By Rob Blackstien
In the third and final instalment of Zen and the Art of Negotiation, we’ve compiled some horror stories from contractors across the country: When negotiations go wrong.
The Horror… the Horror: Scope creep
A few of our participating contractors shared with us some negotiating horror stories. Heed them wisely and benefit from their experience.
Communication gone wrong: When he first started in the industry, Richard Speare, Owner of Barrie, Ont.-based Speare Construction and Contracting, was building custom homes with his brother and that was going well. Once he ventured into commercial work, however he learned a hard lesson about project scope creep. Contracted to build an accessory building to plan, Speare was suddenly blindsided when the client said, “Forget the plans, it needs to look exactly like the other accessory building.” Now Speare was stuck with a design project on top of the construction work. “At that point, I wished I’d had the strength, the courage to say, “Wait a minute, this is not what we bid on.'” Instead, he made the rookie mistake of being hung out to dry as the scope of the project had completely changed.
There are no friends in business: Barrett Risser, shareholder/project manager at Lunenburg, Nova Scotia-based D. Risser’s Construction Ltd., shares a project creep story that cost him money and a friendship. They started a major renovation on a 150-year old family farm house, setting a budgeted amount and beginning the project, which ran smoothly. “As we got close to the end, the owners added this and that and since we were so close we just kept saying, ‘Ok, we can do it, no problem.’ I had personally developed what I thought was a friendship from working on the project from start to finish.” When the job wrapped up, they were $20,000 over their original price. “We sat down to discuss what had happened; they were happy with everything minus the overage. Friendship out the window. They refused to pay the extra amount. It wasn’t enough to seek legal counsel on the matter. Instead, I got a $20,000 lesson in how to not do things,” Risser says.
When change orders are overlooked: Calgary’s David Litwiller, President of Litwiller Renovations and Custom Homes Ltd. told us about a customer he had about 15 years ago that was a lawyer. The project price was $350,000 with a very low specification sheet. “The guy wanted a negotiated lump sum management fee. I went for it because I felt it was ‘safe’ and the timeline should be no problem. Well, the spec suddenly doubled with cabinets, pot filler tap over the stove, Santos mahogany flooring and railings, concrete roof tiles, etc. The timeline doubled and I neglected the paperwork for change orders because I felt they knew it was increasing as they made decisions. The lawyer then sued me for contract cost overages. It ended up in binding arbitration and I ended up receiving 50 per cent of the negotiated management fee. I refer to this as my $50,000 lesson in contract writing and management.”
Trust your instinct: One contractor that wished to remain anonymous told us about a current horror story that’s become so bad it’s heading to court soon. “Three or four times during the design stage she said, ‘I just know this job is not going to go well.’ With a negotiating strategy like that coming direct from them, I should have run… run very fast and not looked back.”
Learning to negotiate well
Steve Barkhouse, President of Ottawa-based Amsted Design-Build harkens back to his youth to illustrate where he learned his negotiating skills — the hard way.
“I had great teachers. Negotiating with my parents for the car or cash or anything else when I was younger usually resulted in failure because I was ill prepared. My parents were great at asking all sorts of probing questions about my intentions like if I was paying for the gas, when I would be home, where I was going and with whom, what I would do if there was a problem, etc. If I didn’t have the right answers, I didn’t get what I wanted. This taught me not only to be prepared for the negotiation but also to accept compromise and to make a commitment to finalize the negotiation.”
Successful Negotiation in Action
Finally, some of our respondents shared with us their successful negotiating tales.
It’s okay to walk away: Barkhouse related an interesting success story in which he talked himself out of work.
“We worked hard with the Cuban embassy to put an addition on to the residence. The community was not in favour of the project so we held a townhall meeting with coffee and treats, reviewed the proposed work, and compromised on a number of points to meet the community concerns. We negotiated with city council for approval which they granted unanimously despite the fact there was a small group of community members who still objected. I then negotiated with the Embassy to not proceed. You see, the small group of community members were right and to the Embassy’s credit, they agreed to not move forward with the project out of respect for the community. We lost a great job, but it sure felt good.”
Establishing expectations: Damackine says the pattern in this example of simple but effective negotiation remains a benchmark he tries to duplicate at the beginning of every new project.
“During a meeting with first time clients we begin with the typical discussion of reasons leading to the renovation and the difficulties and sacrifices they had lived to prepare for the project. I showed pictures and answered questions about several of our similar projects and I listened a lot to their expectations for the finished project. Together we concluded that the type of work our company produced fit with their vision and the next step was a very candid budget conversation in which we discussed typical projects costs. Throughout the entire meeting a pleasant easygoing rapport had been building and there was a mutual confidence that allowed the clients to feel comfortable divulging their bottom line. From that point all my energy was focused on getting the homeowners what they wanted instead of playing hit and miss between what they wanted vs. what they could afford. Ultimately the client’s confidence in us made all the difference in empowering us to work harder on their behalf during all phases of the project and we were able to bring a higher degree of value to the finished project.”
“During the delivery I thanked them for the confidence shown early in the preliminary
discussions and explained that I always tried to negotiate from the client’s perspective. They told me they’d felt confidence because of my willingness to discuss my own costs and wanted an honest opinion as to if they were financially prepared for the project. The time spent building rapport contributed to their decision to be open and had placed the responsibility on me to be as generous as possible. The clients were surprised and grateful for the value they received and we felt great about giving a bit more back.”
A final negotiation success story:
“I wanted to do some work for a shipbuilding company in our area,” Risser says. “Other contractors had been doing work there and I figured it was a closed deal. I set up a meeting with the person in charge of building maintenance and asked for a chance to work or offer a price on upcoming projects. After much back and forth we were awarded a small contract. Everyone was aware of the importance of this one job (and) we delivered the job on time and budget. One year later we have become their exclusive contractor.”