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Strategies for Successful Project Negotiations — Part 1
September 16, 2020
There’s a long-held belief in architecture and engineering (A/E) circles that negotiation is an “art,” and that you’re either good at it or you aren’t. If that were true, it would be a serious problem for A/E firms that don’t have a “natural-born” negotiator on their staff.
Fortunately, we’re here to bust that myth. We’ve worked with many firm principals who, by their own estimation, couldn’t negotiate their way out of a wet paper bag initially, but who decided that this is a skill they needed to learn and ultimately have become quite proficient at it.
Negotiation: Not an Art but a Balancing Act
For A/E firms, setting the proper scope, fees, and contract terms for a project is critical to success. It is, as they say, a jungle out there. Firm owners and principals who don’t stand up for themselves and their organization will end up at the mercy of any potential client who feels like taking on the role of predator.
“This is all the client will pay,” is something we often hear from dejected owners when we ask why the scope was so large and the fee so small for a particular project. But, as we tell them, setting those things should never be a one-sided activity. Their clients need them, or they wouldn’t have come to the firm in the first place.
In most cases, the owners will nod in agreement but then express their concern that they don’t want to get a reputation in the industry for being inflexible or hard to deal with. And that’s a legitimate concern.
In that regard, negotiation is definitely a balancing act. If the client says X fee and you say X+20%, and neither of you will budge, the conversation is over, and the same is probably true of the relationship. However, if you simply concede and do the work for less than you believe you deserve, you not only leave profit on the table, you may be setting a very costly precedent, both with this client and others who hear about your pricing.
Your goal really has to be to find the proper alignment between the quality of your work and the fee you charge, as well as between the scope of the project and the fee you charge. If those elements become disconnected, a win-win result is no longer possible.
Negotiating Deals vs. Relationships
As if negotiating project terms isn’t already challenging enough, that process becomes even more difficult when you consider that very few firms are successful if all they have is one-and-done engagements. In order to maintain a steady income stream, it’s very important to have strong relationships with clients. In fact, it’s been our experience that 60-70% of the average firm’s revenue comes from repeat business.
So, while you may win a scope or pricing “battle,” you never want to do so at the cost of losing the long-term “war”—meaning the client leaves for another firm. We talk about it as negotiating deals versus relationships.
When you’re negotiating a deal—like buying a car—you want to get everything you can for yourself, as you may never interact with that salesperson or dealership again. When the person you’re talking with can not only use your firm for future projects, but may also refer other clients to you if things go well, that’s a whole different ball game!
In that scenario, you’ve really got to be focused on finding ways that both parties can benefit. You’ve got to try and earn the other person’s trust and make it clear that you’re interested in producing a good outcome for them as much as yourself. After all, the relationship, as it stands at the end of this project, will be the foundation from which you hope to land the next project.
"Your goal really has to be to find the proper alignment between the quality of your work and the fee you charge, as well as between the scope of the project and the fee you charge."
Caution: Lunch Ambushes and Other Sneaky Strategies Some Clients Use
Most clients are good people who aren’t looking to take advantage of you when you’re in a weak negotiating position. However, some clients are happy to use any tactic they think will help them get more for their money.
A classic strategy is to have some initial conversations with you and then invite you to lunch just to “compare notes” or continue the dialog. Then, when you arrive with your guard down, the client pounces and tries to draw you into negotiations. This type of discussion will almost always focus on price and involve them trying to get you to accept a lower fee.
Being hit with a lunch ambush is, of course, a huge red flag. At a minimum, it means that the client doesn’t understand that negotiations can and should produce win-win results. Or worse, the client doesn’t care. They want to get the lowest price from you that they can, probably because they don’t envision doing further business with you after this engagement.
What should you do in the face of a lunch ambush? Politely but firmly refuse to negotiate. Tell the client that you didn’t realize they wanted to get into project specifics in this meeting and that forging ahead unprepared isn’t in your best interest or theirs.
A similar type of scenario can occur on the phone. You take a call from the client believing they’re just touching base, and instead, they look to get a commitment from you on scope, price, or some other aspect of the project. Like the lunch ambush, this can quickly become a win-lose proposition, with your firm on the losing side. In fact, since you can’t see any facial expressions or body language as you try to steer the conversation in a new direction, this type of tactic can be even more difficult to handle.
Preparing for “Surprise” Negotiations
If you’ve been ambushed by a particular client before or suspect a potential new client will initiate a surprise negotiation—and, for whatever reason, you feel you won’t be able to deflect—there are steps you can take to help level the playing field.
First, before the ambush occurs, make a checklist of issues that you feel must be addressed in order to reach an outcome that’s fair to both parties, and have that checklist handy at all times. Everything from work quality and how it’s measured to billing frequency and format are items that might be on your list. The last thing you want is to forget to reach an agreement on some important aspect of the project before you sign a contract.
A second step you can take is to remind yourself that just because you have a negotiation-focused conversation doesn’t mean you have to make a commitment or sign a document. “I’d like to sleep on this.” is a common and reasonable response when a client presses an A/E firm principal for an answer.
The “Two Ears, One Mouth” Metaphor: Helpful Negotiation Reminders
It’s been said in business (and elsewhere) that people have two ears and one mouth for a reason: you should listen twice as much as you speak.
A/E firm owners will sometimes admit to us that in a negotiation that didn’t go well for them, they were already forming responses to statements from a client before the client finished speaking, and consequently missed subtle but important elements of them. A better approach? Listen. Pause to ensure there’s nothing else the client wants to say. Then respond. Plus, the pause allows you to collect your thoughts for an extra beat before you reply.
Other important elements of negotiation include:
- Taking detailed notes
- Eliminating distractions and interruptions
- Standing or moving around, as that can help you be more alert and may help relieve stress
- Confirming verbal statements in writing quickly, even if just in an email saying, “Here’s what I heard…”
- Refusing to rush at the end of a meeting, and instead recommending a follow-up meeting
In a future blog, we’ll address the fact that it’s crucial to have every stakeholder in your firm (and their company) present for meetings if possible, and that “group negotiations” are most effective when everyone on your team is well-versed in the potential project and on the same page regarding the goals of the negotiation.
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