Imagine that one of your engineering friends referred Burton Consulting, LLC to you to design a new office building. You are told that Burton Consulting does “business consulting”. Bill Burton is a great sales person and tells you that his business is growing “fast, fast, fast” and he’s got financing “all lined up.” He asks you to start work immediately on the conceptual design. Should you? What should you do first?
The Client That You Do Not Know
Bill Burton might be a great person and a potentially wonderful new client. Nevertheless, before you start working for him, you need to conduct proper due diligence to protect your company. Here are some questions, you should consider:
- Who are the real owners of the LLC?
- If the potential Client is a one-time special purpose LLC, you need to fully understand the ownership and inquire if there is a solvent parent company.
- Will the parent guarantee the debt of the LLC?
- Has this Client done similar Projects?
- Where were they?
- Were they successful and if not, why not?
- Were there liens or claims filed against those projects for non-payment? Run a Google search and check the public records in the state and county where the prior projects were located and see if liens were filed or that client (or his other entities) has been a defendant in lawsuits before.
- Who is going to serve as the client’s primary representative and are they experienced?
- What is the client’s budget? Is it realistic? Does it include contingency for unanticipated events?
- How is the Project and your fee going to be financed?
- Is there financing already in place?
- Who are the lenders? Will they be involved in making payments?
By asking these types of questions, you will find out if this is a project that you should take on and under what circumstances. For example, if the client appears to have solid financing lined up but has no experience with construction projects, you know that you will have to educate that Client about what to expect so that you establish realistic expectations before you start work. You will also need to add additional time into your calculations because that Client will require ongoing education throughout the course of the Project. On the other hand, if the Client has experience but financing is shaky, you may decide to take the job but require an upfront payment or very short payment terms. If the Client has a poor track record of paying its consultants and liens were filed against other projects, it may be a project that you should not take.
If you have any questions about client selection or other risk management issues, we would be glad to help you. The attorneys of Gibbes Burton are passionate about helping professionals and businesses to minimize risk and build success.