The Risks of ‘Do and Charge’ Agreements 1

Wednesday, February 18th, 2015
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I am constantly amazed by the scale and value of work being carried out under so called ‘Do and Charge’ arrangements.

This is a loose arrangement where the work is being on a ‘reasonable value’ basis. This readership will know what I mean. This kind of ‘contract’ or arrangement is meant to be for small works. In my view, it should be used for work valued at under $2,000, and everything else ought to be under a proper contract rate or lump sum.

Yet I continue to see massive works, well into six figures, being carried out on a ‘do-and-charge’ basis. Not surprisingly, many customers raise a host of objections once the work is done. There are some yawning gaps to the ‘do-and-charge’ setup that makes it a very attractive option for the non-payer.

One of the first responses to your claim or invoice will be a challenge to the value of your work. Your client will say that the work is not worth what you are asking. That is because your ‘contract’ has no agreement as to how your work is to be valued. Even through you have claimed what you think is ‘reasonable,’ that is a subjective view and your client will offer their own version that may be ludicrously low. For larger works, the client may produce a QS report or other report on what your work is worth.

The bottom line is that ‘do-and-charge’ arrangements do not give you any control over how your completed work is to be valued. The client can advance any theories, valuations, and calculations they like and you’ll need to deal with them. Many contractors simply cut a deal and lose some money just to get something for the work.

This leads me to the next problem: a loss of leverage

The ‘do-and-charge’ deal means that most of the time you are often completing work in its entirety before you out your hand out for payment. This means the client has the benefit of all the work before you get a cent. So the arrangement hands all the leverage to the client who has the work while you need to get your money.

It is all too easy for the client to argue about value or defects at this point because they already have the work! What can you say in response? The ‘do-and-charge’ deal often has no terms or is an oral arrangement at best. You are left having to persuade your client that the work is worth what you are asking, but there is little motivation for the client to agree with you, and this is where most disputes stall.

On almost all occasions there is no written agreement. This means there are no agreed terms that you can rely on if there is a payment dispute. Your client than can insist on conditions and terms for you to meet before anything is paid; condition which were never agreed upon. But who is to say what was agreed? You have carried out the work under the belief that you could charge reasonable value. Now your client is making you jump through hoops to get paid.

The most common of these is that the client will say that they never authorised the works, or never gave you written consent to do it; even though the client was sipping a cup of tea while watching you carry out the work! Another problem is retrospective quoting. This means your client will wait for your invoice and then show you a few quotes for the work from other contractors that – surprise surprise – are less than half the price. So now the client is arguing that your work is to be valued on lump sum basis after you’ve done all the work on a ‘reasonable value’ basis!

Many contractors get stuck in this ‘apples and oranges’ argument. Yet again the ‘do-and-charge’ arrangement puts your client in control.

There is also no agreement on the scope of works to be carried out. A classic example of this is from one of our clients who was called in to do plumbing work on an apartment block. The initial problem was ceiling damage from a leak and, as is often the case, that led down a rabbit hole of problems which was eventually found to be a burst sewer pipe in an upstairs bathroom. The building manager said ‘do what you have to do’ to fix it, a perfect example of ‘do-and-charge.. The plumbers worked for five days and fixed it and presented their invoice for $19,000.

As you can imagine, all the defences came up as outlined above. But the real problem here is that the plumber did not stop to present the client with the actual scope of what had to be done. In fact, the ‘do-and-charge’ arrangement never has an agreed scope and so the client can always argue that you either did too much, or not enough. As it is not documented, you are again left to argue what was orally agreed at the time or what ‘common sense’ suggested was the scope of your work. Both positions are pretty weak and your client knows it.

I think for domestic jobs that fall under $1,500, ‘do-and-charge’ is a viable alternative, but it really is a business risk you’ll have to make. There is a very valid argument to lower that cap a long way. In any case, generally try to avoid ‘do-and-charge.’ It has too many risks with very little upside other than the time saved to prepare a quote. The ‘do-and-charge’ also tends to attract clients who like to ‘duck and weave.’

And who wants clients like that?

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  1. peer afridi

    Looks tilted in favor of one party as if siding with contractors. Even in documented contracts, There are occasions during the currency of contract when a contractor has no option but to resort to executing the prerequisite work items on Do & Charge basis to complete the missing item of work, to enable himself to conclude the dependent work that follows, essential for the completion but not included in the contract. This happens mostly in contract documents tailored by inexperienced authors.