Negotiation and construction: improving skills and upholding ethics

Bargaining chips

9 February 2018

Chris Green explains why negotiation is vital to construction, and how to improve your skills while upholding ethical and professional standards

The valuation of variations, extensions of time and a project’s final account should all be matters of fact and entitlement, as in the amount of time or money calculated exactly in accordance with the contract change control mechanisms. However, it is commonplace in construction and infrastructure to have to negotiate agreements, particularly where the form of contract contains variation and extension of time mechanisms requiring one party or the other to make a fair and reasonable assessment of entitlement. In these circumstances, it is helpful to develop a clear negotiating strategy that will enable the parties to reach an amicable and equitable agreement.

Establishing positions

The level of disagreement between the parties will dictate the strategy required to reach an amicable settlement. The following 5 positions describe the level of disagreement and the appropriate intervention strategies for resolving them. Note that an amicable agreement will not be reached until the parties move to position 1.

1. Proactive problem-solving: Both parties agree what the problem is and want to solve it within agreed timescales without blame. This requires a general openness about people and information; the parties establish a mutual problem-solving team that focuses on building consensus. No intervention strategy is required.

2. Disagreement: Self-protection is uppermost in the parties’ minds, although there is some desire to help. Effort tends to be concentrated on inadequacies in the other party, with growing emotional pressure. Parties will withhold critical information. Intervention strategies will focus on trust and team-building, to move up to proactive problem-solving.

3. Contest: The parties have developed false perceptions and assumptions and dialogue is uneasy. In this case, the intervention strategy is to create a structured approach with firm ground rules, to help move towards proactive problem-solving.

4. Fight: The parties have developed a desire to withdraw or to hurt and humiliate each other. Winning on principle becomes more important than proactive problem-solving. The intervention strategy will be for each negotiating team to exert strong leadership and overcome aggressive factions in their number, then to move up through the phases above.

5. War: The parties seek to destroy each other using any means. Intervention is needed to enforce separation of the parties and expel disruptive team members.

Preparation

It is important to spend time ahead of negotiation to prepare properly. A few issues to consider are as follows:

  • examine the causes, possible interventions and range of outcomes of the dispute
  • try to establish the other parties’ interests and goals in order of priority
  • think about who should attend the preliminary meeting
  • consider the venue, equipment and seating plan for the meeting.

You should ask yourself these questions.

  • What facts are missing, and what facts will be required for the negotiation?
  • What documents need to be prepared for whom, by when? Do they need to be exchanged in advance?
  • What are the time limits for the negotiation, and what are the implications of breaching them?
  • What are the current target settlement and worst case reservation numbers and other variables?
  • What are the past patterns of interaction between parties, and what might go wrong during the sessions?
  • What are the preferred negotiating patterns for the other party?
  • What authority to settle do the parties have, and will they need to consult with third parties during the negotiation?
  • What doubts will parties air to support their views and destabilise your position?
  • What are the possible and probable outcomes for this negotiation?

Opening the negotiation

Negotiations inevitably start with opening offers from the parties and can be typified as detailed in Table 1.

Non-starter offer Insult zone Credible offer

Dangerous, as parties will

  • walk away
  • find alternatives
  • seek revenge
  • litigate
  • do themselves reputational
  •  
  • damage.

 

 Typified by lack of objective criteria and weak justification. Start negotation here if the other party knows there is a deal to be done and is set up for a protracted negotiation. These offers are starting to look interesting, but a better deal is still possible elsewhere. Both parties need to add extra variables with high value to the other side and low cost to themselves.

Table 1: Range of opening offers

It is important to understand how your opening offer will be viewed and the effect it will have on the opening positions of the parties. There is then the question of how to make the opening offer, which can be done in 4 different ways.

  1. High or low, soft: this involves the offer of a high price, but with a hint of willingness to negotiate; or the offer of a low price, but the indication of a willingness to increase. These offers will be just inside the insult zone, but will elicit questions for clarification from the other side, on which negotiations can build.
  2. Reasonable firm: this will be received as an opening offer if credibility has previously been established. It can also be used to close down an element of the overall deal. It is often more acceptable from more senior negotiators, and is a good way to open if you have sound, objective criteria from which to work.
  3. No offer – start with problem-solving: this is a good technique for increasing the range of variables available to the parties.
  4. No offer – start with silence: sometimes it’s just good to hear what the other party has to say.

Common mistakes

Inexperienced negotiators are liable to make several mistakes during a negotiation. A few of these to watch out for are as follows.

Preparation
Failing to prepare in advance of the negotiation will weaken your position. Assembling all facts and evidence in support of your position ahead of the negotiation helps to affirm and strengthen your arguments. It is also worth reflecting on any constraints that may be imposed on any potential settlement such as internal governance and examining possible weakness in your position.

People
Make sure you invite the right people to the negotiation. Remember that you will need to create a proactive problem-solving forum to be successful. Employing people specifically to prove the other side wrong, such as lawyers or experts, can be a mistake. Make sure you have a person who has authority to make a settlement.

Tactical mistakes
It is easy to lose sight of the negotiating process and focus purely on the substance and detail of issues in dispute. Try to maintain an oversight on the whole process and do not get fixated on defending singular issues or staying on difficulties for too long. Try to emphasise the points on which agreement has been breached and set up a monitoring process to record individual agreements as progress is made.

Conduct
Be aware of the behaviours you and your team display. Failing to listen, acting on assumption and using questions poorly can exacerbate a dispute. Avoid talking about 'justice' or 'fairness' and instead focus on the market price for the resolution of the negotiation. Finally, avoid personal insults and the targeting of individuals.

Dealing with difficult people

From time to time, we all come across difficult people with whom we need to negotiate successfully. The following strategies can help to overcome some of the difficulties.

Don’t react
Three natural reactions are to strike back, to give in or break off the negotiation. But remember your interests in the negotiation, remind yourself of the tactics for dealing with difficult people, and take time out to recover from conflicts.

Step to their side
Listen actively to what is being said and acknowledge the point that the other party is making. Understand why they are making it, so that you can agree but without conceding.

Don’t reject the  proposition, reframe it
Ask problem-solving questions such as 'How about …?' or 'What if …?' that invite collaboration, rather than questions that seek concessions such as 'Am I right?' or appear to challenge and contradict such as a blunt 'Why?'

Make it easy to say 'yes'
Ask for opponents’ ideas and build on them. Offer them a choice: don’t overlook people’s basic human needs, and don’t assume there is a fixed outcome over which both parties must fight for their share.

Make it hard to say 'no'
Ask what will happen if no agreement is reached. What do you think your side will do? Warn the other party about potential undesirable consequences, but do not threaten what your last resort will be. Use third parties to help or limit what your side will be able to do. And finally, seek mutual satisfaction, not victory.

Concluding negotiations

As the negotiation progresses, it is helpful to record agreements made progressively, to narrow down the areas of disagreement. This will help both parties see the advances being made, and will form the heads of terms to help draft a settlement agreement if required.

It is worth remembering that we are likely to have to deal with people with whom we disagree on a regular basis, so it is worth developing good negotiating skills and building collaborative solutions to preserve otherwise valuable relationships.

Finally, reflect on RICS’ global professional and ethical standards:

  • act with integrity
  • always provide a high standard of service
  • act in a way that promotes trust in the profession
  • treat others with respect
  • take responsibility.

Chris Green is Group Commercial Director at J. Murphy & Sons Limited

Further information

 

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