You need to buy what? - A sample chapter from The Beancounter

 

“Large latte please.” “Right away ma’am.” Melissa has finished her morning walk and has stopped at a small bistro not far from the resort. After placing her order, she takes a seat at one of the tables close to the street, and starts reading through a tourist brochure which was left behind.

 “Hey Isaac!” As Melissa is enjoying her morning drink, she sees Isaac walking out of what appears to be an apartment building. “Good morning, Melissa!” Isaac, who had started to walk the other direction, turns and crosses the street to join the young lady.

 “Is that where you live Isaac?” “I do have a suite there, but I own the building.” Isaac takes a seat across from Melissa. “You’re a landlord as well?” “That is one of my investments.” Isaac explains that most of the clients are ‘snowbirds’ who only come down for the winter, but there are two apartment suites rented year-round.

 “You seem distraught this morning Isaac.” “I’m getting some of the suites renovated, but I’m having problems with the contractor.” “Oh, why’s that Isaac?” “The problem is the work is not being done correctly.” “Did you do a written contract?” “Absolutely; but despite me explaining and documenting it, we are having our differences.” “That’s not good!” “One of the issues we have to be careful with is the language barrier; although my Spanish is good, I always get the contracts checked over by a local lawyer friend of mine.”

 “So Isaac, what’s the problem?” “Well, he was to repair some cracks and paint the walls and trim.” “Sounds straight forward.” “Yes, but a week later the walls are cracked again, and he wants more money to fix it!” “No warranty?” “The issue is not the right mix in the coatings; I’ve had walls fixed here by other contractors that have gone for years before having to re-do them.” “I have never heard of this Isaac.” “Yeah, drywall is not the same as concrete; both have their pros and cons.” “So, what about the warranty clause Isaac?” “That’s the problem; he tries to blame the building and the way it was built.”

 The barista brings Isaac a black Americano, and the two discuss other issues Isaac has had. “One of the problems Melissa is the court system on the island often leans towards the contractor.”

 “You mentioned you were interested in contracting Melissa.” “Yes, I looked at it as a cross between law and accounting.” “Well, technically contracting is not an accounting function, but it has been my experience that accountants often get involved in that portfolio. For example, when I worked in government, we had contracting specialists who were part of our division; not all departments worked this way though.” “So, you have experience with contracting Isaac?” “We had specialists, but I was very much involved, so I would have to say yes; in fact, it was probably the most intriguing part of my job.” “I read the story about the misplaced comma that cost a company over a million dollars Isaac, and I was hooked.” Isaac Laughs. “I showed that story to three different lawyers Melissa, and they each scratched their heads.”

  “Do you remember all of the elements of a contract Isaac?” “Oh yes, and my favorite being capacity.” “Why! Are you lacking it?” Isaac and Melissa share a laugh. “Perhaps, but I do recall many managers and contractors that I had to question based on some of the things they would come up with.” “Do tell Isaac?”

 “We had this manager who ordered six units of a specialized piece of equipment at a cost of $7,000 each. These items had to be sourced by the supplier as a special order, and it took three months to receive them. When the items arrived, the manager decided they were not quite what she was looking for so returned them.” “And?” “The supplier charged us a 30 percent re-stocking fee.” “Sounds unreasonable.” “It was a special order Melissa, and because our manager did not clearly outline her requirements, nor did she properly research the items she ordered to ensure she knew what she was buying, this is what it was going to cost!” “Requirements definition... I remember this part from a class I took Isaac.”

 “One of the elements of a contract is sum consideration; the obvious part is the money I will pay, the not so obvious part being what it is you are going to give me in exchange for the money.” “So, an unclear definition of requirements cost your company over $12,000 for nothing.” “I though you weren’t good at math?” Melissa smiles. “It would have had we not had a contracting officer who had been around a long time, knew a lot of people, and found a buyer for the items.” “Whew!” “Worth her weight in gold Melissa.”

 “There were other issues though Melissa, such as the fact the manger only had $10,000 in spending authority, and trade agreements required a solicitation for an order over $25,000.” “But the items were $7,000 each?” “But the combined order was $42,000.” “What if she made six different orders Isaac.” “Nope; we call that ‘contract splitting.” “So, it was a bit of a mess Isaac?” “You could call it that.”

 “There are many stories I could tell you; for example, a bidder who forgot to submit all of his documents before closing yet the manager wanted us to be flexible” “Let’s just throw away two hundred years of contracting practice and precedence Isaac.” “Precisely, and don’t even get me started on the topic of Employer – Employee relationships!” “We talked about that in Business Law class Isaac.” “Well, it is a real problem Melissa; people want to be contractors versus employees, but due to a number of factors they are deemed to be an employee.” “So what happens in these cases?” “You end up paying pension entitlements, unemployment insurance premiums, and remitting income tax for them.” “Wow!” “And you could end up paying holiday pay and severance depending on the jurisdiction.”  “Oh no.” “Here on the island it is a big deal as the laws require large Christmas bonuses and severance pay, and many of the contractors think they are entitled to these!” “The bonuses are mandatory?” “Oh yes Melissa… and they can be substantial!”

 “I remember a few of the factors they look at when reviewing these cases Isaac.” “It could be a number of reasons Melissa: directing their work and hours, providing their tools and equipment, integrating them into your office culture, and the risk for profit and loss for the so-called contractor.” “Any examples Isaac?” “The construction industry was big into this: you have a general contractor and a number of subs such as the electricians, plumbers, drywallers and many others.” “They sound like contractors Isaac.” “Yes, but the drywaller tries to consider all of his workers sub-contractors, and that’s where it gets fuzzy.” “Why?” “These guys are paid by the hour, provided tools and supplies, told what time to start, break, and finish, and have no responsibility for the outcome therefore no risk of a financial loss.” “Yeah, I get it Isaac.” “There are many articles on the internet regarding this subject; although the criteria vary buy jurisdiction, for the most part they are similar.”

 “Well Melissa, I have one more errand today before I open the bar.” The two finish up their drinks and go their separate directions to carry on with their day.