Cross Examination: Don’t Let Your CATS Turn Into Dogs

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Before we know it, the catastrophe season will be upon us again. Restorers will be tempted to jump into the action, drawn by the instinct to render aid to those in need, and the potential for huge job volume.

Entering the CAT world is one of the riskiest business decisions a contractor can make. They often return home from removing water from their customers’ properties only to find themselves under water, financially and legally. The harsh reality is that CAT work is a minefield, but your Ol’ Uncle Ed is here to share just a few tips that might reduce some of the many risks.

Ignorance is not bliss. Running a successful local restoration business addressing single losses is very different from venturing into a different market in the chaos of a regional disaster that impairs large numbers of properties. Although many of the princi­ples of drying, remediation, and reconstruction may apply to CAT and non-CAT work, there is a world of operational and legal difference between the two. Restorers are shocked when their tried-and-true methods backfire when they try to run a business that does CAT work.

Planning. It is unwise to seek CAT work merely to treat a case of FOMO. CAT work requires many months of strategic planning and significant involve­ment and guidance from a seasoned mentor with a proven track record doing CAT work. The learning curve is steep.

Think of a place on earth that is the polar opposite of where you live. Now imagine all the things you would need to take into account if you planned to pick up your business and move it there for a month.

For example, let’s say you are a successful resto­ration company is based in New York City, and for a month, you will operate in the Amazon rain forest because all the cool cats are doing it. You may have the Big Apple’s rules of the road, but few––if any––of them will apply in the Amazon.

  • What sorts of health and safety risks would you face in the foreign environment?
  • How would you manage the logistics and lodging for personnel and the transportation and protec­tion of equipment?
  • Will a native help acclimate you to the local busi­ness language, etiquette, and norms?
  • What are the local rules of engagement and how will you meet the legal qualifications to perform the work?
  • How will you get your business and how will you confirm there is a reliable source of payment for your services?
  • What resources would you need to sustain your operation for many months as you wait to get paid?

Don’t go without an invitation. One of the biggest problems restorers face with CAT work is the difficulty signing jobs. Just because thousands of properties have been damaged does not mean you can get good paying work by merely showing up. “We’ll find work when we get there” is a foolhardy strategy. The safest route is to work as a subcontrac­tor for an experienced contractor with a successful business that is well-established in the market where the disaster occurred.

It behooves you to befriend restorers who operate in CAT zones and to offer to provide services when their areas are struck. But just because your pal in Pensacola says: “We have lots of work, come on down!” does not mean you should just hook trail­ers to the trucks and take off. Has your pal actually signed up this work? If not, by the time you arrive on the scene, you may be sorely disappointed to learn that although your pal’s phone was ringing off the hook, he didn’t sign any jobs. By then, you’ve spent many thousands of dollars on fuel and payroll to get your team into the area. Keep in mind that the own­ers of damaged properties are in crisis and are likely to sign a contract with the first entity that physically arrives at the scene. You may leave your shop in Minneapolis with lots of great leads only to find that your competitors beat you to the punch when you arrive in Pensacola days later.

Licensure. The legal ramifications of perform­ing work without a license can be extremely severe, and some of them include forfeiture of payment and criminal penalties. Most states have contractor’s license requirements that apply to those who remove damaged building materials. You may have stellar credentials in your state, but you probably need a contractor’s license to remove drywall in your neigh­boring state. Many falsely assume they can simply work under someone else’s license. Contractor’s licenses are not umbrellas. You can’t stand under someone else’s at the spur of the moment. Although certain areas may temporarily relax licensing requirements in a crisis, many states require workers to have a license or be a W2 employee of a licensed contrac­tor. Don’t cut corners here.

Contracts. Each state has specific requirements for what must be included in contracts. Although most of these rules apply to residential work, there are some that apply to commercial work, as well. If you don’t provide the required notices and disclosures, your contract could be declared “illegal,” which will be a nightmare. Engage the services of a qualified local attorney to prepare contracts that comply with the law of the state in which you will work. Master Service Agreements set forth terms that apply to all transac­tions between a service provider and a customer. They eliminate the need for individual contracts and are great tools to accelerate the sales process in a crisis.

Pricing. It is way more expensive to do CAT work than other work. Will your customer agree to pay appropriate premiums to offset those costs? Are you prepared for the possibility that the adjust­er or third party consultant may expect you to bill standard rates charged by local companies? If your customer won’t agree to pick up the difference, you may regret taking the job at all. Get a signature on a written contract that spells out your prices before you pull out of your parking lot. Make sure the con­tract memorializes the customer’s understanding that the customer is directly liable for payment of any amount not paid by insurance.

Standards of care. What do you do if labor and equipment are in short supply and you are unable to perform the work exactly as you would under ideal circumstances? Don’t assume you can simply get a signature on a release of liability and then do the job however you wish. See How to Save Your Bacon with a Strong Release of Liability from the November 2021 issue of C&R. The RIA, the IICRC, and the AIHA convened to form a joint task force and published a report for entitled 2021 Winter Storm CAT Events. It outlines triage strategies, including the important concept of stabilization. Stabilization focuses on the four following steps: assessing occupant and worker health and safety concerns, identifying the source(s) of water penetration and migration, removing bulk water and select saturated building materials, and providing for humidity removal or control.

Collections. The restoration industry is not the only industry that is overtaxed when a catastrophe strikes. The insurance industry is overtaxed as well. The reality is that it may take the carriers months to analyze the claim and then, “surprise!” – claim denied. No coverage. You may have done 10,000 water losses in your career without a coverage problem, but floods are different. Many policies exclude floods. Even if the customer has a flood policy, it will have some fairly strict limitations. Check the latest FEMA guidance for the limitations on payments that can be made from the Standard Flood Insurance Policy (SFIP). You may be sur­prised to see the level of detail, especially in regard to how charges may be denied based on the types and quantities of drying equipment used. Just be­cause a building’s electrical system is not operable does not mean the charge for a generator will be allowed. Insurance coverage is often highly uncer­tain in CAT losses, so it may be very risky to accept CAT work for clients who lack the resources to pay the full amount of a restoration invoice. The prob­lem is particularly bad in the food industry (restau­rants and bars). They may appear to be thriving, but may actually be leading a hand-to-mouth existence (pun intended).

Refuse to go upside down. Where permissible by local law, collect deposits in advance. Big ones. The contract should clearly explain the deposit arrange­ment and your right to terminate services if you are not paid in a timely manner. Don’t abandon clients without fair warning. When you’re close to using up the deposit, collect another deposit before continuing with the work. Rinse and repeat.

Don’t neglect your bread and butter. Adding insult to injury, when restorers return home tired and financially exhausted from CAT work, they realize they have neglected their good customers. Now, on top of everything else, their core business is suffering. Be very selective about the work you accept. Sometimes it is more profitable to say “no!” People will respect your honesty if you tell them you do not believe you can do them justice.

Service first. Some restoration companies have not recovered from their first CAT loss. Entering a CAT zone staggering may do indelible damage to your business reputation, with far-reaching effects. On the other hand, CAT work presents great opportunity if the timing is right. If you are fully prepared, legally, financially, and operationally to venture into a CAT zone and provide superior service by overcoming the many obstacles, it can be very rewarding.

Sales do not define greatness.

Service defines greatness.

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Edward H. Cross, Esq.

Edward H. Cross is president of Law Offices of Edward H. Cross & Associates, PC in Palm Desert, California. Since 1997, he has specialized in representing restoration contractors across the country. He can be reached via email at EdCross@EdCross.com.

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