How best to close out ‘legacy’ projects? As Balfour Beatty hires a crack team to advise its staff on negotiation, Jason Farnell offers some strategic tips.
Construction headlines are littered with reports of profit warnings and difficult trading conditions for main contractors, which are dealing with historic projects won in lean times while trying to secure market share of more profitable current opportunities. The industry has come to accept certain projects as being “legacy”, a term intended simultaneously to communicate euphemistically a poor out-turn margin and an absence of responsibility or accountability.
As we all know, the construction and property industry is risk-laden, highly regulated and reliant on contracts; in this environment the importance of effective negotiating skills cannot be over-emphasised if businesses are to manage their commercial performances well.
First, why negotiate? As a general rule of thumb I would say it is usually because one or both of the parties either wants or needs to: to avoid a dispute, to save time and money, to keep control of the outcome, or to avoid embarrassment. If there is no imperative for negotiation it is unlikely a settlement will be achieved.
Each type of contracting organisation will be characterised by its different needs and operational requirements, and these must be appreciated if the best outcomes are to be achieved. For one, the earliest resolution of an issue is key – “time is money!” – while for another the auditability of the outcome or best value for money may be what matters. Understanding what is important to the other side is a major step forward in being able to speak his or her language and reach an agreement.
What do smart negotiators do? They understand the landscape in which they are negotiating – the timescales, what is important for them and for the other side. Preparation is everything.
"Know when to walk away but don’t make a gesture that you are not prepared to carry through, as this will undermine your position."
Where a party might be concerned about setting precedents, preparedness to enter into non-disclosure or confidentiality agreements might be a signal to the other side that you are trustworthy, helping to create a climate for negotiations.
When negotiations have commenced, it is important to understand the respective position of the individuals with whom they are carried out within their business, and to be alive to any sensitivities of accountability, vested interests and personal agendas – always with the awareness that these might change during the course of negotiations.
Here there is a role to be played by intermediaries and advisers, who may lack the authority to negotiate to a conclusion but provide a useful function in defining areas of difference and agreement, and providing a conduit for communication.
In many cases, it’s worthwhile testing your position by asking a neutral third party inside or outside the company to review whether negotiations are likely to have any prospect of success, and whether there are any potential areas of overlap or shared interests in the parameters of the settlement.
It is pointless to waste time negotiating where the gulf is just too wide, in which case it is better to cut out difficult or intractable elements and think of another way of resolving them – quite often these major stumbling blocks are less insurmountable when progress has been made on other elements, reducing the overall scale of the differences.
The subject of “how to negotiate” has probably spawned more books than there are stars in the night sky, but there are some universal truths that can be distilled. For me these are:
- Never back the other party into a corner leaving no alternative than to settle or fight;
- Make timescales sensible, recognising the decision-making process within the other party’s business/organisation;
- Single-outcome negotiations are always the least attractive and the most likely to flounder – construct settlement proposals as a basket of components with concessions for all parties;
- For closing meetings the fewer attendees the better;
- Don’t be afraid of silence – often the unravelling of a potential settlement is nervous talking and filling the voids with concessions that need not have been made;
- Know when to walk away, but don’t make a gesture that you are not prepared to carry through, as this will undermine your position;
- Know what a good deal looks like for you and know when you have got the best that is available;
- And, of course, preparation is everything.
Another factor to bear in mind is that parties often neglect the provisions of the contract when there is a possibility of a negotiated resolution, seeing it as the panacea for all their issues. This is never a good strategy. The prudent contracting party will ensure that it continues to operate the mechanisms of the contract, providing notices as required and carrying on as if the negotiation dialogue were not taking place – effectively twin-tracking the contractual and negotiation routes.
In conclusion, know your own position and what you want; understand the other party, their business, their constraints and their drivers, and recognise what the best alternative to a negotiated settlement might be. It isn’t an easy option, it is just a different one.
Jason Farnell FRICS is a director of Commercial Risk Management
