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Successfully negotiating the contractor-client relationship

Successfully negotiating the contractor-client relationship

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A successful contractor-client relationship won’t exist without successful negotiations on the part of the contractor. It almost goes without saying, but what does it mean? Negotiation probably is one of the most frequently occurring activities between contractor and client. We say there are different kinds of negotiations for different situations. There are different kinds of contractor-client relationships as well and contractors must choose the way they negotiate to match the relationship. 
The most elementary kind of relationship might be one where a contractor is working a first job for a new client – maybe won as low bidder – and doesn’t expect nor depend on repeat business. This is especially so if the client pushes for every possible advantage. While not a deep, long-term relationship, this is a relationship nonetheless due to the nature of project work.
There will be repeated and ongoing negotiations to settle many kinds of issues: different interpretations of specs or drawings, resolution of omissions or errors, changes, schedule slips, etc. In these situations, contractors need to protect their own interest first, in a game of hard bargaining. Failing to look out for one’s own interest first – giving in to pressure from the client – can lead to too many costly concessions and turn a marginally profitable job into a loser.
The rules of hard bargaining or competitive negotiation can be found in most books or seminars on negotiation: Aim high, leave yourself lots of room, understand your leverage and use it, don’t concede first, say “no,” give in slowly or be stingy, say nothing, lower their expectations (or if you do concede something, make it contingent on your request for something valuable in return), use all the time available, never split the difference, walk out intentionally, and so on.
A second type of relationship exists where collaboration is possible. Here both sides are open to opportunity: A better way to do something, a new plan to manage a schedule problem, seeing a change as a way to save money or make a major improvement, sharing resources.
In this type of relationship each side is willing to look for solutions to problems that work for both sides. There is value creation taking place as new agreements happen that add value for both sides. There might still be some bargaining going on to split the added value but both parties benefit, if not always equally.
There still will be difficult negotiating going on as the two sides will not start out in agreement on most issues: there will be points of contention or conflict. The key is to use these impasses as incentives to find solutions that work for both sides. We call this “creative conflict.” Making creative conflict work means you don’t give in too soon, but you also can’t be totally inflexible, frequently using the “hard no.” Try instead: “I don’t think that will work for us”; “What if we do it this way?”; “Maybe, if you could do this for us”; “I’ll have to look into it”, “No, but…”

If trust is high and each side is sure they always will be treated fairly, agreements and transactions are smoother, simpler and less encumbered by lengthy contracts and expensive legalese.

As opposed to hard bargaining, both sides need to share information, work to discover the other sides’ deeper needs and possibly unrecognized or unknown assets. Then, matching needs and assets can create a better, collaborative deal for both parties. We call this type of negotiating creative deal-making.
The final type of relationship is characterized by a deep level of trust between the two sides. This can only exist when there is a substantial history and track record. This is the long-term, mutually-beneficial relationship. It offers great advantages for both sides, but great danger as well.
If trust is high and each side is sure they always will be treated fairly, agreements and transactions are smoother, simpler and less encumbered by lengthy contracts and expensive legalese. There is less “friction” in the execution of the project as each side can take the other at their word and handshake agreements are good enough.
This turns the rules of hard bargaining on its head. It’s now more important to be open, fair-minded, having each other’s back, taking turns, and honoring the spirit of the commitment – above the letter of the contract.
The problem with the trusting, long-term relationship is two-fold. One, they are rare and two, even if you are in one, it can change over time. The danger is negotiating as if you are in a trusting relationship when actually you are not. How will you know? Always monitor and look for signs of opportunism, or taking advantage, on either side. Monitoring means keeping score.
How are things working out? Who is winning, who is losing? Are you getting your fair share, 50/50? Are they looking out for you? Are you looking out for them? Are both sides living up to agreements—doing what they say they will do?
Getting repeat business is not enough. You may be getting business because they are taking advantage of you and they can’t afford to give that work to someone else.
Even if things are in balance now, constant vigilance is required in monitoring because things change. A client’s corporate culture can change with a new CEO or a reorganization. A new project or construction manager takes over. Financial pressures change a client’s priorities. Should monitoring show the relationship is becoming unbalanced, it’s a serious danger sign.
If it goes on for too long, resentments build and possibly blow up. The suffering party eventually will get even or get out, sometimes with disastrous consequences like lawsuits or walking off jobs. Before that happens, ratchet back your negotiating style to one of creative deal-making or hard bargaining with everything documented and in writing, taking trust out of the equation. It id betrayed trust that blows up once-good relationships.
Contractors can do good, profitable business with their clients under any of these relationship scenarios as long as the negotiating strategies and tactics are appropriate to the contractor-client relationship situation.
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Frank Mobus is CEO of Mobus Creative Negotiating and Bill Sanders, PhD, is VP and Business Analyst for Mobus.

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