A presentation by

Peter J. Lamont, Esq.Law Offices of Peter J. LamontHawthorne, NJ – Massapequa, NYwww.peterlamontesq.com plamont@peterlamontesq.com

2011 Legal Issues & Risk Management Strategies for the Kitchen, Bath & Design

Industries

• Desired objectives are more likely to be achieved;

• Damaging things will not happen or are less likely to happen;

• Financial bleeding will cease and the Red will become Black.

Success in 2011 Depends in Part on Successful Risk Management

Benefits of Successful Risk Management

• Limiting the Scope of Work• Understanding the contract• Utilization of checklists• Understanding Indemnification• Learning to effectively deal with

problem customers• Proper hiring of subcontractors• Aggressive Collections

How Does Risk Management Apply to Your Showrooms?By & Through:

Question: What is Your “Scope of Work”?

PART 1Limiting the Scope of Work

1. Design Cabinets2. Sell Cabinets3. Coordinate Delivery of Cabinets 4. When Poggenpohl is installing,

coordinate Installation of Cabinets 5. Provide outstanding customer service6. Get paid

1. Electrical issues2. Plumbing issues3. Inappropriate modification of cabinets4. General Contracting5. Project Coordination6. Appliance installation7. Moving services

Not in the

Question: What activities are not in the scope?

• Scope creep refers to uncontrolled changes in a project's scope. This phenomenon occurs when the scope of a project is not properly defined, documented, or controlled.

• External vs. Internal Scope Creep.

Scope Creep

• Customers need to know from the start what we do and don’t do.

• Contractual language should be reinforced by you.

• Never agree to do anything beyond the scope – it always leads to trouble or a waste of time and/or resources.

• Use of new checklists and obtain customers sign off.

• Proper note taking. • Alert the home office if you sense Scope

Creep.

Avoiding Scope Creep & Defining the Scope

New Contract Developments

• 2011 will bring a new simplified contract.

• In addition the new contract we are working on a “cheat sheet” that will explain the simplified contract.

• Your input is critical so speak up!

• Please provide questions, comments on the suggestion sheet.

PART 2Contracts

• Knowledge of the contract puts customers at ease

• Allows you to address the scope of work and limitations of the contract

• Makes you more confident when dealing with problem customers

• Saves money, time and prevents confusion

Importance of Understanding the Contract

• Scope of Work• Contract Price and Payment Terms• Estimated Delivery• Limitations• Limitation of Liability & Damages• Poggenpohl’s rights in case of breach by

purchaser• Warranty• Purchaser’s responsibilities• Checklists• General legal language (severability,

choice of law, etc.)

General Contract Issues

• Checklists are becoming the “go to tool” in many industries • Will clarify any contract confusion• Can be used as admissible evidence• Covers your collective ass• Clearly establishes the pre-contractcommunication with the client• Checklists will include:

Installation Services ChecklistGeneral Contract ChecklistDesign & Measurement Checklist

Part 3New Contract Checklists

• Typical Clause Indemnification and Hold Harmless“Individual agrees to indemnify, defend, and hold harmless Company “X” and its officers, directors, agents, and employees from and against any and all demands, claims, and damages to persons or property, losses and liabilities, including reasonable attorney's fees, arising out of or caused by individual's negligence or willful misconduct.”

Part 4Understanding Indemnification

• At its most basic, an indemnification clause says: “If you get in trouble because of something I did, I'll bail you out.” Indemnification is a way of making sure that the liability ultimately falls to the person who is responsible for the damage or loss.

• Indemnification agreements can be one-sided or mutual.• We must be carful when we are asked to indemnify an entity

or individual• Indemnification language is tricky and is not straight forward.• Thousands of Declaratory Judgment suits are filed each year

to address indemnification issues.• Never sign an agreement containing an indemnification

clause unless it has been authorized by legal or the home office.

• Indemnification and additional insured status are not the same.

Simply Stated:

• Landlord Agreement – Indemnify for use of the subject premises.

• School Construction – Fight between subcontractors. GC required school to defend and indemnify.

• Snow Removal at Mall – Slip and fall indemnify for negligence

Indemnification Examples:

Customers who present a challenge in business dealings

come in several varieties, including:

• Angry • Impatient • Intimidating • Talkative • Demanding • Indecisive

PART 5Learning to Deal with Problem Customers

• Never argue with customers when they are angry, displeased or complaining. If you allow a customer to push your buttons and lose control of yourself, you've lost control of the situation. Don’t show boredom, irritation, disdain or displeasure.

• Your customer wants to be listened to, acknowledged and understood.

• Maintain eye contact. • Show your attentiveness by standing or sitting up straight;

leaning on the wall or slouching makes you seem inattentive and/or disinterested.

• Uncross your arms as this indicates you are listening with an open mind.

• Let the person talk, and pay close attention. Repeat or paraphrase some of what you hear if needed.

Get Control of Yourself

• It’s sometimes easy to fall into the trap of blaming it on the customer (“Well, this is what you asked for!”). Whether true or not, putting the blame on the customer is a poor approach and can even damage your reputation with that customer.

• Blaming the Company is no better. (“Well, the company won’t let me do that “) Don't acknowledge that you or your company is to blame. Better to say you will consult with company executives and see what can be done to try to solve the customer’s issue.

Don't Blame the Customer or the Company

• We have all seen this done and it just never works to anyone’s advantage. Your promise is a promise in the name of the company so be sure that it can definitely be kept before you make it. Keep in mind that the customer has people to answer to as well, so their reliance on your “promise” could have embarrassing if not costly consequences for them. Your “happy” customer could turn into a very troublesome one.

• Examples: Design promises, delivery promises, promise of no damage, etc.

Don’t Make Promises You Can’t Keep

• If you would have taken the time to read this… • I already explained that to you…• You need to calm down and look at the big

picture…• Sorry, but that’s just the way we do things…• That’s not our fault…• I can’t help you on that, it’s not my problem…• I don’t know how many times I have to say this…• Listen to me, you’re not getting it…• You’ll finally figure out that we’re right…• You need to be more reasonable…• There’s nothing else I can do…• We need to cut this short…

Phrases to Avoid

1. Communicate Well2. Act Professionally at All Times3. Try to Understand Their Side4. Don’t get Offended (It’s Not Personal)5. Recognize the Fear Element6. Be Honest and Open7. Try for a Small Success8. Build Trust & Relationships9. Help Them Succeed/Find A Reasonable

Solution10. Recognize and Respect their Efforts

What Should You Do?

Question: What’s the big deal/concern when hiring a subcontractor?

Part 6Proper Hiring of Subcontractors

•Agent of Poggenpohl /Vicarious Liability•Lack of proper insurance (require proof)•Licensed Business•Illegal Aliens•Training Certifications (i.e. Renovation, Repair & Painting Rule – Lead Paint)•Indemnification of Poggenpohl

• You must use the Subcontractor Qualification Checklist and Certification for each and every subcontractor you hire.

• Copies of the Completed checklist and Certification should be sent to legal via e-mail, fax or regular mail.

• Annual completion. • Refusal to sign should raise a red flag.• If a problem arises contact the home office

or legal immediately.

Use the Subcontractor Checklists

Question: What can improper subcontractor screening result in?

Failure to Conduct Proper Subcontractor Screening

Can result in:

1. Law suits by clients under agency theory2. Loss of profit3. Fines (local, state and/or federal)4. Damage to reputation

• Question: When is a sale a sale?

Part 7Aggressive Collections

A sale is not a sale until it’s paid for.

• Time is of the essence! Avoid Accounts Receivable Depreciation.

– The more delinquent your accounts become, the less collectable they are. At ninety days delinquent, your accounts start depreciating faster. By six months delinquent, they have depreciated so much that only thirty (30%) percent of your money will be collected (if you are lucky). This rapid loss in value is called Accounts Receivable Depreciation.

• Start Early, Recover More

– Forceful and early commercial collection demands are necessary. – Don’t be afraid to ask for what you deserve.– Collection is uncomfortable and rarely friendly.

A.R.D.

• Establish A/R tracking procedures for your showroom• Create simple A/R spreadsheet (Excel, Word, etc.)• Calendar payment due dates• If payment is not received by the due date, the next day you should

send a “friendly reminder” letter which requests payment within 3 business days. My office should be blind carbon copied on the letter.

• If no response after the three business days send a “warning letter”• The “warning letter” should warn that the balance is past due and

we received no response to our prior payment reminder. If we don’t receive payment within 3 business days we will have no choice but to turn this matter over to counsel. My office should be copied on the letter.

• At this point the account should only be 30 + 6 business days delinquent.

• My office will send the next correspondence threatening the filing of a lien, lawsuit etc.

Collection Procedures

• Liens have strict deadlines depending upon the state.• Some states require pre-lien notices.• A lien period is triggered by the last day of work on a

job/project.• A lien is filed against the debtor and property owner.• A lien is merely a security interest. It does not entitle

you to payment.• A lawsuit to foreclose on a lien must be filed. In many

states suit must be filed within 1 year.• Liens may be discharged in bankruptcy.• Don’t depend on a lien for the recovery of monies.

Liens in Collection Question: What is more effective a lien or lawsuit?

• Adherence to risk management guidelines can reduce customer “giveaways” .

• You are the captain of your ship, set the stage and your employees will follow.

• Reducing risk increases company revenue, which in turn benefits you and your employees.

• Let’s make 2011 a new beginning.

Summary

Should you have any questions, want to kick around anidea, or encounter a possible legal problem, please donot hesitate to contact me at:

Questions / Legal Assistance

Law Offices of Peter J. Lamont146 Florence AvenueHawthorne, NJ 07506Phone: (973) 949-3770  Fax: (866) 603-0471 Toll Free: (855) NJLAW01 (655-2901)

E-Mail: Plamont@peterlamontesq.comwww.peterlamontesq.comwww.kitchenandbathattorney.com