How To Negotiate Your Construction Contract

Have you ever wondered how you practically negotiate your contracts on a construction project? How do you go about doing it in a professional way? So there's— you can get it totally wrong, all right, and you can do it completely wrong, get nothing approved, and, you know, anger them. Or you can do it right, look super professional, and negotiate a really thoroughly reduced risk contract. And that's what we're going to show you in this training, in this video. So hi, my name is Cian Dillon Brennan. I'm the CEO of a company called Quantum Contract Solutions. The reason we make these videos and a podcast is because so many construction companies go out of business for making silly mistakes, and we don't want you to be one of them. If you can negotiate a better contract up front, you're going to have better cash flow, you're going to have better payment terms, and your risk is going to be so much lower. And ultimately, you're going to stay in business over long term. So check this video out, get some value, please like, subscribe, and I'll catch you in the next one. Okay, so now we need to figure out how to negotiate professionally. Okay, so there are really 3 different times when you get a contract to be signed or to negotiate. First is when you're tendering during a tender period, a normal tender for a government job or whatever, oil and gas job, or you're working for a developer, whatever happens, whatever your industry is that you're tendering in, you get the tender and you get asked to take part in a tender and you let them know that you're going to take part and off you go. Basically, the next is you're asked to submit a quote. Now, sometimes this happens where you know a company and they go, can you please just submit a quote for undertaking this work? Now, this can be legitimate. They could ask you to be submitting a quote and they're basically going to sole source it and give it to you. Or sometimes they're just going to market to understand they're trying to create a budget internally and they've asked for a few quotes and they want to compare the prices so they can put an estimate together for a future project. And the last time, and it's quite often, is lastminute.com, right? What I like to call. And lastminute.com is essentially where they go, you need to start inside tomorrow and here's the contract, or we'll just turn up on site and we'll have the contract and that's it. So it's basically high pressure. You need to start inside, but we need to get the contract signed. And I'm sure you've been in that position. So the tool really for negotiating is called a commercial departure or a commercial clarification document. Now, it's essentially a Word or Excel document where you write in the points that you don't want to agree to and want to change or add in. And typically, as part of a tender, you'll be, you know, if you're asked to tender, you'll be given one of these. Or if you're being given a last-minute doc com contracts, sometimes they just want you to sign straight away and you can be under a bit of pressure. And we'll talk about the strategy of how to deal with that particular issue. So the first one we're going to talk about is tendering. So at the time of tender, you will be issued a commercial clarification register as part of the tender package, and they want you to fill it out. Okay? Now, this is where you prepare your departures, prepare your clarifications. Sometimes they don't issue you one, and if they don't issue you one, use the one that we've provided for you guys and where you can negotiate and always submit it as part of your submission. If you don't submit this clarification or departure register, whatever, let's just call it negotiation document. If you don't submit the negotiation documents, most tender package will say that you agree to the contract as is. Okay, and it's not entirely enforceable, but it definitely puts you in a corner when it comes to negotiating. Or what I see happen all the time is you don't submit it at all, and then you get awarded a contract, and then when you're just about to be awarded a contract, you decide, no, I can't agree to this, this, and this. And that is the surest way possible to upset them. Okay, that's definitely not what you want to do. And if we go back to what we said about the contracts guy having a KPI of getting as many tenders out the door as possible, what his life and the way he sees it is he's gone, okay, I've done absolutely everything. I'm just getting the contract out to sign. And now you want to negotiate? Now I have to go to the lawyers. And as far as I was concerned, you agreed to everything. So that's definitely a way to get yourself in trouble. So you have to submit it as part of your tender package, not after the fact, right? If you do it after the fact, that means that you're going to annoy them, you're going to annoy that contracts guy, and that's why I say he's just going to reject it and say, no, you agreed to it, you need to sign up to it as it is. So that's definitely not the way to go about doing it. The way to do it is submit it as part of your tender package. Now, do remember that the commercial stuff is going to the lawyers because a lot of times he can't do it himself and they're not comparing. One contractor only submitted 4 things, another guy only submitted 10 or 15. They're not doing that comparison, right? Unless it's crazily out of control. They're just submitting it to the lawyer. Now, on the lawyer's side, the lawyer almost certainly— and I know this for a fact from working on that side of the fence— that for every clause, they just have a backup one. They go, okay, didn't agree to use that one, we'll use this one. They didn't agree to use that one, we'll use this one, which is less harsh. So they go to you with their harshest contract, and then the ones that you try to negotiate on, they have pre-prepared answers. So it's just a game, it's just a dance. So just submit it as part of your tender. Now, the The next one we'll talk about is, let's talk about lastminute.com. Now these are high pressure. You need to start work tomorrow. And they've issued you a contract and they want you to sign it today. I'm sure you've been in that situation. It's a difficult situation to be in. Pressure stakes. Now, but what we need you to say and what you need to go back to them is use that against them. So they're putting you under pressure to sign that. But what I want you to do is I want you to blame what you call your commercial principles and insurance, essentially, to say that we would absolutely love to start, but we need to have these sorted as we have our commercial principles and insurance requirements essentially say we can't sign up to a certain amount of these things. And so that will, you know, they'll push back and that will obviously be a little bit confronting for them, tiny bit. But what they're actually hearing is we're not cowboys. We have systems in place that won't allow us to start work without a signed contract for insurance reasons. And that is true. If you sign contract. If you start work without a contract, you are entirely exposing yourself. So you just say, look, we're happy to work, you know, through the night, we're happy to work as hard as possible, but we can't just start on site with no contract and we can't agree to these terms because we have all of these internal procedures that we need to deal with. We have our commercial principles and we have our insurance requirements. Once you say that to them in a very nice, I'm happy to help sort of way, then they'll work with you as well. And a lot of times it's not as urgent as they're letting on. It's just maybe their PM is like, oh, I'm trying to come up with a solution to get you started. And he just wants that to have that wrapped up. So you will come out looking from that scenario very professional if you handle it in a nice way and just blame those two things. My commercial principles and our insurance requirements say that we can't just sign these things. We need to just review the contract. We'll do it as quick as we can. We'll work through the night, but we have to go back to you. And if you can do that for you tomorrow, then we should be able to have it signed the next day. So that's it, basically. I think that's the way to go with that one. So the last one is when you're asked to submit a quote. Now, this is a little bit of a tricky one because 9 times out of 10, if you attach a quote and you have your terms and conditions attached to your quote, but they'll accept the quote, but they won't accept your terms and conditions. They'll just say, hey, you say you submitted something for $1 million, They'll say, okay, yeah, we agree to your lump sum cost of $1 million. Here's a contract, sign it. And the contract is their contract, even though you had your own terms and conditions on it. Okay, so more often than not, we know that they're never going to use your terms and conditions. Okay. And what actually happens is you're quoting against terms and conditions that you don't even know about. So those terms and conditions that they ask you to sign may have things that you have not priced in. Okay, so that's, that's not something you really want to do. What we suggest you do when you're asked to submit a quote is not give them terms and conditions that you want them to sign, because more often than not, it's not going to happen. What we want you to do instead is have a set of commercial principles where you put a document of commercial principles together. And you just say that our quote is based on the acceptance of these commercial principles. We're not giving you a contract. We're saying that everything in our contract, the price that I've given you, the million dollars I've given you, is based on the acceptance of these commercial principles. And you attach your one-page of commercial principles, which says the various different things that are important to you and your company. That way, when they come back and they issue you with their contract that they want you to sign, you can say, hey, as per our quote, they're based on the acceptance of these commercial principles, which means that we don't agree to X, Y, and Z, blah, blah, blah. And then you can negotiate it because you have way more leverage because you've already said that. Whereas if you just submit your terms and conditions that they throw away, you've essentially got no leverage whatsoever. So when you're tendering, let's recap. When you're tendering, make sure that you do all of your commercial negotiation at the front end. Get it in. Don't worry about them thinking that there's too many. That's not how it works. And they want it upfront. And if you do it after the fact, it's just going to annoy them. When it's last minute, I want you to blame your commercial principles and your insurance requirements. Say that you can't sign it and say that you're happy to work through the night to get it done, but you need to do a review. That will make you look a lot more professional and ultimately be able to start on a better foot on that project. And when you're asked to submit a quote, instead of attaching your terms and conditions, attach a set of commercial principles, which is basically one-liner or two-liner for all of the main things. So we don't agree to this. We only agree to this, we don't agree to liquidated damages, or whatever it is that works out for your company. And in our one-pager, we give you base cases that you can use. And then when they eventually give you the contract to sign, you can say, well, here are the things that we said we wouldn't agree to, and this is what our price was based on, and therefore that's what we need to negotiate out of the contract. And you've got way more leverage. Okay.