Strategies for Successful Project Negotiations — Part 4:
Proper Preparation
October 30, 2020
One of the key takeaways from previous posts on architecture and engineering (A/E) firm negotiation strategies (Part 1, Part 2: Interprofessional Negotiations, Part 3: Government Negotiations) is that you don’t just stumble onto a win-win result. Completing negotiations in a way that both your firm and the client are happy with the outcome requires that you prepare properly and fully for your discussions.
But what, exactly, does “proper” preparation look like? We’ll begin to address that in this post.
Negotiating Based on Your Business Goals
Let’s start at the point where your firm has been selected based on your qualifications and you’re getting ready to enter negotiations with the client about fees, terms, deliverables, etc.
But first, a caution here: Fee negotiation should begin at this point, and not before. You should never participate in a “fee competition” to win a job. If the client selected you only because you had the lowest bid, they aren’t really concerned with anything else you bring to the table, and this project probably won’t be a good one for your firm.
But in our scenario, you’ve been chosen for the quality of your work, your expertise in this area, and other important characteristics. Now, you need to ask yourself whether you have firm-wide goals to guide your preparation. These may come from an annual business plan or a strategic plan, but they are boundaries for all your interactions with clients.
What’s your profit goal? Is this project in your wheelhouse, or is it not but you’re intentionally expanding your horizons? Who do you view as your competition, and if you can’t reach an agreement with the client, can they easily shift gears to work with the #2 firm? And what was your marketing budget for pursuing this business? You don’t want to burn $10K to win a job and then only bill $20K on the project.
Do you have these and other questions documented so you can consider them before you start negotiating? If not, you’ll be negotiating in the dark. As you try to assemble the pieces of your firm (i.e., your people and your capabilities) to meet the client’s needs, it’ll be like trying to put together a puzzle without the picture on the outside of the box.
2 Ways the Lack of Goals Can Be Detrimental
If you don’t have firm-wide goals to guide your negotiations, that can come back to bite you in a couple ways.
The first is that you can end up burning a great deal of “relationship capital” with the client for a project that will have a small impact on the overall success of your firm. In other words, if you use the same negotiation strategy for the “filler work” that you do for major projects, this can hurt your firm. What you need to do is prepare for negotiation based on your broad business goals but also based on the specifics of the project. If you have to give away 5% of your fee on a project as part of negotiations and the maximum fee was going to be just $5K, that’s not a smart financial move.
The opposite approach can be equally problematic. Some clients say, “We don’t negotiate strenuously because we’re client-centric, our clients are very cooperative, and we’ve never been burned. So, we’re pretty laid back on negotiations, and we just make adjustments as needed as the project progresses.” Frankly, this tends to be simply an excuse to avoid the prep work. And while the firm may feel that making adjustments is totally fine, the client may not think so, which can strain the relationship without the firm ever knowing it.
"Proper preparation enables firms to apply subtle negotiating leverage that will create a win-win result."
Project-Specific Team Formation
Another critical task in prepping for negotiations is deciding who on your side will participate. This should be done based on the parameters of the project, of course.
You want your negotiating team to include everyone whose insights will be needed. If, for example, the client is adamant that a seasoned project manager be assigned to the project, and that person can’t make it to the meeting, that’s a red flag for the client. So, you have to get into the client’s head, reflecting on the selection process and anything that was stated (or that you read between the lines) that should affect the makeup of your team.
On the other hand, you don’t want to include people on your team who will ultimately sit silently through the entire proceedings and offer no input. This can be concerning to a client who may wonder if you’ll be “padding” the project with unnecessary resources. The one exception here is having a principal in the negotiations. Their role may be entirely to ensure that your firm’s interests are protected, and they may not say anything if that’s the case. That’s fine, but you should let the client know that upfront.
So, as a general rule, firms often have the best success when they have as few people as possible on the negotiating team while ensuring that any major client issues or concerns can be addressed by the person most capable of addressing them. The more you go over that bare minimum, the more negotiation prep starts to feel like herding cats!
Also… One person who should never be on your negotiating team is your lawyer. It’s in a lawyer’s DNA to look for a “win” in any negotiation, and often that’s at the “opponent’s” expense. Having attorneys present only puts everyone on the defensive.
Understanding the “Power” of Your Position
Another consideration as you prepare to negotiate with a client is identifying if and how you have “power” in the discussions. There are several areas where you can have (or not have) leverage, including:
● Money. Has your firm secured enough profits to this point in the year that you aren’t scrambling to bring revenue in? If money isn’t crucial to you, you’ve got more power, since you don’t have to have this work.
● Time. Is the client facing a tight deadline? If they are, you’ve got more power, especially since you know that if the client has to shift gears and engage with a different firm because they can’t come to terms with yours, they’re in trouble.
● Competition. If you can obtain information on the other firms that competed for this work and you see that your firm is head and shoulders above them in terms of experience and knowledge, that’s a source of power. No client wants to have to resort to a distant runner-up because negotiations with their top choice fell through.
● Negotiating experience and stamina. If you’ve gone through many negotiations before and the client has not, that’s to your advantage. You also have power if you’re willing to be patient and continue the discussions—through multiple meetings if necessary—until a satisfactory result is achieved, but the client is eager (or even anxious) to get things hammered out.
Obviously, you don’t want to abuse your power. Doing so will hurt your relationship with this client and may earn you a reputation as an unfair negotiator. But the subtle application of negotiating leverage is something every firm should get good at. And proper preparation enables you to do exactly that!
Explore How Factor AE Can Help Your Firm
Learn how Factor AE can help streamline your projects and ensure all finanicals are visible to key stakeholders. Get started today!