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What Every Contractor Needs To Remember When Negotiating Contracts

Written by Sharie DeHart | Fri, Jul 01, 2022
Several aspects of the construction business can only be learned through experience. One of them is negotiating contracts.
 
Most people fear the negotiation procedure because it is an intrinsically uncomfortable process. Asking for more money or making personal demands doesn't come naturally to everyone. But with the right toolkit, you can breeze through contract negotiations. And you'd better get used to it because you'll have to handle many contracts whether you're a construction company owner or employee.
 
Having the right mindset is critical to contract negotiations. You have to believe that you are going to get your way. Bring a positive attitude and a smile to the table. You're not signing contracts with the enemy. The people you're negotiating with will be your business partners in one capacity or another.
 

We recommend seeking the advice of a qualified construction attorney to put together a contract that fits your specific needs. Your contracts need a well-defined scope of work, clear payment terms, a reasonable schedule, and a proper change order clause. No work should ever be performed based on verbal agreements. Get everything in writing, always, no exceptions.

Let's take a look at some things you need to remember when you're in the process of negotiating contracts:

  • Be patient

Don't rush to get a contract signed. Rushed arrangements usually leave one or both parties dissatisfied. It's understandable if you want to get the negotiation done, but taking the extra time to examine your contract will benefit you tremendously in the long run.

  • Involve an expert

You might know what you need from a contract regarding overall business output, but you could get trapped by the legalese. Get a lawyer you trust on board to frame the wording in a way that protects your overall interests. Even if you're good at negotiation, involving an expert is always a good idea.

  • Don't forget term sheets

Term sheets are a broad overview of the terms of your contract. Before you get into the specifics, it's a good idea to ensure that all parties agree on the big picture.

  • Take it one step at a time

Negotiating a complex and lengthy contract is an inherently tedious process. In the beginning, ensure you've agreed upon the necessary details. Making some headway is crucial to the overall success of the negotiations. After establishing a rapport with the other party, you can dive into the deeper, more complicated issues.

  • Think about the specifics

The flowery language on a contract might make for good reading if you're of a particular leaning, but you need to understand what it translates to in the real world. How much will you be making?

  • Use the phone

Emails are notoriously difficult to decipher at times. You aren't aware of the sender's body language, and sometimes people can confusingly word things because they don't have the best command of the language. If you're unsure about some issues in your contract, pick up the phone, and have a conversation. It will help sort things out.

  • Don't fret too much about the first draft

The first draft of your contract is just a starting point. It's called a 'negotiation' because you will be changing certain aspects of the contract. Don't be alarmed if there are certain things in there which aren't to your liking.

  • If you can't make the tough calls, get someone who will

If you're not naturally assertive or find it challenging to be demanding when the situation calls for it, ask for help from someone capable. It could be your business partner or even a spouse.

  • Do your research

You don't want to make outlandish demands that the negotiating party can't afford. Take some time and do your research. See what similar services or products cost in the industry. Ask some construction experts for advice.

Final thoughts

It's worth repeating that you should always take care to state clearly in writing the terms of your quote or estimate and offer a client the opportunity to ask questions before approving the work. That way, both parties can avoid misunderstandings about expectations and project costs before the work begins. 

Negotiating a contract is like a long game of chess, except both parties need to come from the table victorious. Before you begin the process, figure out your short- and long-term goals. Having a clear vision will help you better navigate the tricky waters of contract negotiation.

While nobody knows your contracting business as well as you do, seeking expert financial advice right away is crucial for your survival. For a free initial assessment of your business, please don't hesitate to contact me.

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com

 

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