Negotiation Basics

Originally published: 01.01.09 by Paul Grunau


If you aren't getting the results you're looking for when negotiating projects, consider these ideas to help you rethink your process and your approach. 

I have written in past columns about the importance of identifying individuals in your organization who can build and maintain long-term customer relationships. It is no secret that a contractor that does business over time with a consistent group of customers will increase his chance of success.

In our organization, these individuals occupy the project management functions. We ask them to identify, develop, and maintain owner-direct customer relationships. There are many skills and instincts that are important to success in the project management role—leadership, vision, empathy, attention to detail, communication, patience, persuasion and a strong sense of urgency to name a few.

An additional and very important capability is the ability to keep a project moving, keep all partners aligned, and sometimes resolve conflict, all through effective negotiating.

In my experience, negotiations in the construction world have been significantly misunderstood. If one were to ask an old school general contractor the definition of negotiation, many would respond by saying that negotiation is: “I tell the subs what to do, and they do it.” I have seen countless examples of this type of “negotiating” on job sites.

Another common situation where “negotiation” comes up for specialty contractors is at the end of a job. Many times, there are a number of changes during a project, which have cost impact to the specialty contractor. When he asks about compensation, he is directed to “just get the work done, we are on a tight schedule.” When the job nears completion, the specialty contractor presents information to the general contractor and/or owner requesting additional compensation for extra work performed. He then “negotiates” with the general contractor and/or owner, and often receives only a fraction of what he originally requested, leading to a very unsatisfied contractor and the inevitable bad job.

In my experience, there are a number of reasons why negotiations have a negative connotation for HVACR/specialty contractors. Many of these reasons are within our ability to correct. As specialty contractors we get bad outcomes in negotiations because:

  • We don’t set the expectations up front.
  • We negotiate when we have no leverage.
  • We don’t ask to be treated fairly.
  • We view negotiation as a confrontation and fear that we’ll damage the relationship.
  • We are treated the way we act.

 

I’d like to briefly explore these:

At the beginning of a project, one of the things we must do is set expectations with our customers about how certain situations will be handled. For example, how will extra work or a change in schedule be handled, when will our retainage be reduced, and when will it be paid? This may seem confrontational, or even a nuisance to our customers, especially general contractors and/or construction managers. They would much rather deal with these issues as they come up. Unfortunately, they come up during the chaos of the job when it is difficult to have productive conversations. If you set expectations up front, there is no negotiating when issues occur. There is only adherence to the prior agreement. Remember, no one is going to look out for your best interest — you have to do it.

This is a difficult topic, in my experience, because using leverage can sometimes be very uncomfortable for people in our business. Unfortunately, when we go to our customers at the end of the job with several change order requests, we do so at a time when we have basically no leverage. The systems we were hired to install are complete, and possibly in service, so the “need” for us is largely gone. For those of you who have tried to recover significant costs for extra work at the end of a project, what is your batting average? If it is like ours, it is not good at all. The reason is that we have no leverage at the end of a project (aside from a lawsuit, which in my book is not leverage). When do we have leverage? We have leverage at the beginning of the project, before we do the work.

A common scenario is the first change order. This is the most important change order in the project because it sets the tone for how extra work will be handled. As difficult as it is for some people, we must, , be aggressive in setting the rules of engagement with extra/changed work — especially with customers with whom we are not familiar. Don’t leave this open ended or “to be resolved later.” Remember, you are not being unreasonable or difficult (and some will tell you that you are). You are simply setting expectations and protecting the best interest of your company. Don’t ever feel bad about doing that!

One of the classic misconceptions about negotiations is the “all or nothing” nature of it — I win, you lose. If you go into a negotiation with that mentality, you’ll have a difficult time. Negotiations should be an open dialogue between the two (or more) parties when each shares what is important to them and why it is important. As I have written in the past, you will be treated the way you act. If you cannot articulate the logic behind your request and why it is important to you, then you will not get the outcomes you seek. If you make unreasonable, “take it or leave it” confrontational requests and statements, you will end up in negative negotiations and you will not be happy. Ask to be treated fairly by showing that a fair outcome is what you seek.

Negotiating is really about setting expectations, being open to a mutually beneficial resolution and understanding that the best time to negotiate is before a problem or issue occurs. While this may feel uncomfortable, and even confrontational, it will reduce the challenging end-of-job “negotiations” that we all have experienced.

Paul Grunau - The Grunau Co. is a full-service mechanical systems company with more than 500 employees. The company provides expertise on design, construction, installation, and service and maintenance for the commercial, industrial and institutional markets. 


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