Solo Builder Indemnification Fund

[El Conquistador]

Originally Posted by Haans

An even bigger question...why are these questions NOT in the general discussion.

As the OP, I guess I should field this question.

I thought about putting this in the general discussion area to reach a wider audience. But then thought that the issue of countering the negative images generated by failure to launch builds and their wildly unhappy clients really was a discussion for builders and also was potentially very negative food for thought for those who have never commissioned a guitar but always wanted to. There is enough of a leap of faith in a custom build as it is already, and, I didn't want to give any ammunition to the " Never buy a guitar you have not played" crowd.

So I chose to put it into the forum that was most frequented by builders.

Steve

P.S. As far as I am concerned, this really is an discussiong of helping builders who's business may suffer from all the reports about disapearing and dying builders and the financial losses suffered by trusting clients.

[JoeCharter]

I think the idea is good but I don't think execution is likely possible.

Any type of insurance involves very precise probability calculations -- and anyone gaining this type of coverage would likely need to abide to a set of standards that will keep the risks at a controllable and foreseeable level.

Any insurance that covers a micro group with little historical data and a broad array of standard practices (such as luthiers) is bound to carry a prohibitive price tag.

Without getting into the collective and overly complicated solutions, there are legal ways to make sure your deposit won't be spent inadequately, and that's what I'd consider if I were concerned about losing my deposit.

[cpabolting]

This absolutely belongs in the custom shop area... in that it is a custom shop issue. I am sure many luthiers don't like this topic coming up, but being on the receiving end of getting beaten out of over $5000, it isn't pretty.

You can speak about having the resources to take care of obligations in the case of death or disability, but unless it is a legal obligation that has a means of actual protection, you are relying on the estate handing that obligation and in my case, all I got was "sorry, there is no money to pay anyone". You can talk about your policies all you want, but those policies are theorhetical at best if you are not available to see them through and someone else is calling the shots.

A trade association or guild could help with purchasing power on life or disability policies, and I would agree there is a need for insurance for the luthiers family, I think that is making it overly complicated by taking on too much. This is really a protecting the customer issue. When a deposit is given, unless in an escrow account. despite it being "refundable", how is that going to be handled when you are told "Sorry, there is no money".

I get the crack about "capitalists", but I am a businessman and I understand business. You can give all the instructions to your wife you want, but she may not be in any position to understand anything about anything and her lawyer may advise her (as I was told in my scenario) "tell everyone sorry" and then there are 10 or 20 people who are burned out of money they have put up.

The bottom line is the deposit is to make sure someone has skin in the game if they change their mind. And unless legally escrowed, you as the customer are in no position.

Bruce, you said "I too only hold a significant deposit on the instrument I am actually working on, the guitars in the queue have only a modest retainer to represent them". On you policies, the deposit of $1000 I get but if they pick out a set of $5,000, that is $3500 they have while in the queue. And then if the guitar is $12,000, when you start they have $6,000 at risk. And that is about where I was in at risk when Kevin passed away and the only thing that was together was the back and sides. And therein lies the problem.

[colins]

Great thread Steve (and Phil!) and well located.

There appears to be some variation in what funds are provided to the builder before and during the build. In the engineering profession (my day job) it is absolutely normal to pay a deposit for equipment, then progress payments while it is being built, and a final payment on completion and satisfactory handover.

The two experienced and highly regarded luthiers I have dealt with both used this approach and it seemed perfectly acceptable to me, recognising that costs accrue as the build progresses and a neutral cash flow is of great benefit to any small business.

One of the luthiers died when my guitar was partially built and with about two thirds of funds paid. I was offered the choice to (a) cancel the build and receive a refund or (b) have the build completed by a very close friend of the luthier that died. So what do I do; ask a grieving family to cough up thousands of dollars and then leave them with a partially built guitar to somehow complete while still paying all of their daily expenses and missing their husband/father? No way, it would take a particularly mean individual to do that. So I am waiting for the build to be completed and am mindful that the guy doing it is really putting himself out to help the family of his close friend.

Would insurance have helped? My word it would have, for everyone concerned. Ain’t hindsight wonderful!

In our engineering business we have director’s insurance and for a reasonable annual cost we have coverage for the issues that the death of a director would place on our company. For us this includes equity buyout, the funding for a short term replacement and a search for a new director. For a luthier it could cover costs specific to his profession, including pay back for work not started or not completed. We have a standard policy from a “regular” insurance company and I am hopeful that similar policies would be possible for luthiers. Rather than individual luthiers seeking these out, perhaps an industry association or a specialist insurer (Anderson or Heritage?) could act as a broker.

Col

[cpabolting]

Originally Posted by colins

One of the luthiers died when my guitar was partially built and with about two thirds of funds paid. I was offered the choice to (a) cancel the build and receive a refund or (b) have the build completed by a very close friend of the luthier that died. So what do I do; ask a grieving family to cough up thousands of dollars and then leave them with a partially built guitar to somehow complete while still paying all of their daily expenses and missing their husband/father? No way, it would take a particularly mean individual to do that. So I am waiting for the build to be completed and am mindful that the guy doing it is really putting himself out to help the family of his close friend.
Col

Well I don't necessarily agreee it would have been mean, but at least you had that option. In my case, there was no option and I was lucky for the $6000 I had into the deal to get the set of Brazilian and completed back and sides. And had to pay to get it shipped to someone else. So the long and short of it, is that you are completely at someone elses mercy when an unfortunate situation occurs and that just isn't a great place to be in!

[RogerC]

I have no dog in this fight whatsoever. I've had a guitar custom built, and I have production guitars. That being said...

Haans, I don't believe there is any disrespect intended with this discussion. It is simply shining a light on something that is a very real concern (as we've seen) in the world of custom built guitars. As Keith said, it has nothing to do with you personally or your family. There are just too many things that are out of our control, and we can't say with any certainty what will happen in the future. It's that simple. Simply sticking your head in the sand and saying, "I've got it covered. This won't happen to me" isn't really addressing the issue. I personally think this is a healthy discussion and one worth having if, somehow, it were to make the industry better.

[cpabolting]

Originally Posted by RogerC

I have no dog in this fight whatsoever. I've had a guitar custom built, and I have production guitars. That being said...

Haans, I don't believe there is any disrespect intended with this discussion. It is simply shining a light on something that is a very real concern (as we've seen) in the world of custom built guitars. As Keith said, it has nothing to do with you personally or your family. There are just too many things that are out of our control, and we can't say with any certainty what will happen in the future. It's that simple. Simply sticking your head in the sand and saying, "I've got it covered. This won't happen to me" isn't really addressing the issue. I personally think this is a healthy discussion and one worth having if, somehow, it were to make the industry better.

I think most people (buyers and luthiers alike) can take a look at this issue objectively and admit if they were a consumer having their deposit on an order of most anything, they would want reasonable protections in place to ensure that their deposits are protected. And there presently are not any protections in place relative to hand built guitars and in my opinion, there should be. And as evidenced by what has happened in the past in the passing of other luthiers, there should be plain and simple.

[JoeCharter]

I've got no personal issues with anyone here but I am stunned by the number of anti-capitalist remarks on this forum, especially in the custom shop section.

A few decades ago, anti-capitalists came and seized our house and all of our belongings. Today, these guys still struggle. Bitterness hasn't gotten anyone anywhere.

[Laurent Brondel]

Steve, with all due respect -and I know your intentions are good-, I think this idea is a non starter.
Luthiery, like any other activity, has its black sheep. In spite of bad business practices, even sheer dishonesty, popping out with relative regularity (although you will admit, rare), you'll be surprised to find out that probably the majority of builders have their house in order, at least those who stay in the game.

For the custom guitar customer, there's a basic caveat emptor: besides the mandatory deposit, don't send $$$ for an instrument that does not exist yet. Most respectable builders have a sensible policy concerning money, and customers should spend the time reading and discussing it with their builder.
Mine is to divide the remaining price after deposit in 3 instalments, due as the build progresses: woodwork, finish and assembly/set-up & delivery. It results in a regular cash flow for me as I work and live, and of a guaranteed product -at different stages- for the customer.

I fail to see the connection with capitalism here, unless we're talking of bigger companies who are tied to investors expecting dividends. Small builders are artisans, and in this are no different than your contractor or dentist.

[cpabolting]

Originally Posted by Laurent Brondel

Steve, with all due respect -and I know your intentions are good-, I think this idea is a non starter.
Luthiery, like any other activity, has its black sheep. In spite of bad business practices, even sheer dishonesty, popping out with relative regularity (although you will admit, rare), you'll be surprised to find out that probably the majority of builders have their house in order, at least those who stay in the game.

For the custom guitar customer, there's a basic caveat emptor: besides the mandatory deposit, don't send $$$ for an instrument that does not exist yet. Most respectable builders have a sensible policy concerning money, and customers should spend the time reading and discussing it with their builder.
Mine is to divide the remaining price after deposit in 3 instalments, due as the build progresses: woodwork, finish and assembly/set-up & delivery. It results in a regular cash flow for me as I work and live, and of a guaranteed product -at different stages- for the customer.

I think the idea is great in concept, and I think the idea has alot more potential in the form of life and disability insurance to cover customer deposits.

I think your billing practice seems reasonable, but there are quite a few builders that require a deposit of $2500 or more just to hold your place in line which starts to exceed the reasonable amount. $500 is no problem and an additional payment WHEN it is started also seems reasonable. But having 60% of the money paid in when it starts is extreme. I get every aspect of it and both the customer and the luther's perspectives. At the end of they day, there is definitely potential exposure for both customer and luthier. I just think the exposure to the customer when there is a substantial deposit is unfair.

[Larry Pattis]

Originally Posted by cpabolting

I think the idea is great in concept, and I think the idea has alot more potential in the form of life and disability insurance to cover customer deposits.

I think your billing practice seems reasonable, but there are quite a few builders that require a deposit of $2500 or more just to hold your place in line which starts to exceed the reasonable amount. $500 is no problem and an additional payment WHEN it is started also seems reasonable. But having 60% of the money paid in when it starts is extreme. I get every aspect of it and both the customer and the luther's perspectives. At the end of they day, there is definitely potential exposure for both customer and luthier. I just think the exposure to the customer when there is a substantial deposit is unfair.

Please list the "quite a few builders" who have a $2500 deposit to get in line.

Please list the builders that require 60% of the full cost of the guitar when the instrument is started.

Thank you.

[cpabolting]

Originally Posted by Laurent Brondel

Small builders are artisans, and in this are no different than your contractor or dentist.

I would agree that there is a great deal of craftsmanship and artistry and goes into building a guitar.... but the end result is a fully functional instrument that is to be played, not displayed. And I think therein lies the disconnect in my perspective....on one hand if you are comparing it to a contractor which I think is a very fair comparison and more in line with my thoughts, there is an intial payment and progress payments as it moves along in percentage of completion. And there is in fact often a holdback or retainage of 10% as added protection. The contractor has a means of ensuring they get paid if they do their part, and the customer has a reasonable means of ensuring they get what they bargained for. In a handbuilt guitar, you can see pictures of how it is coming but you never really know until it shows up. I think at the end of the day, having some protection to the customer is not unreasonable. Credit cards are often used for that very purpose, which may be aside from the fees, also why small builders don't take credit cards because it would give the consumer quite a bit of leverage at the end of the day to dispute a transaction where it wasn't working out.

[cpabolting]

Originally Posted by Larry Pattis

Please list the "quite a few builders" who have a $2500 deposit to get in line.

Please list the builders that require 60% of the full cost of the guitar when the instrument is started.

Thank you.

Matt Mustapick $2500 deposit
Bruce Sexauer ($1000 + 50% cost of specific wood which can easily be another $2,000) and then another deposit at the time of start that equals 50% of the total cost
Jim Olson (25% which is at a minimum of $3,125 and could be alot more)
Traugott $5000 deposit
Wingert $500 deposit plus 20% of price if it involves ABW, BRZ or other special woods plus $2000 when construction starts
Woolson 1/3 of total price (base price is $5250), so that would be $2500 with some decent upgrades
Omega ($1000 down plus 50% on start)

I said there were quite a few that require $2500 which that looks like the above would qualify and my example of having 60% paid in was to make a point as to what happened with Omega. Thanks for asking Larry. I always appreciate the opportunity when you ask me to back up something that I have stated.

I think the point which I don't hear you disagreeing with..... is that a consumer's deposit should be reasonably protected in the case of death or disability of the luthier. Do you have an opinion on that and do you care to share it with us?

[Bruce Sexauer]

Originally Posted by cpabolting

small builders don't take credit cards because it would give the consumer quite a bit of leverage at the end of the day to dispute a transaction where it wasn't working out.

A great example of over thinking, and says more about you than about small luthiers. I don't take credit cards partly for ideological reasons; if the customer has to use one they probably shouldn't be buying the guitar, and partly because for the few times a year that credit cards come up, holding the door open is quite expensive to me. $400 a year if no one uses one, and 3% of the gross if they do. If my profit were 30% of the gross, then 3% of the gross is 10% of the profit. If my profit were 10% (closer to reality) then 3% is 30% of the profit!

In the case of dispute, if there's reasonable doubt I just cave, it's the right move. So far.

[Larry Pattis]

Originally Posted by cpabolting

Matt Mustapick $2500 deposit
Bruce Sexauer ($1000 + 50% cost of specific wood which can easily be another $2,000) and then another deposit at the time of start that equals 50% of the total cost
Jim Olson (25% which is at a minimum of $3,125 and could be alot more)
Traugott $5000 deposit
Wingert $500 deposit plus 20% of price if it involves ABW, BRZ or other special woods plus $2000 when construction starts
Woolson 1/3 of total price (base price is $5250), so that would be $2500 with some decent upgrades
Omega ($1000 down plus 50%)

I said there were quite a few that require $2500 which that looks like the above would qualify and my example of having 60% paid in was to make a point as to what happened with Omega. Thanks for asking Larry. I always appreciate the opportunity when you ask me to back up something that I have stated.

I'm not sure what you think is being proven with this very short list.

Here's what I see:

1) Three builders that have a firm $2.5K (or more) deposit. Not "quite a few", but three. Stating "quite a few" and then producing this very-short list shows me that one cannot back-up this statement with fact.

Of course, "quite a few" can be interpreted many ways, I suppose. I personally would want to see a list of a few dozen builders that all have a set fee of the $2.5K deposit for this kind of statement to be taken seriously.

2) Another three with floating deposits, none of which are near $2.5K as a base guitar. Assuming specialty woods or options that raise the deposit amount, it's still a list of six living builders.

Not significant, and I could list far more builders that are in the $500-$1,000 range for deposits. Don't bother asking me to do it, however.

3) Kevin Gallagher's situation is unique, as far as I have seen, and it's clear that one cannot fully discuss the issues surrounding his financial problems on the AGF. His deposit-requirement (60%) was indeed extreme, but not relevant in any way. People lost large sums of money, but no one living is asking for that kind of money.

If someone asked me for that kind of money as a deposit, I wouldn't have an internet discussion about it, I would ask for a contract. If a contract wasn't produced, I would run the other direction, quickly.


That said, I have a will, my wife has a will, and both documents address not only our own individual deaths, but what is to happen if we die (or are incapacitated) simultaneously.

I don't take this matter lightly, but I also don't see a rampant issue in the building-community.

I see a discussion-forum topic that is simply a morsel of raw meat.