How to stay out of court: Alex Barthet from The Lien Zone

Tom Houghton:

You’re listening to “The Building Code.” I’m Tom Houghton.

Paul Wurth:

I’m Paul Wurth.

Tom Houghton:

Today on our episode, we’ve got Alex Barthet, joining us from “The Lien Zone.”

Paul Wurth:

Hello, Alex.

Alex Barthet:

Hey, guys. How you doing today?

Tom Houghton:

Doing well. Alex is joining us from sunny Miami.

Paul Wurth:

Jealous. He just showed us a picture out his window. There are boats.

Alex Barthet:

Well, it was a little cold today. I had to put on a light jacket because it was 69 degrees.

Tom Houghton:

Oh, man. Yeah, I think here we’re at 40 something, so 35 actually.

Paul Wurth:

That’s good.

Tom Houghton:

I was way off.

Paul Wurth:

That’s good.

Tom Houghton:

So, yeah, we’ll take it, springtime.

Paul Wurth:

We’ll take it. Yep.

Tom Houghton:

So, Alex, tell us a little about yourself, about your business, about your firm that you’ve got there in Miami, and then we’ll get underway.

Alex Barthet:

Sure. Again, my name is Alex Barthet. I’m a board certified construction lawyer here in Miami. We practice just construction law. My father started the firm about 25 years ago. I joined the firm about 20 years ago. We focus on representing contractors, architects, engineers, subcontractors, developers in construction-related disputes, contract issues. I got a team of 12 lawyers, and it’s busy down here. I mean, our skyline is still dotted with tower cranes, which is pretty amazing. It’s been going strong for, geez, almost a decade now.

Paul Wurth:

Wow. So, what would be your typical client, commercial, residential, a trade, a mix of all?

Alex Barthet:

Yeah. Primarily, it’s commercial and primarily, it’s the tradesperson. It’s the contractor, the plumber, the electrician, the roofer, and most of the things we do are help people get paid.

Paul Wurth:

Help them get paid.

Alex Barthet:

Yeah, that’s a big issue for the trade as a whole, but especially in South Florida. Doing work and not getting paid is an epidemic down here.

Tom Houghton:

And you’re there to solve that epidemic.

Alex Barthet:

We are. We are. Like you, we have a podcast where we talk about construction-related issues every week, a nice little tidbit to try to help those in construction in Florida deal with these payment issues.

Paul Wurth:

So, what is the number one reason why you don’t get paid?

Alex Barthet:

Documentation is usually a big cause. I would say that comes second to, unfortunately, just ending up with either a bad contractor or owner that you signed up with, unfortunately. I mean, the best people you want to work for are people that may have you sign a contract that has lots of things in it, but then it goes into a drawer, and people work on relationships, handshakes, doing the right thing, problem solvers. It’s never very good when you’re in a dispute and you’re forced to take out the contract because then you know, “Wow. I probably didn’t make the right decision about the person I’m dealing with if they’re starting to read page 37, paragraph 22 to me at a meeting.”

Paul Wurth:

Mm-hmm. So, are most projects commercial or residential? Do most GCs have their subcontractors sign that contract each job? Or is that a purchase order? Is it a full contract? What does it look like?

Alex Barthet:

It’s an interesting question, because I would tell you over the last decade, we’ve seen a trend where in the past, every contract was a one-off. So, if I’m a GC and I hire a plumber, I have them sign a contract. What we’ve seen over the last 10 years is a migration to a master agreement and purchase orders/work orders, yet not even for the year, just like, “This is it. This is my master agreement with you.” It has no job. You’re not tied to any job, but what you do is you get all the terms and conditions out of the way. And then the work order is just price, scope and time.

Paul Wurth:

Right.

Tom Houghton:

That’s smart. So, just a huge, almost like umbrella for the …

Alex Barthet:

Correct.

Tom Houghton:

… whole term.

Alex Barthet:

Yeah.

Paul Wurth:

Yeah. Yeah. We have purchase orders in Buildertrend, and I think a lot of people use it that way.

Tom Houghton:

Yeah.

Paul Wurth:

So, do typically your clients, have they been paid at all or are they taking partial payments throughout the job and then just the final payment or the final agreed to a dollar amount? Is that what it is or what’s the dispute typically?

Alex Barthet:

Yeah. Usually, it’s two pieces that come at the end. One is unexecuted change orders, change order work that’s been done not properly, fully approved and paid for. It may not be every change order, but it may be some of them, those drag outs at the end of the job. And then the last piece is retainage, the last 10% of the job being held during the course of the job. And that’s usually where the fight starts as you get close to the end of the job. So, we’ll have clients that we represent a drywall contractor. On one job, he’s owed a million and a half. On another job, he’s owed a million and two, and that’s made up primarily of unapproved change orders and unpaid retainage.

Paul Wurth:

Yeah, I was going to make that point. In residential construction, change orders could be like $500. We’re not talking that kind of money in commercial, right? Change orders can add up to a lot of money.

Alex Barthet:

Yes. Yes. So, it may be $500 a unit times 180 units in a building. So, it adds up quickly. In South Florida, particularly, we have a lot of condominiums. So, that’s where a lot of big dollar, big ticket commercial work happens when they build the building.

Paul Wurth:

Yeah. What can a contractor do as it relates to change order specifically during the job to mitigate that, not being paid at the end of the job?

Alex Barthet:

So, we find that the biggest problem that occurs is what I would call the nice guy syndrome, right?

Paul Wurth:

Yeah, we do that.

Alex Barthet:

“I don’t want to rock the boat. We’ll get it dealt with later.” So, what they don’t do is they don’t follow the contract. Typically, these contracts are pretty simple. If someone wanted you to do change order work, then they need to sign a change order. And if they don’t sign a change order, you’re not supposed to do the work unless they direct you under what’s in most of these contracts called the change directive, which is standard provisions that exist in an AIA contract, right? So, a change directive is, “Oh, you don’t want to do it? Well, I’m going to instruct you to do it, and then we’ll agree on a price and time, or a price later.” Because most of these contracts, you still have to do change order work. You can’t not do change order work most commercial contracts.

Paul Wurth:

That doesn’t seem very fair to me, to the subcontractor. Are there any guideline for pricing then like, “Hey, you’re going to do it no matter what, but we’ll agree to price later.” What if that price is a dollar? I don’t know. You know what I mean?

Alex Barthet:

Yes, absolutely. So, many contracts have a unit price schedule in them.

Paul Wurth:

Oh, okay.

Alex Barthet:

And if not, then it usually says something like your actual costs for that change order work, plus an agreed markup. Maybe it’s two, three, five, 10%, but that’s in the contract. The importance about that is that actually, then you don’t even fight about whether it’s a change order because they’ve directed you to do it as a change order. You’re just arguing about the price. What we see a lot of the dispute happened is contractors or owners come back and say, “No, no, no, that wasn’t your scope.” It wasn’t a change. It was reasonably inferable from the contract documents, or you didn’t read note seven on page P4 of the plans, and that’s usually the pushback that we see. But I would say that if contractors can focus on forcing … Tradesmen forcing the contractor or contractors with the owner to make sure that they don’t just roll over early on when the change order is proposed, that makes a big difference in setting the tone for the rest of the job.

Paul Wurth:

Right. Setting that precedent early.

Alex Barthet:

Yeah.

Tom Houghton:

That’s really good advice. As it pertains to contractors, what are some other advice that you can recommend to avoid them having to deal with other legal issues, and that ended up contacting you then?

Alex Barthet:

I mentioned it early on, that’s documentation. Documentation is key. I mean, using programs like yours makes a big difference. I have had clients that have had success in their case because they use easy-to-use programs like yours, but they actually use them to document that, which is happening on the job. Those cases always turn up better than those cases where … I had a client who his entire case was his phone. By the way, it is a million dollar case and it was all in his phone. He said, “Don’t worry, Alex. I got everything on my … I got all the instructions via text message. I’ve saved everything in pictures on my phone.” And I’m thinking, “This is not going to end well.”

So, we had the meeting and he started scrolling through his phone to go back to show me some of these text messages. He had a setting on his phone that everything after, I think it was six months would just automatically delete. So, he got a hard stop at about six months back and it was all gone because there was nothing there, and that’s just not the way to run a small, medium, or large size construction company. You need a more robust documentation. So, number one is documentation, for sure, during the course of the job and particularly in your contract. Have your contract. Spend a few hundred dollars, maybe a thousand dollars and have your contract reviewed by a construction lawyer before you sign it.

Paul Wurth:

I’d like to talk about that. What is your opinion on the industry’s appetite for somebody like you. Are you perceived as somebody like that’s a requirement when you’re in a construction or a nuisance or an extravagance? Do people utilize lawyers as much as they should in construction?

Alex Barthet:

I would tell you it’s the market that probably dictates a lot of that. I’ll tell you a story. We represent a national electrical contractor who has an office here in South Florida, as well as offices across the country. The local president retired, so they sent the president from the Virginia office to come, which was running the northeast, which was actually a bigger office than the local office, sent him down here to run this office. We had been representing them for so long, almost from the beginning of the firm. I said, “You know what, let me go over. Let me meet him.”

I brought him a bottle of scotch. I brought him a book on Miami. I said, “You’re probably going to call me a lot as you deal with issues.” He says, “My operation in Virginia was twice the size of this one. If I talked to my lawyer up there once every two years, it was a lot.” I said, “South Florida is a different place.” Two weeks later, he called me. He’s like, “This is the wild West down here. Lo and behold, every week he would call me with some issue. So, I would tell you, at least in my opinion, in South Florida, most everyone recognizes that you’re going to need a construction lawyer.

Tom Houghton:

So, let me ask you a question. Somebody who’s starting up their construction business, maybe they’re been going for a little while, and they don’t have a construction lawyer, what would your recommendation be? What’s the best way to find a good construction lawyer, like yourself?

Alex Barthet:

So, I recommend that you get … It’s the same advice that you get about your banker. Don’t wait until you need the money to go get a loan and a credit line. Get it before you need it. The same thing is with your lawyer. Rarely, but we have clients that come to us and they say, “I don’t have anything, but I may need something. So, I wanted to meet you and hire you and just have you on the team if something were to happen.” So, I would recommend that to people.

Paul Wurth:

Is that a retainer? Do the people just … That’s a word I heard on Good Will Hunting for the first time. Retainer, what is that? Is that what they…

Alex Barthet:

Yeah. So what we do is every lawyer is a little different, but what we do is we have new clients sign an engagement agreement, which is a few pages long. It outlines the attorney-client relationship. That’s pretty standard. And then we have them pay a retainer, which is just some amount of money that sits in our trust account. So, yeah, you were right.

Paul Wurth:

I was right.

Tom Houghton:

Bonus points for Paul there. Maybe we should talk about trouble, like how to stay out of trouble, right?

Alex Barthet:

Review the plans and specifications for the site and manage the expectations of whoever you’re hiring. One of the things we tell clients to do all the time is don’t just focus on what’s in your scope, but spend time putting in exclusions or exceptions in your scope of work. “My price does not include this.” Right? “I’m not doing these things.” Sometimes I find clients who are afraid to do that. They think, “Oh, well, I’m going to offend someone. I’m not going to get the job.” But what it usually does is it starts a conversation so that you don’t have a surprise at the end, right?

Paul Wurth:

Is it because a lot of times a subcontractor is trying to get the business and sort of, “Whatever it takes, I’ll do that job”? Is that why you end up at the end of a job in some trouble?

Alex Barthet:

Yes. Some of our most successful clients that are the most profitable and use us the least are more discriminating in the work that they take, and they’re just not interested in taking any work, they want to take the right work with the right clients. I mean, we have clients that don’t use us very much, but because we’re so entrenched in the local market, they pick up the phone and they call us and they say, “Hey, Alex, tell me what do you know about so-and-so.” They’re trying to have me bid their work. I want to know about them before I start giving them numbers.

Paul Wurth:

Right. Mm-hmm. Is the reverse of that true as well from the GC side, them being particular about who they contract with?

Alex Barthet:

Yes. If a contractor gives a hard bid on a number and their sub drops the ball on them, they own that, and they’ll own all of the extra costs associated with a sub that went bad. So, they need to be very, very careful about the numbers that they carry. What we see that they do sometimes is get a payment and performance bond from subs where they don’t really trust either them or their number as a guarantee that if they don’t perform, there’s some recourse. So, I tell that to clients as well, the subs that we represent. If you bid a job and unfortunately you learn a little late that your number may not be good, but you gave a bond, you’re on the hook.

Paul Wurth:

Mm-hmm. Yeah, you’ll figure it out some way.

Alex Barthet:

Yeah, you better.

Paul Wurth:

Mm-hmm. So, would you recommend, or do you recommend with contractors that they build in an amount of loss every year? So, like retail stores, they build in amount of theft in here, right?

Tom Houghton:

Yep, they do.

Paul Wurth:

There’s a term for that. I don’t know what it is. I mean, because it’s so prevalent in construction, do you recommend a drywall company or a GC going like, “Hey, you’re going to do work and not get paid X amount per year. Just be ready for that”? Is that common?

Alex Barthet:

I think the more common is that what we tell people is you should build in legal as a component part of your costs of doing business.

Paul Wurth:

That’s a plug for you. Yeah.

Alex Barthet:

Right?

Paul Wurth:

Yeah.

Tom Houghton:

That’s a good plug.

Paul Wurth:

I’m not saying you’re wrong. Yeah, that was good. That was good.

Tom Houghton:

That was good.

Paul Wurth:

I’m in sales. That was a good.

Alex Barthet:

There are clients that come to us, and they say it’ll cost $1,000 for us to review their contract. And so, I didn’t have it in my numbers. Well, then your numbers are wrong because unless you’re going to read this 30 page contract that’s full of legal ease and understand it yourself, you’re going to have to have a professional do it. I mean, you’re accounting for your CPA, right?

Paul Wurth:

Right. Yeah.

Alex Barthet:

I mean, you know you’re going to pay a CPA for your taxes or audit for bonding. Legal should be no different, whether you want to carry it by job or some number at the end of the year.

Paul Wurth:

Yeah, just a yearly overhead. So, maybe for the listeners, in your yearly budget, account for legal fees, but also software. Same thing, right?

Alex Barthet:

Absolutely.

Paul Wurth:

Yeah, there you go.

Alex Barthet:

Absolutely. Good plug. I like that.

Tom Houghton:

Two shameless plugs apparently. What’s happening? We’re running out of time here. Let’s wrap this up. Let’s talk a little bit more about “The Lien Zone.” So, you have a website. You have an app. You have a podcast. You have videos on there. One of your video titles I definitely wanted to watch and it was called What? I Can be Sued 13 Years After I Finish a Project? That’s a good tagline.

Alex Barthet:

You like that?

Tom Houghton:

Yeah, I did. That’s good.

Alex Barthet:

I came up with that without the help of someone like Brooke.

Tom Houghton:

Oh see, there you go.

Paul Wurth:

Producer Brooke.

Tom Houghton:

Producer Brooke got a shout out.

Paul Wurth:

Nice.

Tom Houghton:

She’s beaming right now.

Paul Wurth:

Yeah.

Tom Houghton:

Yeah.

Paul Wurth:

What does that mean? There’s a story behind that, right?

Alex Barthet:

Yeah. Well, so what happens is in the state of Florida, you can be sued. The old rule used to be 15 years after a job. Then they changed it about 10 years ago, and they moved it to 10 years. Now, they changed it again, and they are now slowly having it creep up again so that … We have clients and they’re like, “I don’t even have my records. How is it that I can get sued so late after the end of the job?” And the answer is in Florida, for construction defect, the answer is yeah.

Paul Wurth:

So, having records of everything is really important, obviously.

Alex Barthet:

Yes. Record retention, everything in organized location by project, photos, absolutely critical.

Paul Wurth:

It sounds like I’m familiar with. It sounds like a Buildertrend.

Tom Houghton:

It sounds like a program you’re familiar with, Paul.

Paul Wurth:

It sounds like Buildertrend.

Tom Houghton:

It does sound like Buildertrend.

Alex Barthet:

Right. On the residential side, the tips are the same, even though the values may be smaller. Documentation remains absolutely critical. I tell clients, “You should be taking pictures of your job site at least every week.” By the way, not just of the areas in the property, but what’s happening around the property. So, for example, if you’re a residential contractor, “When is the last time you took a picture of the front of the house, the back of the house?” The owner says, “Hey, look, this tree got hit by somebody.” “Well, it wasn’t me. Look, here are the pictures.”

We’ve had a lot of clients get out of trouble because they can produce a picture and it shuts up an owner pretty fast. So, documentation is key, picking the right subs, having a cadre of subs that trust you, that you pay, so that they will stand with you when the project may not be going well. And then be very careful about the people that you work for, making sure that ideally, they give you a little bit of money in advance. In Florida, there are certain rules that prevent you from taking too much money in advance. Typically, anything more than 10% creates some issues, if you take that in advance. There’s ways to do it, but you just have to be careful.

No matter how upset you get, be very careful about walking off the job. That’s both residential and commercial because when you decide, “You know what, I’m done. I’m going to leave,” you potentially give the owner the right to hire someone else to finish your work. And depending on how your contract is written, you may be liable for those additional costs, right? So, if you had $50,000 left to finish the job, and then you get up and leave and someone decides later, some judge, that you shouldn’t have left when you did, you didn’t have the legal rights to leave, and they now spent $75,000 to do what you thought would cost 50, you’re going to have to write them a check for that extra 25. So, we always tell clients, “Calm down. Talk to a lawyer. Have them read your contract if they didn’t read it at the beginning. Understand your rights before you take a very drastic move during the course of construction, especially if that means picking up your stuff and walking off the job.”

Paul Wurth:

So, quick takeaway, take 10 minutes. Just a simple takeaway, take 10 minutes every week and take photos around the property and in the property. That’s an easy one.

Tom Houghton:

That’s great.

Alex Barthet:

Yeah. Good.

Tom Houghton:

Okay. Alex, thank you so much for joining us on the podcast today. Again, check out the shownotes. So, that way, you’ll see a link to Alex’s website, thelienzone.com. You’ll also see links to his podcast on there, to the app that he has as well and just more information about the show today, anything that we talked about in detail. So, check out our shownotes page at buildertrend.com/podcast. Thank you again, Alex, for joining us.

Paul Wurth:

What is “The Lien Zone?” Final question, what is that?

Alex Barthet:

“The Lien Zone” is a place where we publish free forms you can download, of videos you can watch, articles you can read, and the podcast. We just give away information. Our goal is to make those that deal with construction in South Florida smarter and less prone to having to need a lawyer by giving them the information that many lawyers have locked up in their head.

Paul Wurth:

Mm-hmm.

Tom Houghton:

That’s awesome.

Paul Wurth:

If you don’t need a lawyer, that’s good. But if you do need one, call Alex.

Tom Houghton:

It’s true …

Alex Barthet:

I want that tag line.

Tom Houghton:

… or check out “The Lien Zone.”

Paul Wurth:

Right?

Tom Houghton:

Yeah, that’s a good tagline.

Paul Wurth:

That was good.

Tom Houghton:

That was good.

Paul Wurth:

All right. Great.

Tom Houghton:

Thanks again, Alex.

Paul Wurth:

Thank you.

Alex Barthet:

Thank you, guys.

Tom Houghton:

What a great conversation we had with Alex there.

Paul Wurth:

Yeah. I mean, it was interesting. I think it pertains to a lot of what our clients probably should be doing.

Tom Houghton:

Yeah.

Paul Wurth:

Like he said, maybe you don’t think of that when you do your annual budget, maybe you don’t do an annual budget at all.

Tom Houghton:

Maybe you need to start.

Paul Wurth:

Yeah, I don’t.

Tom Houghton:

Yeah.

Paul Wurth:

For sure. I probably should.

Tom Houghton:

You probably should. We have a tool for that. We do. Yeah.

Paul Wurth:

But it should be a part of it, right?

Tom Houghton:

Definitely. And I love that he’s just out there with his Lien Zone website and all those other resources he has, just sharing the information. So, that way, if you want to tiptoe into this, you can go check out their website for more information, and I would highly recommend it. There’s some pretty interesting stuff on there.

Paul Wurth:

Yeah. And a plug for Buildertrend because people don’t know this, some people don’t know this, we actually have lien waivers in …

Tom Houghton:

Built in.

Paul Wurth:

… our product, and it’s inside of the purchase orders feature. So, if you don’t use purchase orders, you may not know this, but we actually have electronic lien waivers. You can send out to your subs and vendors.

Tom Houghton:

They can sign right there on the mobile app or on their computer or whatever.

Paul Wurth:

If you don’t know that, contact your coach.

Tom Houghton:

You should.

Paul Wurth:

You may have caught this. He said the word cadre in there. I have no idea what that meant.

Tom Houghton:

Yeah. Check out the shownotes for the definition.

Paul Wurth:

So, we’re going to do shownotes on the word cadre.

Tom Houghton:

Yep.

Paul Wurth:

I was too embarrassed to say I didn’t know it.

Tom Houghton:

That’s okay.

Paul Wurth:

He’s a lawyer. He’s a lawyer. It’s intimidating.

Tom Houghton:

It’s true. Yeah, he’s a smart guy. All right. Thanks so much for listening to “The Building Code.” Make sure you check out our shownotes page. Also, don’t forget to subscribe and rate our podcast. Thanks so much for listening, and we’ll see you next time on “The Building Code.”

Paul Wurth:

Appreciate you.