Negotiation is a huge aspect of the construction process, from beginning to end. Everyone is always looking for ways to stretch their dollar as much as possible and get the lowest price that’s realistically achievable. Project owners want general contractors to give them a bargain estimate; estimators want subcontractors to give them quality work for a steal.
Remember, negotiation is a skill you have to work on—it's not instinctive.
Unfortunately, in the pursuit of finding the best bargain, it can be easy to lose sight of your actual goal, especially in preconstruction. For example, just because someone is offering you the lowest price doesn’t always mean they’re offering you the best price. It’s up to you to dig into the numbers they’re suggesting to make sure that they make sense, and to make sure that you don’t end up getting slapped with a much higher price tag further down the road when inevitable change orders begin to arise.
So as you navigate bid days, project owners, and subcontractors, don’t forget to keep these 5 tips in mind to keep improving your preconstruction negotiation skills.
- Be thorough when building your estimates
- Qualify subcontractors when possible
- Understand true cost vs projected cost
- Never undervalue your work
- Avoid hard-bid models when you can
Be Thorough When Building Your Estimates
Part of negotiation includes setting up the best possible case for your perspective. If your estimates are disorganized, full of small errors, and wildly different in style, it’s going to be that much more difficult to convince someone that they should accept your numbers as the best-case scenario.
It’s important that no matter how big or small your team is, your estimates should present a unified front. You want your company’s brand to be recognized by just a quick glance at an estimate file. Additionally, it’s critical that you have construction estimating software that allows you to automate data generation and analysis in order to ensure as few mistakes as possible and to save time from constantly checking for said mistakes.
Qualify Subcontractors When Possible
Another huge step to building trust and value in the negotiation process is to prove that you’ll be able to provide quality work every step of the way. What does that include? Subcontractors who will supply you with excellent materials in addition to an impressive track record.
Some of the things you’ll want to look out for when qualifying subs include a great EMR rate and safety history, scheduling capacity, and of course, their cost proposal. When it comes to cost proposals, you’ll not only want to make sure it adds up but that they’re providing fixed rates as well. Change orders are often inevitable during the construction lifecycle, so it’s critical to try to maintain predictability where possible.
Understand True Cost vs. Projected Cost
And speaking of numbers―it might be tempting to go for the lowest ones you see, but that doesn’t always mean you’re actually getting the best price. In a competitive environment where the playing field ends up being pretty level, the one way to stand out is to drop a cost estimate incredibly low, whether you’re a sub or a general contractor.
But the problem with this approach is that oftentimes, the way that someone is able to arrive at such a low proposal is because they messed up and missed a line item or several. That might not sound so terrible, but when it comes to construction projects, every penny counts. As the project continues and change orders have to be made, those couple of line items could end up adding an extra hundred thousand or even more to the final cost.
It might be hard to convince a project owner that you really are giving them the best price if your proposal comes in a bit higher. By building a solid history of repeated success, you can help cement your argument that the lowest is not always the best.
Never Undervalue Your Work
One thing that often gets overlooked in the negotiation process: the power of believing in yourself. That might sound corny, but hear us out. All too often in the construction world, general contractors have a tendency to downplay their accomplishments or even feel a little embarrassed about bragging. But if you’re trying to convince someone that you’re the best person for the job, how are they going to be persuaded if you don’t even believe that you are?
Valuing your work also has a practical component to it as well. For decades, it’s been a tradition not to charge for preconstruction services, despite the fact that preconstruction is just as complex and mentally challenging as the other parts of the construction lifecycle. But recently, many contractors have come to realize that they are losing out on a huge chunk of profitability that, frankly, they deserve to see.
Your work is something to be proud of at every stage. Be sure you're valuing it so that project owners will too.
Charging for preconstruction might feel awkward at first, but it’ll give you more confidence in the negotiation process, and if/when you receive pushback, it’s usually just a matter of explaining in concise terms why you see value for both yourself and the client in charging for preconstruction.
Avoid Hard Bid Models When You Can
Negotiation is rarely ever easy. And in a hard bid model, it’s almost impossible. You’re immediately off-balance because you have rigid deadlines to meet, you’re competing against dozens of other contractors for one job, and you may not be able to qualify your subs.
In a negotiated contract, however, the process is on your side and the client’s side. Hard bid models have traditionally been favored because project owners believe that they’re getting the best deal. Unfortunately, once the dust has settled and change orders start coming in, that’s usually not the case. In a negotiated contract, the contractor is able to take their time preparing a bid so that it is as accurate and full-scope as possible for the project owner. Additionally, the contractor can use subs that they already know and trust.
