Negotiating with Contractors During Tough Times

Article by:

Christopher Rugh

EO Seattle

When times are tough—as they are now—and money is tight, many savvy business owners look to outsource work to contractors. Using a reliable contractor can help you control costs and give you time to focus on marketing and business growth. But outsourcing is effective only if you can get the results you want at the price you want to pay. For that reason, your ability to negotiate good deals with contractors is critical.

Though many business owners feel stressed when faced with major negotiations, the truth is that we're all negotiators. And a lot of us are better negotiators than we think we are. The ability to negotiate kicks in almost as soon as we learn to speak. Think about it: You wanted the cookie. You're mom had the cookie. That's where it all started.

Whether you're a child negotiating with your mother for a cookie or business owner negotiating with a consultant for a project or service, it all boils down to creativity. You learn to look at things from angles that may not be direct. You have to come up with an alternative plan that gets you to the same place by another route.

First, know what you want
I make extensive use of contractors to handle day-to-day business activities, allowing my team to focus on business growth. I've learned that when negotiating with contractors, you need first of all to keep your own interests in mind—after all, getting your work done is why you're hiring a contractor in the first place. Make sure you have a strong understanding of your wants and your needs and the end results you expect the contractor to produce.
Once you're clear about what you want, you can open the negotiations with an initial terms sheet. This piece of paper lays out the results you want, the structure you want, and what you're willing to pay.

Then, figure out what they want
Keeping your own needs firmly in mind, observe and get to know the person you are negotiating with. The more questions you ask and the more answers you get, the better off you are. (Don't confuse negotiation with sales. Sales is often about talking and convincing; negotiation is about listening.)
For instance, suppose you’re talking with a contractor about staffing your booth at a trade show. Their prices have gone way up from previous years, and your offers of modest increases are refused. Finally you talk with the owner and find out she’s trying to shift the business to focus on trade show packages that include staffing, booth set-up, and production of fliers and other handouts—work you’d planned to outsource to other contractors. Suddenly the negotiations are back on track because you’ve can give the contractor an opportunity to demonstrate their new service package at an affordable price.
In a good negotiation, you get what you want. It just might not look like what you'd been looking for.

Negotiating toward a contract
There's no question about it: Good paper makes good friends. As the negotiation proceeds, turn that terms sheet you used at the start of the negotiation into an actual contract. If you are involved in a fairly straightforward deal, you can have a paralegal modify a standard contract template to fit the particular situation. Having the contract drawn up at your end is a negotiation advantage; many contractors don't want to go to the trouble or expense of having a contract drafted and they're anxious to make the sale. This means they're more likely to accept your terms.

Milestones
Be sure to include in your contract agreement significant milestones for the project work. I was reminded of this not too long ago when we failed to establish milestones, and at the completion date discovered that the final product didn't meet our specifications. We ended up having to hire another firm to do the work the way we wanted it, but we lost time and money as a result. If we'd had milestones in the contract, we would have known in a short period of time that the deal was a bad deal.

Good negotiations mean good business
Consulting relations are like personal relationships: Business is easiest when you're engaging in relationships that are easy, productive, and enjoyable. If you notice during the negotiation itself that you're not getting along or that you have to spend your time chasing them, heed the danger signs. If the negotiation is miserable, the project itself is likely to be even worse.
It’s to your advantage to take the lead in keeping the negotiation on track. That means keeping your eye on the end result, while being adaptive and flexible about how you attain that result. In most cases, you’ll find that the negotiation process is an economical and efficient way to get what you want.