Home > The Monday Musings Column > on negotiation, part four

on negotiation, part four

The No Deal, or Walk Away, option is always there for both parties. Yes it is a last resort, but there are times when you cannot get a viable deal and walking away is the only way to go. It works best if you understand what the consequences are though.
In this example the company that I worked for had a contract with a client for a particular job to be performed on an ad-hoc basis. It worked well and the contract had been renewed several times, but the client had gone for a complete renewal proposal over about eighteen months and wanted to negotiate a deal for the job. As you might expect they were also looking at other contractors in case we had not the capacity for the job.
There had been high level discussions and the week before I was due, as bid director for this contract, to meet the client to negotiate a price my MD and I met with the client’s MD. He assured us that they wanted us because we knew them and the job whereas the other two possible contractors, although both capable of doing it, had no experience of the specific job. As long as the price was right the job could be ours.
At our normal rates the job would have been worth about £25 million, but we were prepared to do it for £17.5 if the work could be scheduled as we wanted it to be. The sticking points were that this client was a nightmare to work for and we knew that they would be unlikely to keep to any agreements on scheduling. Their project manager was well known to us as someone who could not be trusted to keep his word and whilst if the job went smoothly it was easy money, if it didn’t then there was a real risk that we would run at a loss on the overall project.
At the negotiation I was accompanied by the two divisional directors that would be responsible for delivering the project and we had our tactics well worked out, but as often happens all our plans went out of the window when we walked into the conference room because the client had decided to appoint a managing agent to run the project (we found out later that they didn’t trust their own project manager either). The managing agent was not in our fan club, nor they in ours and the atmosphere was icy from the start.
To begin with we were accused of not respecting the client as we had not brought our MD with us and then we were asked to justify why the client should give us the work. We pointed out that the invitation to the meeting asked us to come and agree the p[rice and outline work schedule, thus implying that, as confirmed by the client’s MD, that if the price was right we were going to be awarded the contract. No said the managing agent, we had to prove ourselves worthy, and that there would be no schedule, rather that the work would be issued one week in advance on a rolling basis. The latter point was nonsense as there was a need to have a twenty eight day notification period for each job as a statutory requirement which the client and his agent knew well, but were choosing to ignore.
I requested a timeout and we withdrew. Without a schedule the project was going to be almost impossible to perform and, with the concurrence of my colleagues, we decided to walk away so we went back into the room and broke that news. Were we going to walk away from twenty two million pounds worth of work they asked? That gave us a clue as to what they were prepared to pay perhaps, but even at that price the contract was not worth having without a schedule and if we had to work with that managing agent there would have been double the trouble so we thanked them for the coffee and biscuits and left.
The contract was split between the two other contractors, but from the outset we were asked to perform odd jobs to help out using the terms of our existing contract for that type of work. In the end we earned just over £12 million and did so in comparative comfort because all the jobs were released to us through the normal channels rather than through the managing agent and in turn that allowed us to make a profit on the work.
Had we not walked away from the negotiations we might have earned more, but at a loss. Knowing what the consequences of all options we made the right decision.

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