary property of the corporation. We had to show and they had to show that we had paid fair market value for it," he says.
After finally receiving all the materials, the Raineys still had to hire another marketing firm to complete the projects.
Rainey learned two lessons. First, he needs plenty of cash reserves for this type of situation. Second, he needs to be just as careful about selecting vendors as he is about selecting clients. Contractor and lawyer Gary Ransone says just like their remodeling clients, contractors should pay only as work is being completed. "Or make sure it is only a small amount advanced," he says.
The author of the Contractor's Legal Kit says in the Raineys' case, the Web site design brought on the added complication of intellectual property ownership. Contractors could add an addendum to their contracts that states they have assignment of rights to copyrights, logos, or trademarks as they pay for those portions of the work.
Ransone also says a protective option is for the contractor and the marketing firm to write out joint checks to vendors. For example, if the contractor owed $20,000 to the marketing firm for printing, he would make the check out to the firm and the printer. "It's a severe solution," Ransone admits. "To the ordinary design shop, that would appear to be drastic."