Engineers Lose Millions Through Poor Contracting Strategies

Monday, October 3rd, 2016
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As in any profession, a critical part of running a successful engineering practice revolves around an ability to negotiate effective outcomes with clients.

When engineers get this right, they can maximise their price without jeopardising their prospects of being the successful tenderer. Get this wrong and they could become trapped in a race to the bottom when it comes to fees.

So what are the common mistakes? And what can engineers do to avoid them?

According to Alison Jardie, a director of Leadership Evolution, one area where things can go wrong revolves around a tendency for engineers to underestimate the psychology of the situation and to talk in terms of their own ‘currency’ as opposed to being primarily focused upon the needs of the client.

Negotiations, Jardie said, are about finding solutions which deliver mutual benefit. Whilst your own needs are important, focusing upon the needs of the other party can assist the engineer in question to determine how to best meet those needs. This, in turn, will give them leverage as many of the right clients may be willing to pay more in order to secure a proposal which better suited their requirements over and above one which does not meet their requirements as effectively.

“They tend to talk in their own currency instead of talking in the currency of the person that they are negotiating with,” Jardie said, asked about common areas where negotiating strategies adopted by engineers are not always as effective as could be the case.

“Negotiation of any kind of contract is about meeting needs, and if you think about meeting the needs of the other party, then you have got to start thinking about them and not you.”

Adam Le Good, principal consultant at Fundamental Training and Development, agrees.

Le Good says a common error revolves around a lack of research and awareness of client needs and how the engineers can make the negotiation work from the perspective of the client as well as from their own point of view.

“Probably the fundamental error that they make is that they don’t do the preparation,” he said.

“They think about what they want out of the negotiation but they don’t really put any time or energy or effort into what the other party may be after. So they go in unprepared and it often goes south from there.”

Aside from this, both Jardie and Le Good say there are a number of strategies which if adopted would help to increase the changes of successful outcomes being achieved.

In terms of preparation, it is important to be aware of your ‘walk point’ – the point at which the project in question will no longer be viable or worth taking on. Knowing this will ensure that the engineer has a baseline about what they will and will not accept and therefore helps them to avoid being caught in a discounting war and a race to the bottom.

On a related note, Jardie says it is also important to think about your best alternative to the negotiated agreement (BATNA) – the back-up plan from the bigger point of their overall business operations should the current negotiations fall through. Having a strong back-up plan with regard to other projects for which they might want to bid will help engineers to adopt a position of confidence during the negotiations in the knowledge that they in fact have alternatives in place should the negotiations regarding the current project fall through.

During negotiations, Jardie said there are a number of strategies which could be adopted. From a psychological viewpoint, it is important to let go of inflexible thinking and any need to always be ‘right’ or to win at all costs. Instead, they should adopt a flexible approach where the client’s input is valued and mutually beneficial outcomes are sought. It may also be helpful, she suggests, to speak less and listen more carefully to the client. As well as creating good rapport, this would enable the engineer to detect ‘cues’ from the client as to the type of things which are most critical to them as part of the negotiations.

As well, Jardie says there are a number of good practices which could be adopted during the negotiation from a practical point of view:

  • Allowing ample time for the negotiation process to take place enables engineers to maintain a cool-headed approach without any feeling of being hurried and thus to conduct the negotiations from a stronger position.
  • Allowing time for short breaks could be helpful in the event that negotiations become stuck from the point of view of allowing each party to think through potential alternatives and enabling the parties to adopt a fresh perspective toward some of the challenges upon their return.
  • Being flexible with regard to the project leadership team and the composition of this team can be useful should negotiations become stuck. A change in the team could result in a team on your side of the table which meshes together more naturally from a temperament perspective with the team of the client.

Beyond that, both Jardie and Le Good say it is important to maintain positive rapport and to develop a reputation for being flexible and cooperative. This, they said, will result in a situation where clients and prospective clients feel more comfortable about dealing with you and thus more likely to be more enthusiastic about the prospect of engaging your firm on their projects.

“I think it would be helpful for engineers to enhance their reputation as being easy to deal with and being fair and equitable negotiators,” Le Good said.

“Then it becomes easier to enter into negotiations because people go ‘oh we’ve got a negation with XYZ this morning. They are always good to deal with and it’s always pleasant. We don’t have to go in there with our sleeves rolled up ready for a fight.’”

For engineers, negotiations are an important part of running a successful business.

By adopting a few simple strategies, they can enhance their chance of success in this area.

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