Episode Highlight - Coming Back to Ep 55 with Ailana McIntosh & Tom Priebe

Navigating Construction Contracts and Insurance

Did you catch Episode 55 with Ailana McIntosh & Tom Priebe? If you missed it, you can check it out here! We’re going to dive deeper into the conversation and share some of the highlights that we don’t want you to miss.

In Episode 55 of The Curious Builder podcast, Mark Williams hosts lawyers Tom Priebe and Ailana McIntosh from Helmuth and Johnson in a compelling discussion about construction law, the intricacies of contracts, and best practices for builders and subcontractors. This episode is chock-full of valuable insights for general contractors, showcasing the importance of well-defined agreements and robust insurance policies.

Defining Responsibility and Ensuring Insurance Coverage

One crucial topic Mark, Tom, and Ailana jump into is the importance of clearly defining responsibility and insurance coverage in contracts with subcontractors. Tom emphasizes how not having clear responsibilities set in stone can often lead to conflicts and disputes. In the world of construction, where multiple subcontractors work on a single project, any ambiguity can result in misunderstandings and the overall blame falling on the general contractor.

A vital part of these responsibilities includes ensuring subcontractors have appropriate insurance policies, and naming the general contractor as an additional insured. This not only protects the general contractor from liabilities but also streamlines the resolution of claims if they arise. Annual subcontractor agreements and certificates of insurance become indispensable tools in staying ahead of potential pitfalls. The accountability and transparency provided by these measures mitigate risks and help maintain smooth project progress.

The Crucial Role of Errors and Omissions (E&O) Insurance

Ailana shares an insightful personal experience about the importance of having an Errors and Omissions (E&O) insurance policy. In a situation where a specific failure was not covered by the general policy, her E&O policy stepped in, safeguarding against substantial financial loss. This segment underscores that, while a general liability insurance policy is foundational, an E&O policy offers specialized coverage that addresses areas often overlooked by a standard policy.

E&O insurance is designed to cover professional services and advice that could result in financial harm due to negligence, error, or omission. For contractors, builders, and consultants, this type of coverage provides peace of mind and a safety net for the less tangible aspects of service delivery. Failure to communicate effectively, minor oversight, or administrative errors are common human fallibilities that E&O policies adeptly cover.

Pre-Lien Notices: Protecting the Payment Chain

Mark and his guests also shed light on the significance of pre-lien notices as a safeguard for subcontractors. These notices are sent to property owners, alerting them to the subcontractor’s involvement in the project. Despite their importance, many subcontractors fail to exercise this protection, making them vulnerable to non-payment issues that could lead to severe legal ramifications.

Providing pre-lien notices ensures subcontractors have a legal standing if payment disputes arise. In the construction industry, where work is often completed before payment is received, securing one's right to claim payment is pivotal. A failure to issue pre-lien notices can result in subcontractors struggling to collect their dues, prompting prolonged litigation and financial distress. This discussion reminds subcontractors and general contractors alike to adhere to statutory requirements to secure the project’s financial integrity.

Building a Strong Team and Clear Communication

A central theme running through the entire episode is the importance of a solid, well-rounded team and the necessity for clear communication—both internally and with clients. Ailana and Tom stress that having a good team—including an accountant, insurance broker, and attorney—along with a well-crafted construction contract is non-negotiable for heading off potential legal issues. Such a team can preemptively manage risks and provide sound advice tailored to the specific needs of a construction business.

Effective communication is equally critical. Mark mentions how taking on too much work without clearly communicating expectations can lead to significant monetary losses and strained client relationships. The dialogue in this episode highlights the value of discussing and explaining contract terms with clients upfront, documenting project progress, and securing signed change orders. These practices not only protect against financial oversights but also foster trust and clarity between parties.

Moreover, in an industry fraught with unforeseen delays—be it weather, supply chain interruptions, or client-initiated changes—adequate documentation and prompt communication can prevent misunderstandings and disputes. Creating comprehensive, distinctly defined, and legally sound contracts reflects professionalism and attention to detail, essential qualities that enhance a builder's credibility and reliability in the eyes of clients.

Conclusion: Investing in Contracts and Expertise

The episode concludes with Mark and his guests reiterating that contracts are not just legal paperwork but strategic investments vital for long-term success. A well-drafted contract is a powerful tool that can mitigate risks, prevent disputes, and even serve as a marketing asset. It embodies professionalism and sets the foundation for successful business relationships.

As a general contractor or subcontractor, taking lessons from this discussion can significantly impact how you approach contracts and insurance. Embrace the advice shared by Tom and Ailana, ensuring you protect your business by defining responsibilities, securing appropriate insurance coverage, and building a top-notch team. Remember, the time and resources invested on the front end can save immense stress, money, and legal headaches in the future.

Tune into The Curious Builder for more episodes and insights, and be part of a supportive community that promotes growth, learning, and best-building practices.

• Transcript

  Mark Williams:

  We're happy to announce that we have just launched the Curious Builder Collective. It is a community of builders looking to enhance their brands and businesses by tapping into the collective expertise of the talented builders in the Minneapolis area. It's a forum for asking questions, exploring ideas, and testing theories, all to help refine and apply these insights to your own business. Our group is a supportive community that rallies behind each other. If you're interested, please head to thecuriousbuilderpodcast.com dot. Under events, you'll find the curious builder collective. We hope to see you there. This episode is brought to you by Pella Northland for 19 and a half years, I've been building homes, and 95% of all my homes have used pella windows.

  Mark Williams:

  I couldn't be happier to call them a partner in our builds and our remodels. Whether you're an architect, a designer, or a remodeler, I'd highly recommend Pella windows. They can fit old homes, new homes, reclaimed, commercial, and really everything in between. Pella is a company that we trust and that we recommend to our clients. Additionally, in management, Peter and Ed have just been absolutely fantastic people to work with as well as mentors to me personally. So when it comes time to look for a window, I'd highly recommend Pella windows. Find more@pellanorthland.com dot also, if you're interested, you can hear episode one where I interview Peter and Ed together for a great lesson on business and Pella windows. Today on the podcast, we had Tom and Alana, and it was really amazing.

  Mark Williams:

  We kind of went deep on construction law in particular, mainly because I was really interested in that, but just the depth of the knowledge that they shared and the things that we went into. I hope it's really beneficial to each one of you. We talk a lot about the relationship between the builder and the subcontractor and just having really clear information and clear contracts, both between the builder and the trade partners, as well as the client and the builder as well. So what we really want to do in this episode is just take down the walls of, you know, making lawyers be a scary entity. But really, they're part of your team. Regardless of what business you're in. They should be thought of as, you know, no different than, you know, your financier or your CPA or your, I mean, they're that crucial to a successful business. You'll save a lot of money, and you're really investing in yourself and in your future.

  Mark Williams:

  So I hope you enjoy the episode and thanks again for joining the Curious Builder podcast. Welcome to the Curious Builder podcast. I'm Mark Williams, your host. Today I am joined with Tom Priebe and Alana McIntosh from Helmuth and Johnson. Both of them are lawyers. Welcome, guys.

  Ailana Mcintosh:

  Hi. Thank you for having us.

  Mark Williams:

  Well, we've had a lawyer on before. We had Steven Yak on once before. We called him the dirt lawyer. And rather than going to each one of your bios, I want to give you guys a little brief moment to explain yourselves and what you've done. But I really want to talk about on today's episode of why builders need to make lawyers a part of their team and why everyone talks about their bankers. We talk about your interior designers, your architects, your trade partners, but very rarely does someone say, like, oh, I'm so excited. I get to talk to my lawyer today, and I feel like it's a huge mistake opportunity. So I want to break down some of those walls.

  Mark Williams:

  So why don't we start with you, Tom. Tell us a little bit about yourself, why you chose construction law in particular, and then we'll switch it over to Ilana.

  Tom Priebe:

  Yeah. So I've been litigating for over ten years now, and I started with a smaller firm, litigating primarily employment law cases. And I was in court all the time. And then when I went to my new firm, they had a need for a construction litigator. It was something that I was really interested in. And over the past seven or eight years, I've gotten to understand the law really well, and I've gotten to see a bunch of mistakes that people make in the construction industry and how to avoid them, and potentially how to make arguments to win, even when you don't do the right things up front. But it's always best to talk to a lawyer beforehand and just try to mitigate any risks, deal with the problems before they happen. So people, when they do call me because I am a litigator, normally, they'd already made those mistakes, and we're trying to undo those mistakes, and it's much, much, much more difficult and more expensive.

  Mark Williams:

  Right. And did you always know that you wanted to do construction law, or what was it specific about construction law that was in interest of you?

  Tom Priebe:

  There's always multiple parties in construction law, and I like litigating. I like the trying to piece together the entire story, and construction law gave me that opportunity. It's also very statute intensive, and I like researching the law, I like understanding it, trying to guide my clients through that statutory scheme. Cause if you're not a lawyer, you don't understand it. There's a lot of nuances. There's a lot of different ways you can protect yourself, and there's a lot of ways you can hurt yourself. So I just like the nuances. I like the multi party aspect of it.

  Mark Williams:

  And how long have you been practicing now?

  Tom Priebe:

  Since 2013, so going on eleven years.

  Mark Williams:

  Okay, well, very good. Over a decade. And Alana, why don't you tell us a little bit of what kind of law you practice and a little bit of your backstory.

  Ailana Mcintosh:

  Yeah, so I am a commercial transactions attorney, so unlike Tom, I help people put together deals. I document agreements, and mostly what I focus on is real estate, mergers and acquisitions, and corporate law. And that kind of encompasses construction law, too, because construction tradesmen are basically entrepreneurs, they're business owners. And so they do need to have contracts in place. They need to have their corporations in order, and sometimes they buy and sell businesses as well. So I get involved in a lot of that stuff.

  Mark Williams:

  Excellent. And how long have you been in this area of law practice?

  Ailana Mcintosh:

  About 20 years.

  Mark Williams:

  Okay. Double decades. Well done.

  Ailana Mcintosh:

  Right.

  Mark Williams:

  One of the things I want to talk about are just what are some things that, you know, some common mistakes? You know, most of the people listening to this podcast are going to be likely business owners or aspiring business owners. And, you know, if you're going to start a company, you know, from the law point of view, writing your contracts, things like that, what are, what are some key tips that you would give people other than, of course, you know, reach out to a lawyer right away to kind of help you. But where would they even go? I think a lot of times people don't even, you know, they ask for a referral, which they certainly ask me, the curious builder, and I can give them one. But, you know, in general, how do, see, how does it seem that most people find their way to each one of you?

  Tom Priebe:

  I can start, most people find their way to me because they find a contract online that they think looks good and they want to use that for all their jobs.

  Ailana Mcintosh:

  That's scary.

  Tom Priebe:

  Doesn't work out. So if you call me beforehand, we've got a great team of lawyers, we can help you draft a contract. It should be tailored to specific projects, specific homeowners, or specific customers for that matter, because there's a lot of different nuances to it and there's a lot of different requirements depending on the kind of job, the kind of client that you're working with. And you need to make sure that you address all those issues on the front end because if you're just going to have them sign a one or two page contract that you found online, a lot of people don't want to pay their contracts. A lot of people don't want to pay for the projects when they're done and when they see the price tag. And then it's very difficult to try to recover that money afterwards with a contract that is probably not going to be enforceable.

  Mark Williams:

  And Alana, I mean, what would be some first things that you would look at this kind of your expertise in kind of even brokering deals, but how is it, I mean, what would be some first steps that you would advise people to take when they're about to either start a business or have their first contracts written?

  Ailana Mcintosh:

  Yeah, I'm sorry. I would say that you have to have a good team. I think you touched on that a little bit earlier. You need to have a good accountant, you need to have a good insurance broker, you need to have a good attorney. And if you're doing construction work, obviously you need to have a good team internally. But with respect to the law, I would say definitely start with a good set of documents. Contracts are extremely important, and everybody thinks that they're really expensive, but they might be kind of an investment from the initial component, but ultimately they're not. I mean, if you think about it, let's say I just spent a couple of hours working with a brand new client who's getting into the construction business, or has been in the construction business for some time, and he's just going off on his own.

  Ailana Mcintosh:

  He probably spent a couple thousand dollars putting together a good construction contract that has all of the statutory requirements in it, pre lien notices and everything that is required by law. And he's going to utilize that contract for every single construction transaction that he enters into for, you know, probably five years. I mean, we definitely will look at it and update it as long as that's necessary. Maybe the laws will change over time and then you need to do some revisions. But ultimately that is going to be really important to him in mitigating any liability or risk. And it really, at the end of the day, he's going to make hundreds of thousands of dollars utilizing that one contract. And also, I would say that you've got to have a good insurance broker because the insurance brokers are going to help you make sure that you're not, you know, that you can shift the risk. For instance, there's always going to be indemnification provisions within contracts.

  Ailana Mcintosh:

  There's going to be insurance considerations that you should be aware of that brokers, insurance brokers can tell you to watch out for. Get a good CGL policy, get a good personal injury property, make sure you've got workers compensation, and make sure that your corporation is actually in order. So if you have a business partner, for instance, you want to think about how you're going to be handling things down the road with that business partner. Are you guys going to be sharing in distributions equally? Are you going to be voting on certain things based on percentage of ownership? Or is everybody going to have a say in certain major transactional decisions related to the company? I would say that ultimately the contract and the, the corporation aspect are really important things to have because it makes you look more polished.

  Mark Williams:

  As a business owner, I 100% agree with that. I've had clients before, especially. I should just speak for myself. But as a high end custom home builder, I'm building for a lot of people that own their own companies or are used to contracts, probably even more than I am having a good contract. It's almost like they sort of appreciate it. They're like, okay, this guy gets it. They understand that, you know, in order to have operate a good business. And I've heard too that a contract really is there for when things fall apart, you know, and like, hopefully you don't need it.

  Mark Williams:

  But if you do, there's kind of a structure around it to sort of. To your point earlier, Tom, like prevent things, but also it's clear communication. Yeah, I think it in the front end, like, we do a lot of photography and we do so, you know, we'll have right in our contract, you know, like we have the right to photography, your house, and do video and to post on it. Now, if they don't want to do that, then they need to negotiate that on the front end in the contract. And nobody's trying to say, oh, I got you. I mean, that's not the point. You're really just trying to list out the things that you both can be on a common plane for. Because I've built lots of homes, but likely my clients have not built a lot of homes.

  Ailana Mcintosh:

  Right.

  Tom Priebe:

  I think that's a great point. You want to invest on the front end so everyone wins. When you're in litigation, there is a guarantee that there's only going to be, the only winners are going to be lawyers. We're the only ones that are for sure going to get paid. If you have a good contract and you invest on one up front, the purpose is to make sure that everyone wins in whatever project you're doing, everyone's on the same page. Everyone understands. So the point that you just made, Mark, too, I make it a point that when I draft a contract for a client, I'll go through it with you one time in detail to make sure that when your customers or your clients come to you and ask you about those same provisions or those same turns, you're able to answer them. So everybody's on the same page.

  Tom Priebe:

  There are no surprises. And when surprises do come up, your contract is going to address how you address, or going to address how you overcome whatever those changes are going to be or how those changes are going to be paid for and documented throughout the way, just so that no one's caught by surprise, no one gets angry and starts fighting over, you know, change orders, which are probably the number one biggest things that are litigated or delays are also a really common one. So it's important that you address those events before they happen. I think.

  Ailana Mcintosh:

  And putting aside the legal component of this, as a, as a person who's been on the other end of a construction contract, when somebody comes to my house and they want to remodel it, if they don't come to the table with a really good contract, something that looks more like a contract versus just like a sheet of paper with a bid, I'm more likely to think that, oh, this person's very polished. They have been in the business for long, a long time, or, you know, believe that they are going to take attention or pay attention to details. And also, as a savvy person, I go on the Minnesota secretary of state website and I check to see that, that entity that is involved in the construction of my home or remodeling whatever it is I'm doing actually exists.

  Mark Williams:

  Oh, interesting. I've never, I mean, I don't, I know some builders do. I'm a very trusting person. So, I mean, ultimately, I'm going to make a value statement. Somebody. And so far, in 20 years, it's, I mean, I've made bad calls before, but it's not like, to the point where, like, they couldn't afford anything. Right. But, you know, I think you get to a certain point, it's like, you know, are you asking.

  Mark Williams:

  It's not quite like a bank. Like, I'm not asking for a full list of your financials. Like, you know, obviously, you know, put me in touch with the bank. We know you have a loan, some of those things, but, you know, a lot of it still, there's still a high degree of trust, even though you have a contract. And, you know, I still tell my clients that the most important thing, you know, we have a contract and it's there for clear understanding, but it's still the relationship, you know, far, you know, this is kind of like the minimum standard or the clear standard, but really you're trying to do so much more for the client. And, you know, very rarely does the contract ever come back out. It's usually when there's some confusion later on over change orders or over something that they're like, well, I didn't realize that's how you did it. And, you know, it could have been an air of communication on my part.

  Mark Williams:

  And I've had times where I, you know, maybe I even wrote the, maybe there's like some addendums where you can write stuff in where, you know, I didn't explain myself very clearly. And so then you, then you have an opportunity to kind of restate it, and they're like, okay, in the spirit of the, we use that a lot. Like in the spirit of the contract, we understand what you are trying to do, and we agree with that. So it's really going to just try to be reasonable 100%.

  Tom Priebe:

  And I think, you know, like lawyers in the construction industry, there are people out there that give others in our profession a bad name. So, I mean, to have a good contract to make sure that you're open with your customers or your clients, they're going to appreciate that and see that. And then I ran into it, too. But when you get someone who's after a hailstorm, whatever it might be, coming to your house, asking you to sign a two page document to basically sign over everything, and they'll just start working with insurance and take all the money. People aren't really apt to do that unless they understand where you're coming from and you explain it to them, including the contract and why it might only be two pages.

  Mark Williams:

  How do you know? One of the things I want to take down is people, you know, don't check with, you know, let's say you've created the contract and then you're in a situation where you're going to update it. I know I've been guilty of this for years. It was actually really funny. So I'd have my original contract. I now have a folder. It says original contracts only. And then I have my job contract folder of the ones I've modified because, you know, Tom, I'm building you a house. I'm sure I'm not the only builder that has done this.

  Mark Williams:

  I have my contract. It's up to date. It's snuff.

  Speaker D:

  It's awesome.

  Mark Williams:

  I paid my money. This contract is ready to roll. I build you a house, Tom. Then I build a house for Alana a year later, and I build a house for, you know, Tom's buddy. And I've just. I've. But rather than going back to my original contract, I keep just basically changing the name on the latest contract. And maybe you and I had a provision.

  Mark Williams:

  Like maybe your house was in the pray to homes, and maybe Alana's house was in the remodeler showcase. That's a provision in my contracts. And maybe another. And then before I know it, it's a little bit like a bad telephone game. By the time I get to my 10th contract, it no longer resembles the original contract that was supposed to keep me clear and safe. I have modified it also because I did not send it back to my lawyer for like a proof review. Right. Like, because they would have flagged it out immediately.

  Mark Williams:

  And so that was a simple thing that I've done recently where I have my five contracts, you know, a new home, a fixed bid cost, plus I have a captive and an independent design contract, a remodel contract of all these different variations. Those are all my originals. And then depending on what people want, I can kind of go from there. And as long as I'm not changing anything, I'm pretty good at keeping it that way.

  Ailana Mcintosh:

  That's a smart practice.

  Tom Priebe:

  You must have spoken to a lawyer.

  Mark Williams:

  I also did not speak to a lawyer to learn some of these lessons. And now I speak to a lawyer all the time.

  Ailana Mcintosh:

  There's some good stories behind that.

  Mark Williams:

  There are? Yeah.

  Tom Priebe:

  Yeah. I just had a trial, actually, where we blew up a contract against someone and it was a different customer's name on it. So they just hammered on that for about an hour in front of the jury. And it never looks good.

  Mark Williams:

  No, I mean, that's happened to me all the time.

  Tom Priebe:

  It's a minor error.

  Mark Williams:

  Right.

  Tom Priebe:

  It wasn't substantive by any stretch of the imagination. But what they're doing is they're showing that this contractors, sloppy, just like the work they did. They don't even look at their contracts and make sure it's there tight.

  Ailana Mcintosh:

  So again, it's a marketing tool.

  Mark Williams:

  Well, and I've learned this recently. So defining your burden rate for your employees or defining. So I do a lot of cost plus stuff. So, you know, I won't get into all the percentages, but, you know, let's just say you have a percent. I do a lot of work where, you know, it's based on a cost, and then you obviously add a percent. Nothing fancy about that. But I'll also have it for, like, maybe the PM or the site supervisor or insurance or any different category. But that's a variable rate.

  Mark Williams:

  It can change as the contract goes up or down. The number changes. That's not okay unless I've defined it in my contract where it says under operations insurance, you know, 1%, 2%, whatever you wanna put in there, project management, you know, whatever you put in there, your GC fee, all those things are outlined very clearly because those are, you know, I'm not gonna. Sometimes you're not gonna be able to produce an invoice for some of that stuff. I mean, you can, obviously on the backside, but because it's all coming from the same company, especially if you're self performing work, you've got to be really clearly identifying that. I've only learned that in the last couple of years. It's never been an issue. I've never had an issue.

  Mark Williams:

  But I had another builder, actually, was at the contractor coalition, and they had mentioned how they had a client out in Boston where the owner said, I'm not paying it. It was like 50 grand. And he's like, you did not define it in your contract. And he's like, fair enough. And so he obviously made that change. And it's never been an issue since.

  Tom Priebe:

  You went over the estimate by 50 grand.

  Mark Williams:

  No, because he was self performing the work. And so the homeowner must have been a savvy business owner. Sounds like also like a jerk. But he basically said, cause it wasn't the right thing to do. It was not in the spirit of the contract.

  Tom Priebe:

  It was a technicality.

  Mark Williams:

  It was a technicality, and he roasted him on it. He said, you did not define that. The trim carpenter was also your employee, and it should be up in, let's say, the trim line item of a sworn construction statement. And it fell down to operations. And they're like, no, we, we agreed to pay you whatever the percent was for operations. You can't include that guy. And he. And the argument is really clear and easy.

  Mark Williams:

  Okay, fine. If I don't, you know, have Bob do your trimming, I'm gonna have to go hire another company. But again, it legally didn't help hold water. And the guy said, fine. I mean, fine, all right, we're done. I mean, again, the guy must have been a complete jerk, because that's.

  Tom Priebe:

  How is that saving the client money by doing. By having his employee do the work.

  Mark Williams:

  And he roasted them on it. That's my point. We can learn from each other. So I have not personally experienced that kind of harm on it. But anyway, it's important to define your contracts, especially for the builders out there that are self performing your work. You know, make sure you have vehicle expenses. You have, you know, your. I mean, however you're doing it, make it very clear so that even in your contract, it explicitly states that.

  Mark Williams:

  So that if you ever have to face time and litigation, he can't take you apart.

  Tom Priebe:

  Yeah, or pay me to pay them, defend them, but defining those things in the contract. And then I will say, again, people don't read contracts all the time, so it's also really important to explain it to your customer. I think that's a marketing tool in and of itself. It's just being open and honest with someone. That's what I try to do in my profession, too. Again, there are a lot of bad contractors, just like there are a lot of bad attorneys. In my experience. You get to know a client and whether or not you even want to take on this client by talking to them and being open and discussing it, if they're going to fight you on these things and not be reasonable with you, then maybe you want to make a decision, not take the job.

  Mark Williams:

  Yeah, we talk about it all the time on the podcast. But identifying your ideal client. Yes. And I've referred, or I've been talking to lawyers before, and it's like, at certain points in their career, it must be analogous to being a remodeler looking for hours to bill. You know, this particular lawyer is like, you know, I don't need the headache. You know, this person doesn't seem like a good person. It's not someone I want to represent.

  Tom Priebe:

  Absolutely.

  Mark Williams:

  And it's refreshing to hear that. Right. And so. But that also happens in building. I mean, we take on clients all the time, especially early in your careers, before you have the understanding that, you know, this is actually going to have a negative impact on me long term. If there's money to be made here in the long term, it's not. It doesn't either fit my brand or it doesn't, or the toxicity of it is going to weigh on me in a way that the money is not worth it. But I feel like somehow that has to come with age or time.

  Mark Williams:

  Like, I didn't think like that 1015 years ago.

  Tom Priebe:

  Yeah, I didn't think about it when I first started practicing law either, but then you get jaded after you experience a few of them, and then you really start trying to make sure you protect yourself on the front end, too. I think it's important for anyone in most businesses to do that before you take on clients and you have that choice.

  Mark Williams:

  You had mentioned that change orders are the number one litigated thing. Is that because builder showing up at the end of a job and they're saying, hey, I have 100 change orders, and here they all are. Because I'm thinking about like, how we do change orders. We use a system called builder trend. And so, you know, Tom or Alana, you, you know, you say, hey, I want, you know, $10,000, you know, walnut cabinets. Great, I'll write a change order. It's $10,000. You click accept like it's, I will never sign a change order.

  Mark Williams:

  So digitally you've always signed it. It's, it's date stamped. The bid and approval is all in that document. I assume that's the right way to do it. I mean, is there still ways you can get in trouble even doing that way?

  Tom Priebe:

  No, I think that's the right way to do it again. So typically the people that are calling me aren't like you, and they don't get those change orders signed beforehand. So when I talked about originally, you want to build a relationship with the client, it's also important to not, to still follow the contract. Right? Not just trust your client after you take on a job. So what I see, and it's just me personally, what I've seen in the last couple of years is when my clients, the contractors, get into a relationship with these customers, they trust them. The customer says, oh, I don't want walnut. I actually want, not just walnut veneer, I want solid walnut cabinets.

  Mark Williams:

  Okay.

  Tom Priebe:

  That's going to be three times the price. We can certainly do that. I need it now. Okay, but this is a change order. Absolutely. I'll pay you for whatever the cost is. And then after the job is done, they said, nope, I only agreed to pay you $10,000 for cabinets, and we never signed it off. And then you have to litigate that.

  Tom Priebe:

  Even though you didn't have a change order, you knowingly accepted this work, you asked for it. Now you have to pay us. So there are ways around even when you don't have signed change orders to litigate it. But again, you're going to probably spend $30,000 to try to collect. $30,000.

  Mark Williams:

  Right, right. You had mentioned Alana earlier about insurance, and it reminded me, actually, this is something that I did have an issue with. So we have, obviously, our normal general policy. I have an umbrella policy, all these different policies. But I learned the hard way of why I needed an heirs and emission policy, commonly known as an e and o policy. And correct me if I'm wrong, but essentially, the heirs in omission policy is kind of covering. It's like another insurance on insurance. It's essentially like a stopgap.

  Mark Williams:

  If you can't figure out whose fault it is, then it's my fault. As a general contractor, I'm gonna have to pay for it. Unless my e and o policy, it's an error or an emission, hence the name of the policy. And I'll frame this with. Well, I'll let you answer the question first, like, how many builders or how many practices and business owners end up having an e and o policy? And how have you seen it help them over their careers?

  Ailana Mcintosh:

  I don't know if I know the percentage of business owners that have e and o policies. Tom, do you know that answer?

  Tom Priebe:

  I do not.

  Mark Williams:

  Yeah, there can't be very many, actually, because I only got it about three, four years ago. And at the time, someone said, oh, it's going to be really expensive. And then we got a price on it and was, like, terrible. And I will tell you right now, it saved me about $150,000 this last year.

  Ailana Mcintosh:

  And how much do you think the premiums cost?

  Mark Williams:

  Well, it went up, so it was 10,000, but it saved me 150. And this year, it's now 20,000. And so I say that's a good.

  Ailana Mcintosh:

  ROI, though, if it saved you 150 on $10,000 policy.

  Mark Williams:

  And the reason I did it, and I've learned so much about insurance and law over the last couple of years, unfortunately, is I feel like I'm an armchair quarterback here, looking in. But one of them was, is we had a. There was a survey mistake. You know, they could blame the project manager, who's on my team. So it's like, no, but we did a $30,000 concrete foundation wall twelve inches off the survey mark, which in a normal community, twelve inch is not a big deal. The particular area that we did it in, we had to get a variance to get that. The area was super high. You know, the political climate around building was, like, astronomical.

  Mark Williams:

  You know, I would. I look like, you know, I'm Darth Vader to the people in that particular community because I build what my clients want. And so that's not what they wanted. And so, anyway, it was very unusual time. So anyway, long story short, you know, I thought, you know, I'm going to fight this. Go for another variance, get the whole public all worked up, delay the project. You know, my client, I'm going to have to pay for it. It's somebody's mistake.

  Mark Williams:

  It's not my clients. This could take six months, could take a year. It's just going to giant sit there. So I made the decision on a Friday. Still remember, I told my excavator to tear out the wall. So you demoed the whole thing on a Friday. We report it the following Tuesday. And I did.

  Mark Williams:

  I told the client about it, but I paid for it. It was 30 grand. And we just moved. Right? And we moved. It was such a waste. We moved all that entire house foundation twelve inches because of how that all went. And anyway, when I tried to submit it to my insurance company for a claim, they said, whose fault was it? I'm like, I don't. I can't tell you exactly whose fault.

  Mark Williams:

  Everyone had a chance to stop it. The surveyor could have had a chance. The concrete guy could have had a chance. But it's not like a deliberate failing roof leak or a window that broke and leaked water. Something dramatic and easy to point at. And they said, I'm sorry, there's no coverage. And I was at that point that I said, I mean, this is ridiculous. There's got to be insurance for that.

  Mark Williams:

  And that's why I got the e and l policy.

  Ailana Mcintosh:

  Yeah. And on a somewhat related note, you use subcontractors, right?

  Mark Williams:

  I do.

  Ailana Mcintosh:

  And do you have a subcontractor agreement that requires the subcontractor to carry their own insurance?

  Mark Williams:

  I do, yep.

  Ailana Mcintosh:

  Yeah. I think that's extremely important, because oftentimes it's not your fault, it's somebody else's fault. And you're the general contractor, so you ultimately end up taking the blame. But your contracts with the subcontractor should identify who's responsible, whose insurance should cover those kind of mistakes that are completed by a third party, the subcontractor. In some particular cases, you know, you don't, your insurance company might deny the claim because it wasn't your fault. You didn't do the work that ended up resulting in the damage. And so if your subcontractor doesn't have insurance and you don't have.

  Mark Williams:

  Wait, the subcontractor does not have insurance.

  Ailana Mcintosh:

  If the subcontractor doesn't have insurance, then who's going to hold the bag?

  Mark Williams:

  Yeah, it'll be me. I mean, everything ultimately comes back to the general contractor. I found out no matter what. And so it's like, I think, you know, I'm a bit of an optimist and probably delusional, but, you know, we had a situation where it was not our fault. The company, stellar company. I'm like, they got this. And, you know, I consulted my lawyer. Shocking, you know, called my lawyer and asked him for advice before we got into a situation.

  Mark Williams:

  I'm like, well, if this, you know, particular client would sue this company, he's like, no, that's not what's going to happen. They're going to sue you because you hired that and you're going to be tied in now, you know, you could do joint defense and all that stuff, but he's like, you know, no matter what, you're going to be brought in.

  Ailana Mcintosh:

  But Mark, to help protect yourself, you would have a subcontractor agreement.

  Mark Williams:

  I already had that with the sub, 100%.

  Ailana Mcintosh:

  And you would ask within the subcontractor agreement that the subcontractor gets an insurance policy that names you as an additional insured.

  Mark Williams:

  Absolutely.

  Ailana Mcintosh:

  And so that is where you protect yourself. I mean, you can do whatever you have to do. That doesn't mean that you're not going to get sued, but at least in the event that you are sued, you're protected. You have other people to look to, other avenues, other risk mitigation methods.

  Mark Williams:

  100%. And you know, not only do we have a contract with our subcontractor, you know, we'll do an annual one, we probably should do one per job, but that's pretty tedious. So, but we have one, you know, just an annual subcontractor agreement that we keep up to date. And then obviously the Cois, the certificates of insurance, each one lists us as additional insured. In fact, I've told my office managers over the years, you know, if we pay Tom drywall, he does not get his next payment unless his insurance is, because they're usually not malicious, they're usually not doing it on purpose, it lapses, they forget, whatever. And so the problem is, there's just one more thing that we have to track for other people. It's just a lot of information, but we absolutely, and there are softwares that keep it, that make it really easy, like buildertrend actually will have right in there. They can upload their cois right into the software and it really keeps it simple.

  Tom Priebe:

  And I understand it's a pain, but nowadays the programs do make it pretty easy and it's all kind of done automatically. You need to follow through with it. If your contract says you're going to, you know, provide this information, your subcontracts. Excuse me? If you're going to provide this information and make sure you have a certificate of additional insurance, make sure you follow through on and actually get it. Because if your subcontract says that you don't actually get it, then you get the claim. How are you going to tender it to their insurance and then you're going to try to unmake the mess.

  Mark Williams:

  We had another one going back to this e and o policy. I mean, anyone out there listening? I'd look into one. It's helped me a lot. I mean, we had one where there was a clear failure. So finally, my insurance guy, I said, I haven't found a great loophole. It's finally, we found, like, a thing that actually failed. And the companies that their product failed, refused to stand behind it. It was an international company, and they're like, you can sue them or, you know, kick it up the chain to your e and o because my general policy would not take care of it, and my eno did cover it.

  Mark Williams:

  And I was like, wow. That I felt so fortunate that that was the case. Otherwise, I would have been in a really tough situation. I would have either had to have the client sue me or I would have had to, you know, take on a suit against some giant international company. And who knows how that would have gone?

  Tom Priebe:

  Difficult.

  Mark Williams:

  Yeah, difficult.

  Tom Priebe:

  So, yeah, I mean, all insurance is good. Again, it's a big investment, but it is just that. It's an investment. I don't want to sound like a lawyer because I'm trying to be likable here, but when you start talking about, like, the insurance claims in the survey, I'm like, oh, that sounds like there's going to be a lot of parties in that litigation, so you're very, very lucky.

  Mark Williams:

  Well, and I told a lawyer this, and he goes, too bad. Your, he goes, you could have been my lead plaintiff in a class action lawsuit. Cause it turned out there was like 100 homes like this, and my ears perk up.

  Tom Priebe:

  I'm like, what?

  Mark Williams:

  Yeah. And I was like, huh? What is that? He's like, a couple years and hundreds of thousands of dollars, and it's like, oh, wow, that sounds like a real rigmarole. One of the things that you had. Let's talk a little bit about pre lean notices. Most of the builders would know about this, but I feel like as I see contracts come along, very few of our trade partners and our subcontractor partners exercise their pre lien notice. So I can explain it, but I'd rather have you explain it. Why don't you explain the lien and why you need to pre lien and then let's talk a little bit about, you know, obviously I have I'm lean. I'm pre leaning notice in my contract to all my clients.

  Mark Williams:

  You know, what kind of protection does that employ for my landscaper or my drywall guy who does not pre lean? Let's walk through that a little bit.

  Speaker D:

  Lake Society magazine is Minneapolis premier target market boutique lifestyle and design publication. It embodies the unique lifestyles and design of the Minneapolis city Lakes neighborhoods from Lake of the Isles to Lake Harriet. It showcases the best in local design projects by both premier builders, architects and interior designers in this area. Lake Society magazine has the look and feel of a national publication with glossy covers, high end finishes. It's mailed directly to upper bracket single family homeowners in the City Lakes area and it's the perfect local coffee table top publication. Subscriptions can also be available through the website lakesocietymagazine.com. Additionally, publisher and founder Karen Steckel has over 27 years in the local magazine publishing industry and has a passion for high end photography and quality graphics. Her commitment to quality, visual simplicity and beauty are strongly reflected in her beautiful Lake society magazine.

  Speaker D:

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  Mark Williams:

  Yeah.

  Tom Priebe:

  So yeah, you obviously want to get a pre lien notice so that in the event there's an issue with payment or you're not paid, you're able to secure that payment through the property that you're performing work on. There are specific statutory requirements in order to secure that right. So if there are issues down the road and you're not paid, then all of a sudden you say, well, I'm gonna, you know, file this lien on your property. If you didn't provide the pre lien notice, and if you didn't follow up within 120 days of the last date of the work, filing that lien and following through on it, you're going to be without the easiest recourse, which is a lien. Otherwise, you're going to have to try to go to litigation and argue contract law or some equitable law like unjust enrichment, to try to get that money back. It's a statutory remedy that allows you to actually follow through and collect money along with your attorney's fees is the easiest way to do it. And you need to make sure that you meet all the requirements under the statute to preserve those rights and make sure your subcontractors do as well.

  Mark Williams:

  So, so that brings me to a good point. So like, you know, we're building, let's just say a $2 million home. Like obviously it's my contract, so my pre lien has been notified when they sign the contract. So I'm covered. You know, I usually see the big companies, I see the lumberyard, I see the roofing and siding company, I see the window company. That's about it. Most of my trade partners do not pre lien because usually I have to tell my clients years ago, when I was first starting building, and I always get a call from, you know, Mister Johnson, and Mister Johnson would be like, hey, I pay you a lot of money, why am I getting a lien notice? I'm like, calm down, Mister Johnson, I haven't even started your home yet. That is a pre lien notice from the lumberyard.

  Mark Williams:

  That is just saying that if you don't pay me, if I don't pay them, they have the right to. So I'm just explaining to them. Oh, so I found now, obviously I just educate them right away what that is. But to the original question, how? What happens if the drywall company does not file a lien?

  Tom Priebe:

  Well, then they're not going to be able to go after the money from the homeowner. They probably sue the contractor.

  Mark Williams:

  So they'd have to sue me. But that, that's my whole point. So let's say, and I believe. I don't know if this is a Minnesota or state by state thing. There are certain states that correct me how this, the verbiage on this is, but, like, pay when paid. I don't think Minnesota is like that. Right. Am I by the state of Minnesota if you do my.

  Mark Williams:

  Or is that per subcontractor contract?

  Tom Priebe:

  Let's say again, pay when paid is still a very real thing, and it's all the time.

  Mark Williams:

  No, I understand that, but is it. Is it law?

  Tom Priebe:

  Yeah, I mean, it's a. It's. It's. If it's in the contract, it's law.

  Mark Williams:

  Okay.

  Tom Priebe:

  Yeah. It's enforceable pay when paid provisions. Absolutely. With it. With the subcontractor. If you don't have that kind of language. And that has to be in your subcontract.

  Mark Williams:

  Right.

  Tom Priebe:

  That's where you run into big issues. You know, I'm a litigator, so I see these things. I'm not saying they're common, but what I see in common in my practice is, like, the smaller subcontractors, they're not paid for a job because the general wasn't paid. Then all of a sudden, those smaller subcontractors are going to come to my client, the general, and say, well, we expected you to give our pre lien notice for our work. That's not how the statute works. You have to do your own pre lien notice to the homeowner, make sure they get it. Now, I mean, in rare occasions, maybe the general contractor could be the owner's agent or principal, but it's very rarely the case. So it's really important that no matter how small of a sub you are, you provide your own prelien notice.

  Tom Priebe:

  You want to protect your own rights as well.

  Mark Williams:

  Is my experience pretty common? I mean, like I said, I mean, there's probably 100 trade partners, and I see five. And I always thought, you know, I mean, a, we pay our guys. We've never had an issue. So they've never really had an issue either. I assume, too, there's a bit of, you know, well, burn me once, but you're not gonna burn me twice. Like, you know, if you have a reputation of not paying someone, you know, you're not going to get good contractors to do your work either, or trade partners. I mean, that's the recourse, the fallout of it long term, I think that's.

  Ailana Mcintosh:

  The result of your trade partners not having good legal counsel who have advised them that they should serve their own pre lien notices because they can't rely on yours.

  Mark Williams:

  I hope they listen to this podcast. Some of these other five common mistakes that you see. What are some other common mistakes that you see?

  Tom Priebe:

  You touched on it, but, so if you're going to use a contract, like even just a form template, make sure you're very clear on the pricing. So some people do cost plus, some people do the fixed price contracts. Make sure you're really clear and you explain it. You don't just say cost plus or fixed price contract, you actually explain what that means in the contract. Also, the notice of cancellation I've seen a few times. So the notice of cancellation is a little bit nuanced, I suppose. But for like those storm repair contractors who go out and they're going to collect insurance money and help you file the claim and pursue that money, whatever it might be you need to provide in your contract, when you sign with the homeowner a 72 hours cancellation notice, what that means is they have 72 hours to cancel the contract. And what I've seen is that sometimes the contractor will just start the work before that cancellation period is over.

  Tom Priebe:

  Then for that, then the insurance claim is denied, or whatever it might be, and they're not going to get paid for it. You're going to be able to recover your costs out of pocket because you didn't have that cancellation notice and they cancel it beforehand or whatever it might be. So in those events, you want to make sure you either provide or you provide that cancellation notice. And you make it very clear that if you do any work in the meantime, during that 72 hours, that's going to be an emergency service that you're still gonna get paid for regardless of the outcome for the insurance claim.

  Mark Williams:

  Maybe they should add that to change orders. That was an emergency change order.

  Tom Priebe:

  Maybe just have a separate writing, separate document saying the homeowner's gonna pay you for it. Right. There are bad homeowners out there too, that always try to find ways out of paying.

  Ailana Mcintosh:

  And actually the cancellation notice has to be a certain font size and you have to provide two copies of it. So, yeah, certain things to know that if you talk to your attorney, just that little tidbit of information can save you a lot of headaches.

  Mark Williams:

  I mean, it's funny now that you mention it. I mean, there are things in my contract that it's giant bold I didn't even think about. I thought they were just being kind and really making it clear, but it's like, they want to make sure they're hitting whoever's reading it over the head with notice. Notice.

  Ailana Mcintosh:

  It's Minnesota statutory requirement.

  Mark Williams:

  Minnesota's an interesting state for law, from what I'm told. So I've heard you go to Wisconsin. It's a little bit of the wild west from Wisconsin. I love that you're using it as an example from. So, like I've heard before. So, like, in Minnesota for bill, if you're a builder, we have a 1210 policy, right?

  Tom Priebe:

  Yep.

  Mark Williams:

  You know, one year craftsmanship, two years service, and then ten years structural. And you can't have a client, you know, waive it. It's against the law. You know, I couldn't say, hey, for $10,000 more, you know, waive all my warranties or anything like that. That's illegal. But it sounds like Wisconsin. You can kind of do a whole lot more. How much does this law vary state by state? And why is Minnesota so stringent? Because I've been told that, like, commercially, like, it's nothing compared to residential.

  Mark Williams:

  Like residential, we're held to a way higher standard than, let's say, you know, a big commercial outfit building a skyscraper, which seems kind of laughable and crazy. Why is that?

  Tom Priebe:

  I'm not sure, and I'm not even licensed in Wisconsin, but I've heard the same things I am. I love Minnesota. And Minnesota, I mean, our legislature has done a very good job to protect homeowners. It happens all the time with the contract recovery fund, whatever it might be. I think Minnesota, what we've done a good job at is making sure that residential consumers aren't burned by some of those bad actors, similar to, I mean, attorneys, again, but it happens all the time. So what I think Minnesota's trying to do is protect just your common, everyday homeowner from getting burned by some of these contractors. You're gonna take your money and not do any work for it. That makes sense.

  Tom Priebe:

  Yeah, I'm not sure about that. I'm not sure about Wisconsin.

  Ailana Mcintosh:

  I think Minnesota is just very consumer protective, and that's why it doesn't really, those kind of those requirements that apply in the residential contract world do not apply in commercial, because it's, you know, I think that the legislature views it as more of a sophisticated, two sophisticated parties contracting with each other as opposed to, you know, the residential.

  Mark Williams:

  That actually, that's the logic that's made the most sense I've ever heard. You have two sophisticated parties, which is debatable, but that will say, but at least you have B. Two B, two businesses that are understanding what they're getting into, where you're trying to protect a consumer that is like they have another job, they just want their house built. They're not, or remodeled or whatever.

  Tom Priebe:

  Or a big hailstorm comes through and there's all these out of state contractors that are coming trying to pitch you with work. Like we're going to try to protect the consumers as best we can.

  Mark Williams:

  Right. Okay. That actually makes sense to me. Talk to me a little bit about delays. Obviously, during COVID it was wild times to be a build. I mean, frankly, any business owner or anybody in the United States. But from the long lead times and delays, I just have, you see here, one of the five common mistakes is delays. What do you mean by that?

  Tom Priebe:

  I mean you don't address it in your contract. Instead of just saying delays that are out of the control of the contract or whatever, it's probably pretty important to explain specifically what some of the bigger delays are. I also think it's just as important to make sure that your subcontractors are held to the same standard. So if the general is held up or delayed by a sub, the general is going to be on the hook. Unless you can pass that on to the subcontractor as well. It goes back to being not particularly is probably not the right word, but making sure that your contract covers these things and you address the problem before it happens. If there's a delay, how is it going to be handled? What is a delay? What are we going to categorize as delay? Sometimes you might want to change order for whatever delays might be. You want to get something in writing.

  Tom Priebe:

  If you want the homeowner to, if the homeowner orders a different product and it's going to take two more weeks for the product to get there and it's going to extend the completion date, you're going to make sure the contractor addresses that, or if you need a change order to address that delay, you should do it.

  Mark Williams:

  Let's talk about that practically, because I agree with you. So let's say you. Let's do, I guess I have three examples I'm thinking of. One is weather. So, you know, January this year was really mild, but let's just say a normal January, you've got anywhere from 14 to 21 days below zero, roughly. Let's say, and you know, if, let's say you're at framing phase, the guys are not working outside when it's negative ten. They're just, they're not. So is that a, do you define a weather delay in your contract that a weather delay is anything below five degrees.

  Mark Williams:

  Like how do you define that?

  Tom Priebe:

  Yeah, I'm not sure you can get, you need to get into that much detail. I don't, but what I'm saying is I think you should say that, you know, in the event of a delay caused by weather, something like that, we will inform you, we'll try to give you as much advance notice as we, as we can. It may extend the deadline for completion. We're not going to be held to it if the weather is okay.

  Mark Williams:

  So that, let's follow this all the way through. So is this an email? I mean, I know documentation is always nice, or I know, I'm guessing where I'm thinking of this is like someone else gave me this as advice and I haven't done it yet, but I wrote this down while you're laughing or writing, talking. That's why I'm laughing so hard is because doing a zero dollar change order that addresses the schedule in builder trend, for instance. So I could say like, you know, we had one recently where the city took 30 days extra to review a permit. And it turns out they even sent me an email saying, I'm sorry, it got lost in our system. We didn't even look at it. And I told, I've told the client this, they remember it probably right now. Are they going to remember it eight months to a year from now? Unlikely.

  Mark Williams:

  So my question is, what is the right way for me to document that and change the schedule so that the client can't come back to me? And also some, I might not remember all these little things. And that's a dramatic one that's easy to remember. What if it's like a two day, a three day, like what is the proper way to document these changes in schedules so that at the end you can tell the homeowner, hey, here's a list of all the things that delayed your project. That's why you're moving into your home three months later than we hoped.

  Ailana Mcintosh:

  Well, implementing that tip that you just mentioned isn't a bad idea. It's, you know, anything in writing is always going to be better than just, you know, verbally communicating that to your client.

  Tom Priebe:

  I'd love to even have emails from some, in some of my cases, like, emails work fine, but to your point on, you know, trying to be practical, if you're going to take on a job in the middle of the winter, then maybe make sure you don't have an unreasonable deadline. Make sure you build in those days on the front end, just because your customer client says, I want this done by this date, you have to say, well, it might be this date. Let's make the completion date, let's build in a few days for weather, potentially, but otherwise, yes, I think document as best you can. Maybe send the change orders, ask them to sign the change orders for delays, whatever it might be, the more you document, the better. At the end of the day, if it's not a huge delay or you're not overly concerned with it, and you don't want to scare the customer or the client, then maybe an email would suffice.

  Mark Williams:

  I mean, I think most likely there are two days here, two days here. And so people don't think to document it, build up. That's the thing. You have 14 two days. That's a month.

  Tom Priebe:

  So after you start getting to a month or after you start getting to maybe a week, you're going to start wanting to document it. And yes, it'd be best if the homeowner signs off on it.

  Mark Williams:

  Right. Well, I'm going to have to make that. So back to defining things in your contract, one of the things that I've been interested about. So as a cost plus builder, you can pick whatever percentage. So just for the sake of this conversation, let's just pick 10% for an easy number. So you have 10%. Is that markup or is that margin? And the reason I bring that up is, do you, I've had it where, you know, how well do you have to define it? And for those that don't know and don't feel bad, because I just recently, you know, when you don't come from a corporate business world or you don't, you haven't been educated this way. And a lot of people that are in building trades don't have that background of education.

  Mark Williams:

  That's where I love, you know, peer education, things like that, where, you know, I've spoken a lot on the podcast, you know, for a long time, I did cost plus. That was a markup percentage. So if I think I'm going to get 10% at the end of the job, I'm actually getting 8%. If I wanted to clear 10%, I needed to charge 12%. And that's roughly the difference between margin and markup. How do you define that in your contract? So now let's say you've waken up, you've smelled the coffee, you want to charge your clients on margin. Do you, do you say like 10% margin or is everything done in a markup model. How do you define that?

  Tom Priebe:

  I define it as profit and overhead. Like, this is the profit I'm going to make. I'm going to make 10% of whatever the cost of your job is going to be. And we're going to describe. We're going to try to estimate as best we can. We're going to document those actual charges along the way, if you're the contractor, and then at the end of the project, you're going to pay me 10% of whatever I incurred.

  Mark Williams:

  Okay, if I'm a litigating attorney going against you on this one, which I'm going to lose, but at least this logic I might have on you. Perfect. Okay, so I would say you want 10% profit. Great. I calculate my profit as a percent of goods, not on margin. So you, Tom, made 10% as a markup, and you could argue. Well, no, I meant 10% margin. You haven't clearly defined it.

  Mark Williams:

  You just said, what is 10% profits? There's a 2% difference.

  Tom Priebe:

  No, absolutely. I understand where you're coming from, but you have to clearly define what the profit and overhead is. So if you want to define margin or if you want to define Actual out of pocket costs, feel free to do so. I think it's best to be clear and say, whatever you're spending on a job, whatever I am paying out of pocket, you are going to pay me 10% above that. Does that answer your question?

  Mark Williams:

  Yeah, but isn't that markup? Because if you. I mean, this iS. Now we're getting.

  Tom Priebe:

  That is markup. And I think if you just say profit and overhead, 10%, doesn't that cover everything?

  Mark Williams:

  Yeah, I guess we'd have to look at an Excel spreadsheet. The vernacular on that's a little different. And so I might.

  Tom Priebe:

  I might hire an expert.

  Mark Williams:

  Yeah, I might hire an expert, too, because, I mean, that's. Yeah, I think if you're going against cost of goods versus, you know, and labor and labor. No, for sure. All of those things. So I'll have to think about that. To me, it's almost like an example. Like, we make them sign a sworn construction statement that shows all the numbers. Now, that's how I'm getting around it, because defining it is sort of difficult, because it's hard for me to even kind of explain it.

  Mark Williams:

  And I'm sure all the people out there that really know their finances are like, oh, you're an idiot. You know how to. But. And there's a lot that don't. And so I, like, I think being clear, if I have a sworn construction statement that lines up everything, and then I calculate it as marginalized. There's my proof. You've signed it. It's visually.

  Mark Williams:

  I even showed you how I calculated it.

  Tom Priebe:

  Yeah. With. Even in the estimate, you could even put the actual dollar amount in there. What, it would be based on those estimates? That's a very no.

  Mark Williams:

  And we do that all the time.

  Tom Priebe:

  Yeah, but that also brings up a good point. Like, when you're doing so, even your estimates, your sworn construction statements, are based on estimates. Estimates that your subs gave to you, correct?

  Mark Williams:

  That's correct.

  Tom Priebe:

  So that brings up another very good point, is to make sure that your subs are documenting those costs and whatever their actual out of pocket costs are out of the along the way as well.

  Mark Williams:

  Theirs is usually a bid, though, right? So they'll say, there's usually a bid because they'll say, hey, I'm going to do this house for 20,000. I want 50% down and 50% at completion. And then you get two invoices, one for ten grand and one for ten grand at the end. So how would they document it differently than that?

  Tom Priebe:

  In an absolute perfect world, yes, that's always how it works. But then we start talking about delays or cost increases, like during big projects, being big drawn out projects, and then you're going to contact me all of a sudden.

  Mark Williams:

  No, you're right. And then. And I think, you know, you know, I don't know if it was on this podcast, we were chatting about just clear communication and timely communication. I feel like we went through a very difficult situation recently where the project manager was not timely enough in conveying. And when I say timely enough, like it was within six months, it was not anywhere close of reasonable, like 30 days, 60 days, fine. But, like, we got an invoice, we should have. We had many opportunities presented to you as the client and say, you're over budget. This is why, you know, because we had a cost increase on, let's say, drywall, because it was a year later, you know, we got the bids, and a year and a half later, we did the work.

  Mark Williams:

  It's reasonable to expect that there is a cost escalation in that. But our failing point wasn't the fact that it went up. Our failing point was that the project manager did not explain that to the client until an additional six months went by and we closed on the job. He did not document it in time. And that led us to some real. So even if your contract is clear, and they. They should have paid it, but I waived it because it didn't meet my expectations of when they should have been notified.

  Tom Priebe:

  Yeah, not everybody's like you. Absolutely. Some people fight over those.

  Mark Williams:

  Well, no, hopefully they're not like me. Cause I lost a lot of money doing it that way.

  Tom Priebe:

  Clear communication's always very, very important, and some, and I'm not sure if this is the case for you, but sometimes my clients take on too much work and they're not able to keep all their customers informed. You know, aside from how that makes your business look, that's probably not the best for making sure you get paid when there are these issues, too. If you're failing to provide the proper notices along the way and document things, so make sure you don't take on more than you can handle.

  Mark Williams:

  You had mentioned something, alana, about business partners, and I've never had one. And at one point I had even considered one, and my lawyer had actually said, don't do it. I forget what he called them. I should remember. It was like the five ds. I forget what it was, but one of them was just. Anyway, dissoluting a company is like no small thing. Like it's.

  Mark Williams:

  It gets really complicated and things are really good, and you think it's. But just having a clear. I don't even know what they're called. Buy, sell agreement.

  Ailana Mcintosh:

  Buy sell agreement.

  Mark Williams:

  Yeah. Just. Can you speak a little bit to what you've seen over the years and what you've helped create people? Because a lot of people do have partners, and I assume in a husband and wife, that's a whole other category. But let's just say your business partners. Walk us through some of the do's and don'ts for those that are either going to start a business or maybe they want to sell their business and. And they don't have one. How would they create one if they. Because a lot of people are in business, they don't even have one, and then they're like, well, now we have to create one.

  Mark Williams:

  I assume you want to create it while things are amicable and things are good, versus doing it when someone wants to walk out. Maybe share some insights on that.

  Ailana Mcintosh:

  Yeah, I always tell clients that consider buy, sell agreements, operating agreements, bylaws. It depends on what document you use is dependent on what type of entity you have. So let's talk about llcs, because that seems to be, like the most common entity type these days. When you have an LLC, you have an operating agreement, and that is kind of the governance guidelines between the business partners. It dictates how things are going to be handled, how votes are taken, and so whether everybody has an equal vote or if a majority share. Majority membership member. I'm sorry, I can't speak whether a majority member gets a greater vote than a minority member. It also addresses things like, you know, what, if you and I were in business together, you're married and I'm married, and you pass away, what happens to your ownership interest? And the operating agreement addresses that.

  Ailana Mcintosh:

  So in the event that you've got things like death, disability, divorce, there's the d. Yeah. Is that what you're thinking about?

  Tom Priebe:

  Disagreement.

  Mark Williams:

  Five ds?

  Ailana Mcintosh:

  Yeah. In those events, there have to. Those are called triggering events. Right. There has to be a manner in which we handle the other business partners interests, because most often, Ilana doesn't necessarily want to be in business with Mark Williams wife. We are in business because of our skill sets and what we bring to the table. But she might not be a contractor or a builder, and so what is she going to bring to the table at this point? I've got only 50% ownership. She's got the other 50%, you know, she gets all the vote and she gets 50% of the vote and 50% of the distributions, but she can't bring anything to the table.

  Ailana Mcintosh:

  So how is it that I'm going to work with her going forward? Sometimes what people do is they will get key man insurance. So if in the event of your death, for instance, you pass away, we use those insurance proceeds to buy her out, and then I end up owning the company 100% and she gets what she's entitled to. So those are some ways to handle things like that. But we think of the operating agreement, buy, sell agreement as like a prenup. You want to get into that prenup before things go sour. Make sure that while everybody's happy and you're on the same terms, that you're addressing those things and you're thinking them through, because that's, you know, it's not fun to think about the divorce when you first get started, but it's absolutely something that you have to take into consideration, and it will help a lot down the line. We've worked with a lot of companies where things just didn't work out or somebody wanted to move out of town and they couldn't figure out how to buy the other person out. And that's a really challenging position to be in if you were.

  Mark Williams:

  So let's take someone like myself, for instance. Someday I would hope to be able to sell Mark D. Williams custom homes. Let's pretend like that's even possible because selling construction companies are really hard, especially when it has your name on it, because the low barrier of entry, you know, unless you have assets and, you know, it's just. It's just difficult. And no one explained that to me when I was 23, by the way. That would have been helpful advice. Dad, how does one go about, you know, constructing a contract to sell your business?

  Ailana Mcintosh:

  Well, it sort of depends on what you're selling.

  Mark Williams:

  All right, let's use me as an example. So you're going to sell. I'm going to sell my company.

  Ailana Mcintosh:

  Yep. Are you selling your assets or are you selling your shares? You know, it's. Yeah. Both the parties have to look at what assets there are and make a determination on the sales structure, decide what it is that the buyer actually wants from the company. Are they looking for your goodwill and your trade name? Are they looking for your book of business, or do they want your accounts receivables? What is it? Do they want your employees?

  Mark Williams:

  They don't get it all. I mean, why?

  Tom Priebe:

  Yeah, even phone numbers, I've litigated. I don't deal with it on the front end, but I've litigated. Even, like, phone numbers.

  Ailana Mcintosh:

  Phone numbers. Website sites, your social media handles.

  Mark Williams:

  I mean, I can see that. That makes sense. Phone numbers. That's an interesting one.

  Tom Priebe:

  That's because customers still have your number and they want that. Make sure that the customers.

  Mark Williams:

  That's actually a really good advice, is to make sure your numbers included. You're right. I mean, I've used the same number for 20 some years. Yeah.

  Ailana Mcintosh:

  So the parties get together and they make a determination as to what it is that's actually being transferred from one to one party to the other and what the value of that might be. And then you determine the purchase price, contact your lawyer and, you know, try to get that documented the best you can. How is this transfer going to take place? Am I actually going to just transfer the membership interest I have in the. In the company, or am I just transferring the assets and nothing else?

  Mark Williams:

  Explain. So explain the difference there, because, like, you know, as a sole proprietor, I'm 100% of both. But, I mean, so let's say I was to sell my shares but not my assets. So is that saying, like, I would keep my building and I would keep, like, my trucks and stuff, but that I would sell my name and likeness and those, like, walk me through what this even is.

  Ailana Mcintosh:

  Well, it kind of depends on how things are titled. Right. So if your building, for instance, that you're operating in is not owned by Mark Williams Homes. And you're selling Mark William homes as an entity because you're selling. Are you an LLC? No, I'm an S corp. Are you a corporation, Inc. Or are you an LLC?

  Mark Williams:

  No, I'm ink. Okay.

  Ailana Mcintosh:

  You're an ink. Cause there's a difference. There's a difference between an LLC being taxed as an S corp, and then there's a corporation entity, which is, you know, those are. Everybody gets those confused, but you're a corporation. So you would sell your shares. If your building here that we're sitting in is not under title of the corporation, you're not. They're not gonna get the building.

  Mark Williams:

  Right.

  Ailana Mcintosh:

  They already.

  Mark Williams:

  That's why they keep. Sometimes they do it in their wife's name, or they do it in their kid's name, or they do it. And then you have to be really clear during the disloyalty solution, or that might be part of the deal, saying, like, hey, I want. I'm going to retire early, but I want the rental income. And maybe it's not a single building. Maybe it's a sixplex or a huge building, and you're like, you know what? I still want that return. So I can see why that would be negotiated.

  Ailana Mcintosh:

  Yeah, we craft deals like that all the time, where the facility that the business is operating out of is owned by a different entity, and it has other tenants, and so it's not being acquired by the buyer. The buyer buys the shares of the company, and then they lease the space from the seller, who gets to keep the rental income. And then there are other tenants in place.

  Mark Williams:

  Maybe a last question before we go on some personal stuff here while we close down. You hear about this. Do you guys work with employee handbooks and employee contracts?

  Ailana Mcintosh:

  Yeah. The wonderful thing about home within JohnSOn is that we actually have a wide range of practice areas. A lot of them are geared towards business owners. And so if somebody has a question with respect to their employment practices, we would refer them to somebody in the employment law department.

  Tom Priebe:

  I do that, too.

  Ailana Mcintosh:

  Yeah. As we know, we know what we're good at. We know what we can't handle, so we're kind of a one stop shop. The few things that we don't handle are criminal work, bankruptcy, and nobody wants to be involved in either one of those things. So call us if you have other questions unrelated to mergers and acquisitions, corporate work, real estate, construction, and we probably handle it.

  Mark Williams:

  Yeah. From. As we wind out here, where, for lawyers, I always think of referrals being obviously the strongest, but how does, let's say, a Helmuth and Johnson? From a business standpoint, this may be a whole nother episode, actually, now that I think about the question, what are the primary ways that they advertise and get work, even to you, Tom, and you, Alana? Like, I assume that you guys have your clienteles as you guys. I know, Alana, you've been in different firms in your career, but in general, how does a law firm operate in terms of attracting people to them?

  Ailana Mcintosh:

  I'm really lucky because I get a lot of referrals from current and prior clients. I think that speaks volumes to my relationship with my clients. Cause I'm likable and really fun to hang out with.

  Mark Williams:

  And you're wearing a pink suit, which is killer.

  Ailana Mcintosh:

  Thank you very much. But also, other referral sources might be the same group of professionals we had discussed earlier about building your team and having good insurance brokers and accountants and investment bankers. We get a lot of referrals from people like that as well, but we refer work to each other. Yeah.

  Tom Priebe:

  When things go to litigation, when things go south, I'll step in.

  Ailana Mcintosh:

  He never litigates matters that I've handled.

  Tom Priebe:

  Just to be clear, her clients get into problems.

  Ailana Mcintosh:

  My clients try to stay out of trouble as much as possible. But in the case that we actually have litigation or something that's kind of a dispute, then I will send it down to the litigation department, and Tom will be lucky enough to handle it.

  Tom Priebe:

  Yeah, we have a great team. Sometimes we'll start, some of my clients might start fighting about trademark law or something like that. And we've got trademark attorneys because I don't really know that area of law. So it's just nice to be able to just walk down the hall and talk with other attorneys. But typically, the work that comes to me, that's not my own personal clients that have come with me throughout my career is because someone else's client finds themselves in litigation. And that's what I'm there for, is to actually go to court.

  Ailana Mcintosh:

  And actually, your audience might find this to be of interest. We put on a seminar every single year for builders and contractors. We just actually had one. We had two of them in February. I invited you to one, but you weren't able to attend. We will put on an entire day seminar. It's complimentary. You get ce credits for it.

  Ailana Mcintosh:

  We provide lunch, and there's free parking.

  Mark Williams:

  Oh, man. Tell me when the next one is. I'll come and we'll make sure the audience knows where to go to.

  Ailana Mcintosh:

  Yeah. Get on our mailing list for sure. I had a client attend yesterday. It's wonderful because they're getting about 7 hours of free ce credits and networking with other builders and tradesmen and getting free lunch out of it and they got to come see us.

  Mark Williams:

  That sounds amazing. How do lawyers tend to network? I mean, I've found so much value over the last couple of years in networking with other builders. And just again, that idea that the rising tide floats all boats. You're sharing information and there's a lot of good energy. And they're your peers, they might be your competition, they're your friends. You help each other. Is it similar in, in the law world or. Not necessarily?

  Tom Priebe:

  My experience, yes. I let my work speak for myself, and the attorneys that I hate going against the most are the ones that sometimes if I have a conflict, I'll refer my clients to because they're the best lawyers. So yeah, that's typically how it works, is word of mouth. And I let my work speak for itself.

  Ailana Mcintosh:

  So yeah, I just let everybody know what I do. I think everybody's aware that I'm a transaction attorney. And I think that it's important to get to know other people and learn what they do. And I like to know a lot about my clients businesses. So I ask a lot of questions and I think ultimately that has resulted in a lot of work for me because people don't really, they don't want to know how much, you know, they want to know how much you care and so about, they want to work with people that care.

  Mark Williams:

  That's a quote right now. I'm writing that down.

  Ailana Mcintosh:

  I think you guys have that already figured out.

  Mark Williams:

  Thank you both very much for coming on. Appreciate your support of the curious builder podcast as well. And also very much thankful for you guys time. I know I don't think this is billable, but if it is, it's money well spent. And so if for those that are listening, would like to reach out to you, do you guys have individual handles or should they just go to the helm and Johnson website and find you there?

  Tom Priebe:

  Yeah, they can just go to the website and find us there.

  Ailana Mcintosh:

  Yep, our bios are there with our pretty pictures.

  Mark Williams:

  Excellent. Well, thanks again for coming on. I appreciate your time. And that's all for the curious builder today.

  Ailana Mcintosh:

  Thank you for having us. It was a joy.

  Speaker D:

  We're excited to announce that our first live event is now on sale on our website on May 16 at 05:00 in the North House in Minneapolis, the curious builder is going to be hosting Brad Levitt, Nick Schiff, Tyler Grace and Morgan Molitor to a panel discussion about networking, marketing, your brand and your business and all things related to the Contractor coalition, which is coming to Minneapolis on May 15 through May 19. If you're looking at leveling up your business, I'd highly recommend attending for those local here in Minnesota.

  Mark Williams:

  It's right in your backyard.

  Speaker D:

  This would be an amazing time to network with some of the nation's best builders with the best building practices around. Join us for the Contractor coalition, or if you just want to be there for one night and enjoy the networking and meet these superstars from around the country again, that is going to be May 16 at 05:00 at the North House. Tickets could be bought at the contractorcoalitionsummit.com as well as the curiousbuilderpodcast.com.

  Mark Williams:

  Thanks for listening to the Curious Builder podcast. If you like what you listen to, please give us a five star rating and write us a review. It really means a lot. It's a great way for us to just understand what you like about the podcast and what we can keep doing so like and review. And please share with your friends and family. Find out more@curiousbuilderpodcast.com.

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