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10 hints to better negotiate your next construction contract


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Posted by Sophia Rostron

Have you ever wondered what successful construction company owners do differently? Most take similar approaches when negotiating contracts for construction of new buildings, remodels, expansions and more. We've researched and listed 10 tips to help identify and negotiate appropriate resolution to some of these approaches.

According to the Construction Executive

  1. Understand the owner’s project performance requirements. Lack of attention to the owner’s objectives results in disputes. Take the time to develop an understanding of what kind of aesthetic statement the owner wants to make, how the owner will use the project, how it will function, the critical start and completion dates for construction, how long the project is expected to last, and the owner’s operational goals regarding energy efficiency and ease of maintenance.

  2. Develop realistic cost estimates. There is no substitute for a good estimate. Take the time to provide one based on the owner’s performance requirements, itemizing the probable construction costs, highlighting the unknowns as allowances and contingencies.

  3. Establish a realistic project schedule. Be sure to include ample time for all contingencies.

  4. Sell the project team. Tell the owner about the construction project team and the relevant prior experience of each member. Highlight successful experience with similar projects. Promise team members will not change during the construction.

  5. Pick risk allocation battles. Savvy owners tend to want risk allocated to the person best able to prevent it. They can consider the limit of liability clause a deal breaker. Focus on dealing only with risks that are not caused by the construction company and therefore cannot be managed by the company. If the owner objects to the liability limit for risks the company can manage, consult with an attorney to determine if the clause is worth losing the job.

  6. Engage an insurance adviser. Do not agree to an owner provided insurance requirement without first verifying the company can comply. Work closely with an insurance adviser to do so. Make the owner aware of any changes necessary so both the owner and the contractor are on the same page.

  7. Strive for progressive dispute resolution. Savvy owners understand the value added by mandatory negotiation, followed by non-binding mediation. Consult with an attorney for the best structure to propose.

  8. Understand the owner’s team. The owner’s project team can be as important as the construction team. Find out who is on the owner’s team and whether the construction project team can work with them.

  9. Encourage candid discussions. Good communication in which each party openly shares its concerns about an issue generally results in a mutually acceptable resolution. Be willing to walk away if there is not good communication.

  10. Avoid interim work before closing the contract. Interim agreements can have the unintended consequence of creating leverage, reduced communication and the potential of a bad deal.

The starting point of a construction contract often starts with a capability statement. Know the ins and the outs of the project and the company you're bidding to, and tailor your business capability statement to prove your business is the best choice for the project. To help you optimise your collateral, we've created this free eBook based on a tendering workshop which highlights the key details needed to impress decision makers. \ New Call-to-action

Sophia Rostron

Sophia Rostron

As the Content editor at plantminer.com.au, Sophia works behind the scenes to keep our blog machine in motion. A student of Law and Business, she's very dependent on coffee and loves any excuse to travel.