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Contractor relations are defined by contracts. Whether it’s with the project owner or subcontractor, a general contractor finds new construction projects to work on using construction bidding websites and negotiates several contracts for each project. Negotiating a fair deal for everyone involves clearly defining the problem, understanding each party’s needs and wants, and coming up with multiple viable solutions. So, what are the different construction contract negotiation strategies you can use?
The consummate source for negotiation is “Getting to Yes,” by Roger Fisher and William Ury. In their book they outline four principles of negotiation that can be used to develop an agreement or dispute resolution. We’ll look at how these principles can be used to negotiate construction contracts.
Key Takeaways
- Separate the people from the problem in every negotiation — recognizing the emotions and interests on both sides helps you build agreements that protect your relationships and your bottom line.
- Focus on the underlying interests behind each party's position so you can find shared ground faster and avoid the kind of positional arguing that stalls deals and damages partnerships.
- Use brainstorming sessions before locking in contract terms so you and your partners can surface creative solutions that a rigid back-and-forth negotiation would never uncover.
- Make sure every contract you sign is grounded in objective criteria — clear specs, measurable deliverables, and defined conflict resolution processes — so you have solid footing if disputes arise.
- When negotiations get stuck, ask open-ended questions and redirect the conversation back to the problem rather than the personalities, keeping the focus on reaching a deal that works for everyone.
1. Separate people and problems
When beginning negotiations, it’s important to recognize that each party to the agreement is a person first. People have emotions and those emotions are legitimate and will affect the negotiation. If you are able to put yourself in the other side’s shoes and see the argument from their side, you’ll be one step ahead of the game.
Successful negotiation should be undertaken together, not as adversaries, but as teammates facing a problem. By using a robust general contractor software and physically sitting next to other parties (as opposed to opposite them), you can change the dynamic. The goal is to solve the problem together, while maintaining everyone’s integrity and, as much as possible, looking for a win-win solution.
When negotiating or drafting construction contracts, parties should keep the overall goal of the project in mind when discussing agreement terms. Project owners want quality work that meets their budget and schedule. General contractors want fair agreements with the project owner and their subcontractor that meet the budget and schedule. And subcontractors want a fair payment or contract term and a clear definition of their scope of work. Ensuring that the clauses or agreements meet these needs is key to having a successful project.
2. Focus on interests, not positions
The problem is driven by the interests of the parties. Interests drive each party’s decisions and are the “why” or “why not” of what they do. Often parties have multiple interests in one negotiation. Looking for shared interests allows parties to come together to focus on the overarching goal and can make the drafting or negotiation process smoother and more amicable.
Positions are based on decisions that the parties have already made about what they want. They have more to do with the solution than the problem. Negotiating from positions leads to arguing ineffectively and can ruin the business relationship. In addition, when there are multiple parties to an agreement, positional negotiation becomes even more difficult.
When the parties are clear on each other’s interests and focus their negotiation on the satisfaction of those interests, solutions to construction challenges and agreements are the natural byproducts.
3. Brainstorm options before agreeing
Contract parties can use brainstorming to come up with unique solutions to conflicts. The keys to a good brainstorming session include:
- Don’t judge ideas during the session. The key is to come up with as many as possible, whether they are feasible or not. The contract negotiation process depends on using your imagination, not your analytical mind.
- Think “outside the box.” Although it’s a cliché at this point, the best ideas come when participants adhere to these two principles: there is no single answer and no fixed pie.
- Participants need to take ownership of the problem and work together to find a solution. It’s not one party’s responsibility to solve the issue.
After the brainstorming session is complete and multiple ideas are on the board, the team can then start looking for the most promising options and improve on them. Combine ideas or add additional components to make the solution fit the situation.
4. Base the agreement on objective criteria
Since most types of construction contracts involve concrete deliverables like materials and installation labor, it’s important to understand the scope of work and the standards that will be used to evaluate the quality of that work. In most cases, projects come with drawings and specifications that outline the quantity and quality requirements. If these contract documents aren’t available, the criteria should be clearly spelled out in the contract. Basing a contract on nonobjective criteria can lead to disagreements and strain the relationship.
Contracts should also include procedures that will be used to resolve conflict that cannot be resolved through discussion. Most contracts rely on arbitration or mediation to attempt to come to a resolution, with court action as a final alternative. Make sure these processes are clearly defined and that all parties agree to abide by them.
Tips for when the going gets tough
If your negotiation is breaking down because everyone is entrenched in their position, here are some ideas to help you get unstuck.
Look behind your positions
Discuss the principles behind each party’s position. Ask why they want what they want. Talk about what would happen if one of the positions were accepted. This may result in showing its weakness.
Invite criticism and advice
Don’t defend your ideas. Ask what’s wrong with them, or how others would act in your shoes.
Attack the problem
If one of the parties attacks you personally, resist the temptation to defend yourself. Accept it as an opportunity for the party to let off steam and reframe the discussion back on the problem.
Ask questions
Ask open-ended questions and wait for a response. Don’t use statements.
When parties work together to resolve a conflict or come to an agreement, they are more likely to maintain a good relationship. Viewing negotiation as a team sport helps keep things friendly and ensures that the result will be beneficial for everyone. By separating people from the problem, focusing on interests, brainstorming options, and basing agreements on objective criteria parties can work together to reach an amicable agreement that meets everyone’s needs.
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