July 30, 2009
Submitted by Peter Nielsen and Randy Nemchin on behalf of FMI Corporation
Negotiation as construction projects progress is inevitable. In many companies, project managers handle a significant amount of this negotiation. To some, the word “negotiate” denotes an adversarial tone. Others prefer to think of negotiation simply as a “means to an end.” However, no matter how it is viewed, savvy negotiation skills are critical for success. The volume and tactics of negotiation varies widely by company, type of work and the demands of projects. Some organizations negotiate everything from the contract to subcontracts, purchase orders, change orders, payment terms, etc. Other organizations negotiate very little. However, this important business skill is crucial for project teams to make money, build and maintain relationships and meet schedules for the long-term.
For a successful project manager to negotiate with a win-win approach, he/she must cultivate the client relationship. Any tactic that would diminish the relationship will not be successful in the long-term. People want to do business with people they like and trust. Negotiating throughout a project to build trust builds relationships, and that is more important than anything gained in the short-term from a win-lose negotiation type. “The common perception is that negotiation is a means with which to acquire work,” said Glenn Kistler, president and chief operating officer of J.D. Beam, a $50 million-a-year general contractor based in Raleigh, N.C. “I would tell you that you negotiate on most everything you do.” Whatever the specific issues, negotiations with owners and subcontractors revolve around primarily three things: price, scope and quality. “Scope is probably the largest item,” said Dave Alexander, vice president of James McHugh, a $280-million-a-year general contractor headquartered in Chicago. “We may ask a subcontractor to do something that to us sounds reasonable, but to them is very expensive. They may say, ‘Well I haven’t included it because that’s very unusual’ or they may say, ‘I’ve included it, but that’s why my price is so high.’ Therefore, you start negotiating scope and price. You really can’t talk about one without the other because every scope item you want them to do has a dollar value associated with it.”
Sometimes when subcontractors submit proposals, they include work not required by the RFP or leave out required work because they want to bid on what they do best. Project managers who evaluate proposals must be able to recognize these scope issues as they negotiate terms and conditions with the subcontractors. Time, or the schedule of work, is another factor that project managers must address in negotiations. “You may want the work done in a month, and the subcontractor says, ‘Well I’m going to offer it to you at a better price, but it’s going to take me two months to do it.’ So you might be negotiating money vs. schedule,” Alexander said. Disagreements during negotiations often result when contract language isn’t clear or doesn’t address a particular point, said Gary Jaslovsky, construction manager at Graycor, a $300-million-a-year general contractor based in Homewood, Ill. For example, a general contractor and a subcontractor could haggle over overhead and profit adjustment for work that the subcontractor reasonably performed even though it was not included in any contract. “So the subcontractor is essentially claiming, ‘Hey, I did some of your work that you have fee on. I should get some of your fee.’ And we’re saying we don’t disagree but we also did some of your work and we should get fee on it if you want to play that game,” Jaslovsky said.
Training the Art of Negotiation
Most contractors agree that traditional construction management or engineering programs do not teach negotiation and other business skills. “The stuff that’s really needed in the real world in many respects was left as an elective,” said Jeff Barnes, a vice president at Bobbitt & Associates. This lack of formal training leaves the development of negotiating skills up to companies and individuals. The amount and type of training varies. Many companies use informal mentoring programs to develop these skills in junior project managers. Some companies also have in-house programs or send their employees to outside seminars. Individual project managers may seek out additional training through books and other resources. Bobbitt holds monthly training sessions, and some of these focus on finance, negotiating and customer relations. But much of the company’s negotiating and business training takes place on the job. “We try to draw on the experience of the successful people at Bobbitt,” Barnes said. “The new guys on the block learn from the old ones.”
An Innate Ability
Many contractors believe that negotiating skills — unlike a new construction method —cannot be acquired by everyone. Therefore, Bobbitt also heavily weighs communication skills and business acumen as it evaluates potential project managers to hire. No matter how much training is provided in negotiating, customer relations and finance, some people are just innately better in those areas than others. “You get the right ones, and they know how to do it,” Comer said. Bobbitt — which specializes in $750,000 to $2 million commercial projects — likes to hire people immediately out of college with four year degrees, preferably in construction management or engineering. After being hired, employees have a 90-day probation period during which they serve as assistant superintendents. A senior superintendent keeps a close eye on the areas in which they excel, trying to determine their best role in the company. “What the superintendent tries to do in that first 90 days is expose the employee to everything Bobbitt does — all the types of buildings we do, the difficult customers, the easy customers,” said Barnes. At the end of the 90-day period, the new employees are evaluated and either given more responsibility and salary, retained in their current position at their current salary, or not hired permanently. Although some strong communicators simply prefer to work in the field, the ability to communicate is critical in determining who is cut out to be a project manager. “It’s one of those characteristics that you can typically identify in 90 days — either they’ve got it or they don’t,” Barnes said. Barnes is indicative of the career path a talented communicator and businessperson can take at Bobbitt. He clearly had what it took to become a project manager when he started with the company in 1977. He started as a form carpenter, but in less than six months he was running his own crew. After about a year, he was promoted to superintendent. In the early 1980s, he became a project manager. Barnes, whose father was a general contractor and part-time farmer, credits his parents and his farm upbringing with giving him a good head for business. He developed an entrepreneurial streak as a teenager cutting wood and selling it to neighbors. “The art of negotiating, to some degree, just like the ability to sell — is something that’s in an individual’s personality,” he said. “You have to be able to talk to people. You’ve got to be a good communicator.” It also involves knowing how to interact with different personalities. One approach won’t work with all people. “Some people believe you can’t get anybody’s attention until you start by screaming, and I don’t think that’s the way it has to be,” Kistler said. “But I think there are definitely people that respond only to that; the trick is finding how to make each individual you interact with respond in a way you want. For some of them, it’s asking for their help even when they are wrong, to fix their problem. And they respond real well to that. Some of them you have to get their attention pretty abruptly — pretty sharply — early on. It’s not much fun to do business that way, but it is a requirement.”
J.D. Beam has hired most of their project managers from North Carolina State University’s civil engineering program. The technical background is important, but not as much as a person’s negotiating and business skills. “You can’t turn everybody into an engineer without the background in school, but if someone knows right from wrong and can interact with people, you can usually teach them enough of the technical aspects to be successful at it,” Kistler said. One of J.D. Beam’s current project mangers was a school teacher before entering the industry. “I don’t know how those skills are taught,” Kistler said. “I think that part of it is how you are raised and your education early on, and the other thing is being in the hot seat and being responsible. It’s easy for people to get along when there is no pressure; it’s a little more interesting when the pressure gets turned on.”
Overall, the bottom line is negotiation is a process that with trust, skill and an eye on the relationship will create opportunity for success. Negotiation should not be viewed as a chore or a task that only skilled individuals should use; negotiations should be a part of dialog to ensure the project and individual needs are continuously met and exceeded.
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*Please note, this interview was conducted several years ago and information for interview participants may have changed. For current contact information for interview participants, please contact FMI Corporation.