What's behind people's fear of negotiation? Conflict, said Isaacs. "Conflict is a difference of interests. I have an interest in one thing; you have an interest in something else. If we have competing interests, the reconciliation of competing interests is conflict resolution." He cited three ways to deal with conflict: fight, avoid the problem, or negotiate. After dismissing the first two, Isaacs concluded, "The only way to really solve a conflict is through negotiation. The goal of a negotiation is to satisfy my [firm's] interests. And the way to do that is to focus on [the client's] interests."
Win-win negotiation. Isaacs reviewed three possible strategies:
Isaacs noted that most people negotiate using the second strategy above. However, "achieving my interest and focusing on their interest is a true win-win negotiation because not only do you achieve your interest, but you're helping them achieve theirs. But you're never losing sight of the first thing - your interest."
Isaacs recounted that the first time he engaged in a mutually beneficial negotiation was for a $40 million project with the Veterans Administration, while he was practicing as a civil engineer. "The contracting officer knew what his interests were, but he spent time trying to understand my interests and I was doing the exact same thing," he related. "In the course of nine or ten different negotiations we came up with some of the most creative concepts to resolve issues I've ever seen."
The importance of preparation. Isaacs noted that there are three steps in every negotiation: preparation, the actual discussion, and closing the deal. The most critical step, he stressed, is preparation.
Isaacs then asked A/E managers to consider how much time they invest in preparing for a negotiation. To show the importance of preparation, he gave the following example: If your raw labor rate is $25/hour, and if you multiply that by three for a total labor rate of $75/hour, and if 15% of that is profit, then $10 of every hour billed is profit.
"For every hour that you charge a client you have an opportunity, if you don't overrun, to make $10 an hour profit," he noted. "But if you spend an hour or two of your time and you can increase your fee by $ 1,000... you've just made the same profit as if one of your staff had worked 100 hours."
Preparation starts with marketing. "You're setting the stage for success or lack of success from the moment a proposal goes out the door," said Isaacs. Bidding on a job is actually a negotiation, he stressed - only you're negotiating with yourself. "The first thing is to figure out what your interests really are, and take into account all aspects of the project. Do you want to work for this client? Is this a project you want? How much money are you going to make on it? Are you going to make enough to add to your backlog? What are the risks?"
"You have to make the same assessment doing the proposal that you would if you were doing a negotiation," Isaacs pointed out. One way to do that is to use a concept from Getting to Yes called the best alternative to a negotiated agreement (BANTA). "You need to understand what your true BANTA is," he advised. "At what point are you better off not having this project than having it?"
To do that you need to consider all aspects of the project. "Are you better off taking the job knowing that you have no chance of making money or that you're signing a contract where you're running a risk?" asked Isaacs. "I don't know how to answer that for you unless you've assessed what's on the other side. If you don't take the work, will you have to lay off people? Is it better to lay off people than take work that's going to lose money every hour?"
What's most important in determining your BANTA, advised Isaacs, is to think through all the alternatives when making a proposal. Especially important is "an awareness of the alternatives if a settlement cannot be achieved."
Understanding the client's interests. One of the best ways to determine a client's interests is to review the contract. "They're telling you about the relationship they want to have with you," said Isaacs. Talking to a firm that has worked with the prospective client can also be illuminating, especially if they're candid about having had a bad experience. That information can be extremely helpful if you decide to go ahead with the proposal and calculate a fee for that client, Isaacs noted.
"A big question is what are the industry standards for a project versus this client's expectations?" asked Isaacs. "You have to analyze what you think your client's interests are and discover the implications of those interests. How do various scenarios impact you? What if the client offers half of what you think the project should cost? Should you walk away from it or should you just take half?"
Reducing the scope is a good way to solve that problem, advised Isaacs. "I draw a triangle labeled scope, quality, and dollars for a client and I say: "Let's make a deal: You get two, I get one."" When the client claims to only have so much money for that scope, Isaacs says, "Let me tell you the quality you're going to get from me with those two things. If a client objects and says he [or she] expects higher quality, you can turn around and say, "Then here's the fee you should expect to pay." If a client says, "It's too much money," then you say, "You have to modify something. I'm giving you two for one.""
Making negotiations profitable. Noting that negotiating profitable fees is hard work, Isaacs stressed that every A/E firm needs to think about these issues and do its homework before making a proposal or bidding on a project. "When we don't do that, we're losing money. I'm convinced of that," he added.
"If you make a conscious decision to make an investment in a job because this is a new client or this is a new market or this is an exciting job you want to do, fine," Isaacs continued. "But if you took a job and you knew it was going to be a loser, but you thought you could make it up with volume do the math. That doesn't work.... It's all about preparation. We do it for our engineering work, so why wouldn't you do it for your business?"
Signing agreements that ensure a firm's profitability and that build successful long-term relationships with clients are high on Isaacs' list. The goal of every negotiation should be to make sure your firm is working together with the client to achieve a common objective.
"Look at how much it takes for your staff to make $1,000," Isaacs reiterated. "How many hours are you willing to put in to make a $5,000 profit? It really pays to prepare for every negotiation."