Strategies for Successful Project Negotiations — Part 2
October 16, 2020
In a previous blog, Strategies for Successful Project Negotiations - Part 1, we provided an overview of negotiation strategies that architecture and engineering (A/E) firms use to ensure that the project scope, fees, and other aspects of a contract they agree to with a client are favorable to their organization.
In this post, we’ll look at “interprofessional” negotiations—meaning between two A/E firms or between a firm and a subconsultant—and how conducting them with groups of stakeholders involved (rather than just one person from each organization) is the way to go.
Teaming on Projects Should Start With Teaming to Reach a Negotiating Stance
With clients today strongly encouraging “teaming” among the service providers they work with, A/E firms often need to hammer out an agreement between or among themselves even before negotiations with the client begin. This can be tricky, since reaching an agreement with the firm(s) you’re partnering with requires at least some knowledge of the client’s needs.
So, group negotiations that include key stakeholders from each firm are crucial, as the collective insights of the participants are needed in order to be ready to engage with the client. When the firms meet, they can discuss the client’s needs, as well as the needs and limitations each firm has, and how all of that gets knitted together.
Group Negotiations and Win-Win Results
Based on our work with many A/E firms through the years, we recommend group negotiations because they are most likely to produce a win-win for the A/E side and the client. This is true because when everyone involved does their homework and brings their ideas to the table, it’s easier to spot areas where the client and the A/E “team” will disagree, where motivations aren’t aligned, etc.
Ideally, there should be well-understood scopes among the team members, with Firm A handling this aspect of the project, Firm B handling another aspect, and so on. It’s also helpful if the firms have similar organizational structures so that work can flow relatively smoothly between them. And if this is the first time that the firms have worked together, it’s important to ensure that the negotiations are thorough and to not rush the process.
Primary Firms and Subconsultants
Needless to say, the “primary” A/E firm has an advantage over any firms that are functioning as subconsultants, particularly if a contract with the client has been signed. If it hasn’t been signed, it’s possible for the firms to enter into more of a “joint venture” arrangement. In fact, in some cases a temporary legal entity is formed. But regardless, this approach is much more beneficial to both parties than a strict prime/sub relationship where one firm is in contact with the client and all information flows through that firm to the sub(s).
Group Negotiation and Loosening up on the Reins
One of the challenges for firms involved in a group negotiation is that in order for the process to be successful, firm owners and principals must be comfortable giving participants more freedom and decision-making authority. That can be hard for these people to do, as they typically prefer to be intimately involved in every decision that affects the firm, and especially big ones like reaching contract terms with a client.
In many cases, an owner’s preference would be to handle the negotiations themselves. But, often, a person going “solo” into a negotiation does so with a “win-lose” attitude, meaning they want the firm to “win” at the expense of the client “losing.” And that’s not helpful when the goal should be to maintain long-term relationships with clients.
"We recommend group negotiations because they are most likely to produce a win-win for the A/E side and the client."
4 Ways to Approach Negotiations
In negotiations, there are “winners” and “losers.” Nobody uses those terms, of course, but that’s the reality. As a firm going into a negotiation, there are four main ways to approach the process.
- Win-Lose. Your firm and any partner firms win, and the client loses. As noted above, this isn’t a good outcome if you want to get future work from the client. They leave the negotiation with a chip on their shoulder and are unlikely to use your services in the future. This kind of negotiation does take place, however, particularly in situations where future work is unlikely. For example, if you’re involved in the building of a new high school and another won’t be needed for decades, you might take a win-lose approach in order to get all you can from this project. But, again, it’s generally not a good idea to treat clients this way.
- Lose-Win. Your firm and any partner firms lose, and the client wins. In this scenario, you’re agreeing to unfavorable fees or terms in order to get the work, with the idea that you’ll then get more projects from the client in the future. However, this approach can backfire, as you’ve now set expectations with the client that may be hard to change down the road. And saying when the next project comes around, “We gave you a great deal on the first project so we could win your business. Now we need to charge a higher fee.” is not going to make the client happy!
- Lose-Lose. In this scenario, the two A/E firms are the “losers.” They have agreed to “take it on the chin” on this project and are confident that 1) the client will select the two of them for future work, and 2) the firms will find a way to get more profit from projects going forward (through greater efficiency, better teaming, etc.).
- Win-Win. This, of course, is the best outcome. In order to achieve it, you have to do a great deal of preparation and in-depth analysis in order to understand everyone’s goals and needs—yours, your partners’, and the client’s. You also have to select the right people for the negotiating team, both in terms of their understanding of the project and having a temperament that’s conducive to a win-win result.
Other Negotiation Considerations
Negotiating is a very cerebral activity. You’ve got to understand motivations that go beyond simple dollars and cents. For example, clients often view an A/E firm as an intermediate step to what they really want: the completed building, road, etc. For that reason, it’s helpful for A/E firms to “take themselves out of the negotiation.” In other words, firms need to focus less on what they have to offer and more on how they can help the client get what they want. It’s a subtle but important difference. That means that it can be a good idea to have the person who was marketing to and pursuing the client not be involved in the negotiations.
It’s also helpful to note that win-win results are much more likely when a client comes to you because they know about your expertise and experience rather than your firm sort of forcing your way into their consciousness. If you’ve got an opportunity as a result of the latter approach, be prepared for challenging negotiations!
The Many Benefits of Win-Win Results
When your preparation and skillful negotiation delivers a win-win, there are many benefits. For one thing, both your firm and the client feel good about the result. This creates a more trusting relationship that can help the project flow more smoothly.
That trust also makes it easier to finalize a contract, where lawyers are only needed to “paper up” the agreement—and that can save money for both parties. And finally, as stated many times above, a win-win positions you and client for more successful collaborations in the future.
Explore How Factor AE Can Help Your Firm
Learn all the ways that Factor AE benefits firm owners and managers. Get started today!