For many engineers, talks surrounding fees and terms of engagement can cause plenty of discomfort.
Nonetheless, such talks are critical. If they negotiate good outcomes, engineers have the foundation for mutually beneficial client relationships. Bad outcomes, by contrast, see them locked into unfavourable and potentially unviable agreements which can span years.
Given this, it is important to look at the myths and misconceptions surrounding fee negotiations, common mistakes in negotiating client fees, tactics which clients may adopt in order to derive more favourable fee outcomes from you and strategies which are needed for successful outcomes.
Michael Hudson, founding director of negotiating and influencing consulting & training ENS International, said there are two key misconceptions many have.
First, being predominately technical people, engineers often mistakenly assume that the facts largely speak for themselves in driving negotiating outcomes. On a related note, they often presume that decision making on the other side of the table will be entirely or primarily driven by the technical needs of the company or organisation with whom they are negotiating.
In reality, negotiations happen at a personal level and are influenced by human behaviour. Accordingly, effective strategies need to account not only for technical considerations but also for what drives the behaviour of those individuals with whom engineers are negotiating.
As for decision making, this is influenced not just by organisational needs but also the personal needs of individual negotiators. These latter needs can include reputation, ego and personal rewards or bonuses for closing and landing the deal.
Accordingly, when approaching the negotiation, engineers need to address both the more personal needs of the individuals on the other side of the table and those of the organisation whom those individuals represent. To do this, they should ideally get to know those with whom they are dealing prior to the negotiation.
“We think about the stated needs (of the organisation), which is all the technical stuff,” Hudson says, talking about engineers when approaching negotiations. “More importantly, we need to think about the hidden agendas of the people involved.
“Because of this, part of their strategy needs to be to get to know their client as well as they can at the very personal level.”
Hudson says there are several effective strategies for doing so.
Before the negotiation, engineers need to understand their own position and what does and does not represent a good outcome from their own viewpoint.
On this point, Hudson encourages them to divide their needs into three categories: must haves, nice-to-haves and tradeables – the last group representing points on which engineers are most able to budge should the need arise. Having done this, they are able to define what they consider to be an aspirational outcome, a fair and reasonable outcome and their walk-away point beyond which no acceptable outcome can be reached.
When setting their negotiating position, Hudson says engineers often fall into the traps of basing their yardstick on either a ‘cost-plus’ calculation or even upon what they achieved during their previous negotiation. In the case of the latter, he says this presumes that outcomes previously achieved were at least fair and reasonable. Where this is not the case, basing future negotiations on these results effectively entrenches sub-optimal outcomes on future projects.
As for the cost-plus position, it is obviously important to understand costs and the point at which the job is financially non-viable. Nevertheless, a negotiation point based around this may still fall short of the best outcome which can be achieved.
What engineers should be thinking about, Hudson says, is the best possible outcome they could derive if bidding for a similar job with an alternative client. Furthermore, they should have a back-up plan about other jobs for which they will bid in case the desired outcome with their current negotiations is not achieved. By doing this, engineers will be focusing their negotiations around the best possible outcome which they could reasonably achieve from the negotiation.
When establishing your starting point, Hudson cautions against negotiating with yourself. Often, he says, engineers have bosses who wish to commence negotiations at an aspirational point but are themselves reluctant to adopt an overly aggressive stance for fear of being seen as unreasonable. Thus they adopt a lower starting point and commence negotiations having already lowered their own sights.
This, Hudson says, is problematic. Almost always, terms and conditions go south of your starting point. Where a more modest starting point is adopted, the finishing point at which negotiations settle will inevitably likewise be less favourable.
Second, engineers must be able to counter tactics which clients may adopt to get them to either lower their fees or offer more favourable terms.
According to Hudson, some common tactics include:
- Inducing competitive pressure by asserting that other firms are offering an equally acceptable solution at a more competitive price.
- Attempting to squeeze in additional services or benefits. Often left to a point at which the negotiations are drawing close to conclusion, clients will introduce extra services or benefits which were ‘forgotten’ earlier in the negotiation and ask engineers to add these in without additional charge. Having come a long way in the process, engineers will sometimes feel pressured to agree because of the time expended and in order to avoid jeopardising the contract.
- Time delay – delaying decisions in an effort to induce a sense of vulnerability and anxiety into engineers about losing the job and thus a greater willingness on the part of engineers to make concessions in order to secure the role.
A further issue about which Hudson advises engineers to be careful is to avoid being used as a ‘stalking horse’. This occurs when clients pretend to genuinely be interested in engaging the engineer but in reality are merely deriving their quoted fee to use as a bargaining tool to use in negotiations with other firms.
For engineers, this type of practice sees them needlessly expend effort on jobs for which they in reality were never in the running.
To turn these situations around, Hudson recommends a few steps:
- Be prepared and identify tactics used. Prior to the negotiations, Hudson advises engineers to consider the type of tactics which might be employed. They are then able to recognise these when they occur and to respond in a planned and considered manner.
- Evade the tactics and adopt proactive measures to minimise opportunities for them to be used. Opportunities for clients to apply the delaying tactic, for example, can be minimised by locking in a negotiation time-frame with them up-front.
- Ignore tactics when they are applied and simply pretend they never happened. When clients apply the ‘good-cop-bad-cop’ measure, for example, engineers having anticipated that this might occur prior to the negotiations can be prepared for it and simply refuse to be affected by it. This demonstrates to clients that their tactics are in fact having no impact.
- Ask questions. When any of the above tactics are applied, engineers can simply ask questions, such as ‘I wonder why you feel the need to do it that way?’ By being the one asking questions, engineers can largely wrest back control of the situation in question.
- Use a counter-strategy. One way to respond time-delay strategy, for example, would be to turn this around and apply it yourself by indicating that you yourself need time to consider the proposal. Another is to cut it short and say ‘look, I’m sorry, we’ve got someone else on the run. If you really want us, I need to have your order in by next Friday week.’ Under the latter response, Hudson says the engineer is effectively wresting back control of the timeframe.
Hudson says the most significant mistake commonly made is to focus excessively upon the content of the tasks involved (particularly facts and figures) and afford too little attention to the process of managing behaviour. As noted, negotiation is a personal activity and decision making is influenced by human behavioural drivers as well as the tangible needs of the organisation.
In addition, a tendency on the part of engineers to be fair and reasonable can be exploited by clients who appeal to this sense of fairness when negotiating down prices or terms. This is often done by counter-parties implying that engineers are being ‘fair’ if they move on their demands and ‘unfair’ should they not do so.
Hudson adds that it is important to be flexible in your negotiating style. Too often, Hudson says, people follow their natural style (hard-line, collaborative or otherwise) and are not able to adapt and respond to the styles employed by clients. Those who are naturally collaborative, for example, can find themselves making undue concessions in order to appease a more hard-line counterparty.
Instead, Hudson says it necessary to be able to adjust and adapt your negotiation styles as appropriate according to the situation.
Finally, it is critical to build rapport. Where offerings of multiple parties stack up relatively evenly on paper, those with whom clients have trust and rapport will naturally be favoured. This reinforces the need to meet informally (and, if possible, often) with those with whom you are negotiating prior to the formal commencement of negotiations.
“Let’s say there are four people who are all the same in bidding for the job,” Hudson says. “One of them has taken the trouble to get to know you – maybe had a coffee with you – and had a general chat about the project (not making any specific proposals at that point).
“They get to know you. They get the job.”
To derive maximum commercial return from their business, engineers must engage in successful fee negation.
By adopting some of the strategies referred to above, they can increase their likelihood of achieving best possible results in this area.