In the construction industry, negotiation is required at nearly every stage of a project, from acquiring land and securing planning approval to setting appointments, awarding contracts, negotiating change orders and time extensions. The ability to negotiate is a valuable skill that will ensure that you are in a strong position from the start. In this article, construction negotiation, we take a look at the process involved and the options available to you.
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What elements might need negotiating in construction contracts?
Typically, underlying business factors drive contract negotiations. Among the most important factors to consider are:
Contract amount and payments
Prior to engaging into a contract, the contractor agrees to the contract sum. The parties must negotiate the contract price in order to reach an agreement on fluctuations, variations, statutory fees (e.g S106 and cil payments), losses, and expenses.
The price of the contract may also be modified by the schedule of payments, the project delivery method, the liability for losses, and the sharing of risks.
A resourceful negotiator will identify all of these pricing points and negotiate the contract properly in order to reach an agreement on contingency usage, savings, and other assumptions that may result in an increase in project costs.
Scope of work
Scope of work refers to the intended outcomes and output of a project. It describes the major milestones, deliverables, work programme, and final products.
During negotiations, the parties must discuss the underlying assumptions, plans, requirements, and conditions for the job scope. In addition, it is necessary to specify which work scope is included in the original bid and, if extra work is required, which qualifications apply.
Also required is the negotiation of modification orders. Here, the team will negotiate the circumstances that warrant modification orders, as well as whether or not they warrant compensation or a time extension. Change orders can have a substantial effect on the price and transfer risks.
Timeline and schedule
Schedule agreements have an effect on the timeliness of the job, including the promised duration of the work and the reasons that require a possible extension. A contractor should have complete control over the schedule, as schedule changes may be required.
The timetable of a project also influences the payment schedule, and it would be advantageous for the parties to establish clear payment conditions. Depending on the agreed-upon timeline, additional payment may be required to cover faster shipment, fabrication, overtime, and delays.
Risk allocation
The majority of negotiating terms concern the management of project risks, however certain contractual clauses must address the unanticipated hazards that may arise. These include insurance terms and indemnification clauses that address the risk of property damage and bodily harm.
Risks must be negotiated in order to limit them to acceptable levels for both contracting parties.
Insurance, guarantees and bonds
Some insurance clauses in contracts do not necessarily provide workers with the coverage they want. Therefore, these terms must be negotiated and indemnification clauses for insurable items must be included.
Due to the fact that the enforceability of insurance conditions varies by jurisdiction, insurance and legal counsel go hand in hand.
Different entities are involved in warranties and bonds, thus the best negotiation tactic is to have specific beginning and ending dates for your warranties. Additionally, it will help if you identify your repairs as warranties instead of listed items.
Conflict settlement
The parties must also consider conflict resolution strategies. In some areas, arbitration is more expensive than litigation. Delays and payments are key sources of conflict, and during negotiations, the parties should identify all potential causes of delays and the appropriate amount of compensation.
If a contractor causes delays, the contract should stipulate monetary and time constraints for the contractor’s payment of liquidated damages.
Inspection and testing
Controls include testing and inspection to guarantee that a project’s quality meets the specified criteria. The parties must reach an agreement on the testing methodologies, compliance standards, faults liability period, timeline, and defects rectification.
Contracts must specify who is responsible for inspections, the contractor’s responsibilities, and the terms of engagement that result in legal action.
Negotiation tips
The assessment of changes, time extensions, and the final account of a project should all be matters of fact and entitlement, as in the exact amount of time or money calculated in accordance with the contract’s change control systems. Nonetheless, it is usual in construction to have to negotiate agreements, especially when the form of contract provides procedures for variation and extension of time that require one party or the other to conduct a fair and reasonable assessment of entitlement. In this situation, it is advantageous to design a clear negotiation strategy that will enable the parties to reach a mutually agreeable and equitable settlement.
Prepare thoroughly
Not preparing for the negotiation beforehand will undermine your position. Gathering all the facts and information in favour of your viewpoint before negotiations, helps to validate and bolster your position. In addition, you should consider any limitations that may be put on a prospective settlement, such as internal governance, and assess any potential weaknesses in your position.
Try and maintain a holistic viewpoint
It is simple to lose sight of the negotiation process and concentrate solely on the substance and particulars of disputed issues. Try to retain an overview of the entire process and avoid becoming focused on defending specific arguments or lingering too long on challenges. Try to emphasise the areas where the agreement has been broken and establish a monitoring system to record particular agreements as things progress.
Make sure you have the right team
Ensure that you invite the appropriate individuals to the negotiation. To be effective, you will need to develop a platform for proactive problem-solving. Employing personnel, such as solicitors or experts, whose sole purpose is to prove the other side wrong can be a mistake. Ensure that you have someone with the authority to make a settlement.
Be friendly and try and avoid confrontation
Be conscious of the behaviours you and your team exhibit. The failure to listen, acting on assumptions, and improper use of questions can worsen a disagreement. Instead of discussing “what is fair”,’ emphasise the market price as a solution to the negotiation. Avoid personal insults and direct attacks on individuals. It won’t get you anywhere and will only lead to a soured relationship.
How we can help
We have a proven track-record of advising on the negotiation of construction contracts. Not only does our construction department have extensive legal experience and knowledge of construction law but we also have the benefit of chartered surveying experts. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
Deciding when (or whether) to incorporate, what kind of ownership How to Contact Our Construction Solicitors
It is important for you to be well informed about the issues and possible implications of a construction negotiation. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Construction solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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