Negotiate your Contract… Even in a Tough Market

Contract Administration, Uncategorised

The construction market can be a bit like a see saw – one day up, the next day down. One week, governments promise massive infrastructure projects that deliver huge benefits to industry, and an election or two later those times are well and truly over.

In the tougher days, it can be easy to think as a tendering party that to have a hope in hell of getting the work, you simply can’t try to negotiate the terms of the contract.

We’re going to walk through a few tips for navigating tough negotiations, even when met with the old “take it or leave it” contract.

If there’s one thing that we see time and again which impacts heavily on profits, it’s contract management.

Tip 1: Give Negotiation a Crack

Obviously it’s going to be tricky to change up a contract too much if you’re one among a sea of competitors. That’s even more difficult when some other players might not try to qualify the contract, or worse are just “buying the job”.

That said, if you don’t ask… you don’t get. And once you’re locked in to a contract you’re never going to get it softened around the edges later.

This complexity means you need to negotiate smarter, not harder.

Make sure you keep any requested changes to the contract relevant and realistic. They need to be focused on the most important risk areas that have likely, and real, practical implications for you delivering the project profitably and well.

There’s no boilerplate for doing this, as each project is different from the last. Think in advance: “how are we going to deliver this project, and what are the main factors that put our ability to perform profitably at risk?” Run through scenarios with your team and come up with the changes that you have to have in order to deliver.

Tip 2: Don’t Work Blind

You and your key team members must, with no exceptions, have a good understanding of the contract terms.

Yes that means getting a contract review, but not just so your lawyers have combed over the clauses, but instead to help you appreciate the potential red flag areas that you need to have top of mind when working through the project.

“I didn’t get around to reading it” isn’t going to help you in Court – absent special circumstances, if it’s signed on behalf of your company then it’s going to be binding on you.

And once you know the contract, it has to be well managed.

Tip 3: Manage the contract

If there’s one thing that we see time and again which impacts heavily on profits, it’s contract management.

That’s right. It’s not the indemnity clause, the insurance policies or even the variations process. It’s management.

A time frame here, a non-compliant notice there, and all of a sudden you’re relying on your lawyers to come up with creative (read: expensive) arguments, when a simple diary entry would have avoided the problem all together.

In truth, even an unfavourable contract, managed well, can be a more profitable venture than a heavily edited contract which is managed poorly.

Contract administration isn’t exciting, but it’s profitable.

How to Manage a Contract Well?

Here are three simple steps to effectively manage a contract:

Have an informed and educated team

Your team is your front line defence in contract administration. They are the people who know what’s happening on site, and understand what it means for the job.

They then need to know what it means for the contract.

Possibly, the most important risk to manage for your staff is the time bar – a mandatory time limit during which you must deliver a document, confirm a thing, or issue a claim. Generally, these are enforceable and if you don’t meet them, you’re stuffed (exceptions apply… of course).

Job after job after job we have seen contractors losing out because they haven’t had staff who are well informed and empowered to act to meet time bars.

Inform your team, tell them what’s expected of each of them, and ensure that everyone knows whose job it is to check the contract and comply with its terms as the job unfolds.

Do Stuff the Way the Contract Says To Do It

Most contractual notice provisions tell you what to include in a notice. The simple advice is this: make sure that you include what the contract says to.

That means: include the information the contract says to, send it to the person the contract says to send it to and in the way the contract says to (email, post, facsimile, telex, carrier pigeon?)

Keep a Document Trail

We get it: stuff happens fast on site, and people need to make quick decisions.  But given that even well-meaning people remember the same conversation differently from each other, your business can’t afford to rely on verbal agreements and handshakes.

Beyond that, people change jobs, people are promoted, and people aren’t always around to confirm your version of events later.  Take minutes of meetings, take pictures of site events, keep a site diary. Keep copies of everything you send and receive (electronic is usually fine) and make sure that your people on site are doing the same.

It’s Simple, But Not Easy

Fantastic contract administration is, in theory, a simple task. But in the ebb and flow of a major construction project sometimes the apparently simple things are the first to slip.

A well trained, well informed team who understands the contract, acts on it in accordance with their authority, and keeps good documents will take you most of the way there, most of the time.

Simple, and effective.

Need some help on your project or training up your team? Give us a call.

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