Negotiation tactics commonly used in the construction industry are a mix of psychological manoeuvres to get the best deal, ploys designed to change the other’s perception of their power and game plays that pressurise you to reduce your expectations.
In this post, Derek Arden, author of Win-Win, How to Get a Winning Result From Persuasive Negotiations (Pearson), looks at common negotiation tactics used in the rush to get construction contracts agreed before the work was due to start:
Low-balling is where an outrageously low offer is made by a tenderer to persuade the client to agree to using that contractor or to proceed further with the project.
The tactic is used to lower the client’s expectations of what it will have to pay or to flush out the client’s walk-away position. Imagine a new nuclear power plant or high speed rail link – often the sum initially quoted in the press for the project is dwarfed by the final costs incurred. Sometimes this happens because costs are estimated before all the relevant data is known. Other times it is a deliberate tactic used by contractors to gain government approval and ministerial buy-in to a specific figure, to which they gradually become committed.
In other projects it may be that low-ball bids are made and accepted, in the hope that the contractor can use inaccurate or incomplete data (or other spurious reasons) to re-negotiate the terms of the deal or rely on contract procedures to increase the price.
In the construction industry, where it happens a great deal, clients need to be alert to low-balling. It is most common on highly competitive contracts, where the provider correctly assumes that the terms of the contract (especially one of the well-known standard forms) will allow them to ‘upsell’ more profitable extras, or use change mechanisms to their advantage once the work has started.
Deadlock is a tactic based around the time pressures in the construction industry and consists of a refusal to agree. One side is working out who will cave first! It could be an unsophisticated client who comes across a cut-throat contractor, or a specialist subcontractor told to ‘sign it or else’ – both forms of deadlock.
As with all tactics, the key is not to allow the process, the time pressures or what is little more than contractual bullying, to dictate your next move. You should not cave in – stand your ground, sit tight and ask “What should we do about this?” or “We seem to have an intractable problem. How can we resolve this together?”
This would be most commonly used at the end of a week when works are due to start on the following Monday – the project commencement date is used to force you to move from a deadlock position. The offer may be Hobson’s choice: a letter of intent (don’t), to start late once the contract negotiations are properly concluded (ouch), or to cave in to the contractor’s demands and start on time with a contract you loathe.
If you are getting nowhere, you can use a ‘yes tag’ question such as “Can I just confirm that you are still interested in working with us to come to a collaborative contract on this project, aren’t you?” or “We do both want a win-win, don’t we?” This presupposes that teamwork is part of their agenda and allows you some breathing space.
Do not (read more) accept a letter of intent and assume everything will sort itself once the works have commenced. Do not (read more) agree to move from your own walk-away position, and despite the fact that reading those long contracts is time-consuming and boring, you should always read them all the way through…
Bore and snore
The longer the contract negotiations go on, the more the project team will get worn down.
The apparent lack of progress on the contract side – with a dash of intransigence thrown in for good measure – can result in a company agreeing to any old terms against its better judgement. In fact when negotiators get bored of the petty-fogging discussions on legal elements or physically tired of the effort, they tend to make more irrational decisions.
Although this may create a contract more quickly, it is not likely to be a positive start to your project and may well result in an impractical set of contract terms and procedures. As Sarah advocates, better to have a simple robust contract than one based on boring the other party into submission (read more)!
Contracts are tools to help you do business. If you start with a simpler document, it will definitely smooth the negotiations and avoid some of the tactics outlined above.
To find out more about Derek Arden, negotiating expert, speaker, author and mentor, visit his website and for free chapters from his book Win-Win, How to Get a Winning Result From Persuasive Negotiations visit his book page.