Peter J. Lamont is a business and commercial litigation attorney nationally recognized in a wide variety of highly specialized areas within the kitchen, bath, lighting, construction, and design industries. He routinely represents various national and international companies within the design sector, and has achieved the highest rating in both legal ability and ethical standards as awarded by AVVO (avvo.com).
One of the most important aspects of a designer's business is his or her ability to obtain, and retain, clients. It's key to developing and growing a successful design practice.
While these are worthy endeavors that designers should be committed to, there is another component that is equally as critical, perhaps even more so: collecting fees. You might be the most well-liked and most-talented designer around, with a bevy of clients, but if you are not getting paid, you are not successful.
And the ability to collect the fees for one's work has never been more critical in today's economy. If you only have 15 jobs in a given year but recover 100 percent payment for your work, you are more profitable and successful than the designer who lands 25 jobs in that same year but only recovers 60 percent of his or her receivables.
Understanding Today's Client
In order to understand how best to collect on your work, you first must understand today's client. I group clients into two categories. The first is the contractor or architect client, otherwise referred to as a commercial client, who contracts directly with a professional lighting-design practitioner, typically for large projects, The second is the individual homeowner who contracts with an independent lighting designer.
A client in the first category is typically a sophisticated business owner or entity. For example, a developer looking to retain the services of a professional lighting-design firm for a recently purchased multi-unit building will typically retain a general contractor who then contracts with an architect. The architect is responsible, in most cases, for hiring and working with the lighting-design professional or firm. Architects are usually contractually bound to the general contractor or developer. Often, working directly with an architect can be a painless process in that most of the structural floor plans are prepared in advance. The lighting designer then develops a lighting scheme based on the architectural renderings. Additionally, architects and general contractors have a general idea in mind as to what they would like to see. This may make the design professionals' job easier, since they are dealing with clients who have a good idea of what they want.
As for the second category, an independent lighting designer can be retained directly by a homeowner for a smaller residential project. This client is not generally as prepared as a commercial one. His or her idea of lighting design come from magazines, television shows, and home-design centers. This retail consumer is on a tighter budget than a commercial client and is less willing to part with money, and thus often changes his or her mind and can be extremely critical of the designer's choices.
There is another factor that affects a designer's relationship with a residential client: consumer-protection laws and the client's awareness of his or her legal rights. To attorneys, this characteristic is the most important distinction between commercial and retail clients. Due in large part to the thousands of pro-consumer websites, the residential client knows that many designers will back down and waive fees if they start complaining about the designer's work or threaten a lawsuit. So it becomes critical for the independent designer to know how to get paid.
Most states have consumer-protection statutes that allow for the recovery of two to three times the actual amount of damages, plus the payment of attorney fees by the defendant should the plaintiff prevail. The fact that attorney's fees are the responsibility of the defendant is one of the main reasons why attorneys are willing to accept these cases at no charge, and the recovery amounts are strong incentive for a defendant to settle the claim.
Protecting Your Fee
There are a number of ways that designers can protect their hard-earned fees, including diligent billing practices, precise record keeping, decisive action, and proper use of liens and lawsuits.
Any good project starts with a properly constructed contract. This is the designer's lifeblood, and it will provide the legal basis to file a lawsuit or lien should that become necessary. Conversely, a poorly worded contract can negate a designer's legal rights and provide a savvy client with a way around paying.
First, we must address the specific issues that are involved in commercial contracts. Architects or general contractors generally have preexisting form contracts which they require the lighting-design professional to sign. Lighting design firms often fail to negotiate the terms of the architect's contract, due in part to the fact that most of these firms are small companies who do not have a lawyer on staff or on retainer to review such contracts. While the design firm will negotiate some of the requirements concerning the design, the firm rarely addresses paragraphs that affect its rights to collect a fee should the project stall or the general contractor suffer a severe financial loss.
Some of the most important provisions in a commercial contract are conditional-payment clauses. These clauses are often known as “paid-when-paid” or “pay-if-paid” clauses. Most commercial subcontracts now include conditional-payment clauses that attempt to protect the general contractor or architect from having to pay the lighting-design subcontractor if the owner fails to pay. An example: “All progress payments of the subcontract sum shall be made within 10 days after payment is received by the general contractor from the owner.”
It is important to be aware of this trend because roughly half of state courts have held that conditional-payment clauses are enforceable. Thus, it's important to identify conditional-payment clauses and negotiate them with the architect. Not to do so could be earth shattering to a small firm. since the subcontractor bears the full risk of collection in the event of nonpayment by the owner. This is particularly problematic for a lighting designer, as this firm does not have a direct relationship with the owner and is thus barred from bringing suit—on the theory of failure to have privity of contract (flow of contractual relationship) and thus no standing to sue.
Conditional-payment clauses are difficult to interpret even by a sophisticated attorney, and are the subject of numerous declaratory judgment actions brought before a court seeking a determination as to their rights under the contract. You need to be aware of the severe impact of these clauses, and, depending upon the size of the contract, may wish to retain the services of an attorney.
One example of this clause gone bad is the recent foreclosure action involving New York developer Yair Levy and the Park Columbus Condominium Project located at 101 West 87th Street. Levy, a multimillion-dollar developer, retained the services of a general contractor and architect to develop and build-out the 95-unit condominium building. The architect subcontracted with various design professionals, including a small but prominent New York lighting-design firm whose contract contained a pay-if-paid clause. The firm then performed approximately $300,000 worth of work for the project. While it was awaiting payment, Levy, who is alleged to have misappropriated funds for the building, filed for Chapter 11 bankruptcy, and because Levy's list of creditors was so extensive, the lighting-design firm received no money for its work. In this example, the firm might have had a better chance of receiving progress payments had they hired an attorney to review the contract.
Any good project starts with a properly constructed contract. This is the designer's lifeblood, and it will provide the legal basis to file a lawsuit or lien should that become necessary.
In situations where a commercial client does not provide its contract to the lighting-design professional, lighting firms are free to use their own contracts. Too many designers use stock contracts from self-help legal websites, or borrow language from a fellow designer's contract. Others rely on the American Institute of Architects' (AIA) contract documents for their standard contracts. Some do not even use a formal contract, but instead rely upon purchase orders, proposals, or letters of intent.
Many designers have ineffective contracts in part out of fear of having to pay a lawyer's hourly rates to draft a proper one. But there are many experienced attorneys who are willing to work for a flat rate or reduced fee that would be in line with the budget of a solo practitioner or small firm. Find a lawyer who will work within your budget, and work with him or her to craft a document that will provide you with legal recourse should a client refuse to pay. It is much more cost effective to pay a lawyer to do this up-front than it is to pay a lawyer to try to recover fees.
As for the language in the contract, it needs to be easy for your client to understand. Archaic legalese can make contracts too ambiguous and confusing, and courts will hesitate to enforce them. Additionally, it is important that your contract explain that you retain ownership of your designs until you are paid in full.
As noted, many designers rely on AIA form contracts as their standard agreements. AIA contracts are certainly better than much of what you can find online. But in an effort to ensure that the clauses are enforceable in every jurisdiction, AIA contracts can be too fair to both sides. Also, many design firms attempt to include additional terms into the standard agreement and end up creating ambiguity between other form provisions within the document. When a contract contains ambiguous provisions, courts typically give the benefit to the individual or entity signing the contract.
AIA contracts are typically considered fair contracts, but there are many instances where a “fair” contract does not adequately protect the rights of the lighting designer. Designers also should be aware of that if they are presented an AIA contract, they have the right to negotiate the terms to be more favorable.
Finally, you need to understand that contracts are living documents and should change from year to year and sometimes from month to month. Review your contract annually and keep track of issues throughout the year that arose from the contract such as indemnification, payment issues, and liability. Then, revise to incorporate protections against these issues.