AD-A259 709 NEGOTIATING ENGINEERING 11 AND CONSTRUCTION CONTRACTS 1 DTIC I ELECTE '~ JAN 1 5 1993 I 1 BY | WILLIAM E. DUNNING I - I- - =00 A REPORT PRESENTED TO THE GRADUATE COMMITTEE OF THE DEPARTMENT OF CIVIL ENGINEERING IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ENGINEERING UNIVERSITY OF FLORIDA I FALL 1992 S93 1 08 04-3 m - NEGOTIATING ENGINEERING AND CONSTRUCTION CONTRACTS i i * BY WILLIAM E. DUNNING ,,, 3Ac .(cid:127),.a I:f 'atdI i i ITI __ SA-,a(cid:127)., ;Z1 tv Codes 1 __ :~Kv, 1_- ! Fm r d / o r I Dt,.t s:p ecial A REPORT PRESENTED TO THE GRADUATE COMMITTEE OF THE DEPARTMENT OF CIVIL ENGINEERING IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ENGINEERING UNIVERSITY OF FLORIDA FALL 1992 i DEDICATION ! Tom Reid U I I ii I i i i i i I l ACKNOWLEDGEMENTS Marnny Delgado I I I I I I I I I TABLE OF CONTENTS INTRODUCTION ............ ....................... 1 CHAPTER 1 GROUNDWORK FOR NEGOTIATIONS ... ..... 4 Laying Foundations ....................... .... . 4 Climate Formation . . . . . .. . . .. . . .... . 5 Constructive Climate. . . ......... ....... . 5 Aggressive Climate .......... ............. 6 Establishing Procedure ......... .............. 7 Control of Negotiations .......... ............. 8 Preparing for Negotiations ....... ............ 9 Technical Preparation ....... ............ 9 Mental Preparation .... ............. .. 10 Developing Alternatives .... ............. .. 13 CHAPTER 2 PERFORMING THE NEGOTIATION ...... .. 15 Introduction ............................ 15 Exploration and Fact-Finding .. . . . . . . . .... 15 Bargaining and Agreement .............. 17 _ Principled Negotiation. . .......... 18 Constructive Bargaining . ... .......... .. 20 * Aggressive Bargaining ..................... 22 CHAPTER 3 NEGOTIATIONS BEFORE & DURING THE CONTRACT . . 24 Negotiations Before the Contract With Competition 24 Negotiations Before the Contract Without Competition ......_....-. .... ........... 25 Negotiations During the Contract ... ..... . . . 26 Negotiating Change Orders .......... ....... .. 27 Determining Contract Liability .... ....... 27 How Change Orders Are Born .. ......... .. 28 Combining Costs For Change Orders ...... .. 31 Determining Schedule Impact ........... ... 35 Finalizing the Proposal .... .......... .. 36 Conclusion . ....................... 37 CHAPTER 4 MULTI-SIDED NEGOTIATIONS ...... .. 38 Introduction ................. .............. .38 The Key To Chaired Negotiations . . ....... .. 38 ii m n Unanimous Assent in Minimum Time ...... .. 39 Establishing a Positive Meeting ....... ... 39 Opening the Meeting .... ............. ... 40 Conducting the Meeting ... ........... .. 42 CHAPTER 5 NEGOTIATING TACTICS ........... 43 Tactics and Countertactics.. . . . . . ..... ... 43 Aggressive Tactics and Countertactics . . .. 44 Constructive Tactics and Countertactics . . . 54 3 Non-Verbal Communication ...................... 58 Body Language ..... ................ ... 58 Silence ........................... ... 60 CHAPTER 6 SUMMARY AND CONCLUSIONS ...... .. 62 REFERENCES ................................. .. 66 i i ii I I I INTRODUCTION There is no profession with a greater necessity for negotiating skills than Engineering and Construction. The verbs engineer and negotiate are synonymous. The truth is that negotiations constitute part of every engineer's job responsibilities (Scott, 1990;Gallant, 1989). "We negotiate with the labor union, with other 1 departments, with our boss, with our peers, and with the people under us. We negotiate for people resources, for project money, for responsibility on an assignment, and for support from a service department." (Gallant, 1989) As buyers or sellers, we negotiate for engineering and j construction contracts. Basically, we negotiate whenever we do not have the I authority to say, "This is the way it will be done." Or, we may have the authority, but hope to get a stronger commitment from our subordinates by soliciting their participation I (Gallant, 1989). Developing good negotiating skills will make each of us 1 a better engineer or supervisor. But having good negotiating skills is not enough. We must know when to apply them. We I should be able to answer questions such as: I I1 I I How should negotiations before the contract (is signed) be carried out from both the buyer's and seller's viewpoint. How does the buyer and seller approach negotiations during the contract? ° Is he aggressive and confrontational with a winner take all objective or is he constructive with a "win-win" objective? The aim of this report is to answer these questions and more. It focuses on the different stages of negotiation as a construction project goes from concept to completion. Both the buyer's (Owner's) and seller's (Designer's/Contractor's) view points are considered. The importance of preparing both technically and mentally for negotiations is emphasized. Performing the negotiations is viewed in phases. Exploration and fact-finding to confirm assumptions, and the actual bargaining towards agreement make up the negotiation performance phase. P r i n c i p 1 e d negotiation, constructive negotiation, and aggressive negotiation are three bargaining strategies the negotiator may choose from. Negotiation strategies may change depending on which stage the project is at. Constructive approaches are recommended for sellers negotiating before the contract. Whereas the buyer may obtain some advantage by negotiating aggressively before the contract. During the contract it is I 2 I i the seller who may gain advantage by negotiating aggressively. I Multi-sided negotiations are often part of engineering and construction contracts. The chairman or team leader must effectively control the content and flow of negotiations. He i must concentrate all his energy on his role as chairman and I not delve himself into the technical points of the negotiation. He uses communication skills, both verbal and non-verbal to control the members and the content of discussion. I Tactics are an inherent part of all negotiations. Even if one does not use tactics, it is necessary to understand the dynamics and reasoning behind them. Because, whether you use I them or not, others will use them to gain maximum advantage. I I I I I I I I I| II CHAPTER 1 GROUNDWORK FOR NEGOTIATIONS Laying Foundations Scott's (1990) phrase, "Laying foundations", refers to establishing credibility and a positive image. These foundations are formed and placed well before negotiations begin. Buyers will have either a positive or negative image of seller. This perceived image influences the seller's negotiation strength. The bottom line is that, "... in negotiating, the perception of reality may be more important than the reality itself." (Rutherford, 1986) The buyer uses his own staff of engineers and financial advisors to develop his project. During, this early stage of project development, he is likely to have many prospective sellers and has to narrow his choice to a short list (Scott, * 1990). The Seller Engineer is rarely in a position to bargain in commercial terms with the buyer during this early stage. However, he may be asked to join in technical negotiations during pre-qualification rituals. I If so, the wise seller explores the buyer's requirements and what his needs are. His strategy is to display some 4