The first two articles in this series established the need for prompt, efficient processes to effectively resolve customer issues. This article offers suggestions for how to manage complex customer disputes that include a claim or demand for “compensation.”
At the outset, it’s important to note that the demand for compensation discussed here does not include a claim for property damage or personal injury arising out of your work. Any situation that includes property damage or personal injury requires notification to your general liability insurance carrier.
Build a Realistic Plan
At subject here are those instances where the project has not proceeded as contracted and the customer demands both the resolution of the underlying issue and the completion of the project and compensation for inconvenience caused by the alleged project failure.
You should not delay the project further by stopping work while compensation discussions proceed. It is essential that a realistic plan be built and followed to resolve the actual project issues despite the fact that the parties may be in a dispute. It is recommended that any compensation not be paid until the project is complete. Too often remodelers pay compensation before the project is complete only to find that they are asked for additional compensation once the work is done.
The first key to resolving a compensation demand is to not immediately deny or agree to it. Instead, allow the customer to make his demand, and then determine exactly what compensation might actually be due. Ask the customer to write down his demand and provide documented proof of the expenses sought. Quite often the demand is drastically reduced when the customer provides a written request for compensation with supporting documents.
It is possible that lawyers — or the threat of lawyers — will be involved, but that should not stop work or cease discussions between you and the client. In addition, there is no reason that you cannot speak to a customer’s lawyer regarding what is going to be done to complete the project. If the lawyer pushes on the “compensation” issue, it may be best to refer those discussions to (or at least consult with) your business attorney for the best response. Your lawyer can assist you with determining what portions of a compensation demand may be legitimate and potentially recoverable by the customer.
Finally, when and if compensation is paid, it should be paid in conjunction with the signing of a simple release agreement — or you may end up funding the customer’s lawsuit seeking additional compensation.
In sum, the keys to working through a compensation claim: keep the job moving and document all steps toward completion; do not immediately accept or deny the customer’s claim; ask the customer to provide a written demand (or “request”) for compensation with documented support; carefully evaluate the claim and determine what items of compensation might be justified; only pay a compensation claim in exchange for a written release agreement; and, finally, never pay a compensation demand before the project is complete. Efficient processes for handling this type of claim will actually enhance your company’s customer service reputation.
—Attorney Richard Feeley is president of Feeley Mediation & Business Law, providing dispute resolution and business legal solutions to remodeling companies.
Part 1: You Know You Need It — Key components of a successful dispute resolution program
Part 2: Resolution Solution — Creating a clear process for dispute resolution
Setting Expectations: Avoid disputes and client misunderstandings
Three Days’ Grace: What are the customer’s rights when it comes to canceling a job?
Change Order? Get it in writing