Midway through year two of the grimmest recession in decades, many architects are wondering where their next projects are coming from. Across the spectrum of project types—from large public commissions to private homes—the pickings are slim. But those lucky enough to still have clients—and the staff to serve them—are faced with yet another worry: how to collect payment for work completed. Chasing down debt is unpleasant, and it's a task architects are doing more of these days. Until the banking industry regains its footing, the reality is that many clients are dealing with shrunken or frozen credit lines—or worse, bankruptcy.
Getting paid requires constant vigilance even in good times. It's accounting 101, the topic on tap at industry conventions and business round tables. But these days, the standard advice—ask for a retainer up front, bill promptly for services rendered, and work only with clients you trust—is no guarantee of solvency. Now, previously reliable patrons are months behind on their payments. That leaves design firms, particularly those who've maxed out their own credit lines, in financial limbo and straining to cover operating costs. Residential architects are many things to many clients, but banker is a role no one wants.
If it's any consolation, almost no one is immune from the economic fallout. There's the sense that we're all in this together. So, as we wait for the tide to turn, what's an architect to do? Everyone wants the job to go on. Even a token paycheck is better than none.
But with lending at a virtual standstill, what does it mean to be resourceful in your various financial relationships? And when it comes to debt collection, what's the right balance between persistence and patience? This is no time to burn bridges, after all. A fine line must be walked.
trickle-down economy At many architecture firms, work was continuing apace until a year ago, when the mortgage crisis turned the credit markets to ice. A recent phone call to Steven House, AIA, House + House Architects, San Francisco, found him penning a reminder to a client that an invoice was six months past due. The delinquent client is a developer with whom the firm has a solid 20-year relationship. But after working together on two successful resorts in Honduras, the third one has stalled. “He began the project right when the economy started turning and has sold only two units this year,” House says. “It couldn't have launched at a worse time.”
As House tells it, after he sent out the $30,000 invoice for completed working drawings, months went by. The developer promised to send $10,000, but more time passed. House got on the phone again and negotiated a payoff of $5,000 increments. Recently, with the balance down to $7,500, the client offered to pay $3,750 and the other half the following week. But no checks have arrived. “I think architects need to realize that the developers, who in many cases are their primary clients, are in the same boat that architects are in,” House says, adding that a two-way phone conversation is more effective than a letter. “You don't want to create an adversarial situation, so you're as patient as possible,” he explains. While it's frustrating to get paid in small chunks, these are unusual times. The bill will eventually be paid off, House adds, and there will be no hard feelings.
A similar scenario is playing out at GYMO, an architecture and engineering firm in Watertown, N.Y. One bright spot in this town, near the Canadian border, is the demand for new army housing at Fort Drum. “We aren't seeing a decrease in billables, but we are seeing an increase in receivables,” says principal Stephen W. Yaussi, AIA, LEED AP. That's because most of the work is being done off-base and with private developers, at least three of whom owe the firm money. They say the financing they counted on is not there.
“Some of them we believe will come through in the long run, but others we're worried about,” Yaussi continues. “We sent our smaller clients to collection agencies, but you're not going to do that for a big developer who owes you six figures.” Until the lending situation thaws, several of his clients are chipping away at their bill.
One defensive strategy is to break up payments into small chunks to reduce the amount left on the table if a client shuts down the project, suggests Daniel R. Long, RA, NCARB, of Daniel R. Long Architect + Associates in Geneva, N.Y. Another is to drill clients on the importance of speaking up when they're troubled about how things are going. That discussion heads off accusations about the quality of work as an excuse for not paying the bill. “We've had to play chicken with a few clients to obtain payment prior to sending out drawings for permitting,” Long says. “It's a hard thing to do, but the good clients don't question it.”
Since last fall, collections have been a problem across all project types at Grew Design, an architecture and construction management firm in Woodbury, Conn. Lump-sum payments are almost a rarity these days. A private client who lost his Wall Street job is honoring a stretched-out installment plan for design work on a major house renovation. Two developers are also paying in increments each month, hoping to refinance to free up money. But a third has “just plain bailed. We'll have to pursue collection or suck it up and say, Is it worth the time and effort?” says CEO Milton Gregory Grew, AIA. Either way, it will take each of his three other clients a year to pay back the money they owe. While he waits, Grew has had to borrow money to make payroll.