John Karlton was not born yesterday. The third-generation builder started in the business when he was 10 years old working on his father’s jobsites after school. Once he’d earned a degree from Purdue University in construction management and gained more experience in the family building business, he formed his own custom building company, JK Development, eventually moving into land development in order to secure a reliable source of building lots. But sometimes even decades of experience can’t immunize a builder from the risk of an unfortunate encounter with a client.
John had been semi-customizing his in-house floor plans and designs for customers for a number of years. The floor plans and detailing proved popular. JK Development’s business plan was focused on developing land, building model homes on those lots, and selling his product from that showcase. He was in full control of his business and hadn’t built a true custom home for a specific client for quite a few years.
Then he met Mr. and Mrs. Peske, potential buyers of one of his spec homes. Though they expressed interest in his ready-to-buy product, they really wanted him to redesign one of his model home plans with custom modifications and build the house on land they already owned. John knew firsthand the additional time, effort, administrative tasks, and client interaction a custom home project requires, but still signed a contract with the Peskes that included design and construction of their dream retirement home.
At first, things went smoothly. There were a few changes, some alterations, some misunderstandings about what the clients were getting and not getting as part of the base construction contract, and even some builder concessions. At all times, John got written and signed change orders regardless of whether the changes involved additional costs. But John and his project manager were becoming concerned with the time needed to keep the clients happy. The job was evolving into an all-consuming monster, taking more than its fair share of time and management effort. The owners were constantly on site, trying to micromanage the crew, the subcontractors, and the project itself. JK Development was repeatedly contacted by one or both of the owners with questions, comments, and complaints.
At the completion of framing, there were 78 change orders, some small and others significant. The clients argued over the cost of each change, the additional time they required, and the extensions to the completion date. Still, John never undertook a change without signed documentation.
About a third of the way into construction, John felt that he was losing control of not only the project, but also the clients. He met with the Peskes and his staff to review the project, the schedule, costs, and the best plan of attack to complete the home. He discussed changes and their impacts on the schedule with the clients, and pointed out that they were really in control of their project’s destiny. He insisted that all contact with jobsite personnel was to be communicated through JK Development only. The clients agreed. They also agreed to minimize last-minute changes, eliminate talking to the subs, and only interact with JK Development personnel at weekly scheduled meetings. “You had better bring our project in on time or there will be hell to pay,” growled the customer.
Naturally, this didn’t last long. About halfway through the project, the clients asked to add a separate outbuilding—an eight-car garage with a restroom and office area. John agreed because he felt that without any client changes his team could complete the garage quickly. Relying on his intuition and previous experience, he insisted on a totally new and separate contract for the garage. This was a fortuitous insight.
JK Development completed the home ahead of schedule, and the garage was completed shortly thereafter, a full three weeks ahead of the contract completion date. At the final building and bank inspections, both projects passed with flying colors. At the owners’ walk-through, they raised several questions and comments but there were no punch-list items. The invoice for final payment was submitted to the bank.
Yes, you’ve guessed it—weeks went by without the contractor receiving payment. He contacted the bank. “We cannot release final payment until it is approved by the owner,” they said. “You’ll need to contact the owner of the property.” John was befuddled but immediately contacted the owner. “We are not approving the final payment until all punch-list items are completed,” the owner barked. “Punch-list items?” John asked. “I thought everything was 100 percent complete. I’m sending over my superintendent to review the items and schedule the work.”
The owner would not let the contractor or superintendent in the house. Phone messages and inquiries went unanswered. The construction loan officer at the bank could not offer any help. Weeks passed. No contact. No payment.
