An owner or general contractor can apply pressure tactics to get a contract hurriedly signed that may be against a subcontractor’s interests. But there are ways to identify and react to pressure tactics that can put your business in a better position during negotiations.
Tactics that apply pressure in contract negotiations are not unique to construction, according to attorney Mike Koger, who serves as senior advisor and counsel for AIA Contract Documents.
“If you’ve ever bought a car, leased an apartment, bought a timeshare, you’re familiar with these pressure tactics,” he said.
During a recent AIA webinar addressing how to spot unfair construction contracts, Koger said the most common pressure tactic he sees “is when one side sets a quick deadline for you to make a decision and sign a contract.”
He said when confronted with an immediate deadline it can be wisest to take a step back.
“Take a deep breath and try to determine whether there is a real need to rush into a contract or whether the other side is posturing a little bit,” he said.
When someone is trying to assign a quick deadline, Koger said he’ll try to negotiate the deadline first to allow for time to negotiate problematic terms in an agreement.
He advised against negotiating a deadline and problematic contract terms at the same time.
“If you’re trying to negotiate an indemnity provision or liquidated damages at the same time you’re trying to negotiate a deadline, you are really playing into that pressure tactic,” he said.
Follow up with questions
If you are pressured to sign within 24 hours, “you need to be asking follow-up questions,” Koger said, like why the other party wants a signature so quickly.
He said it is helpful to determine the party’s “real” deadlines, which can help you spot artificial ones.
Beware of the ‘standard agreement’
Koger said another tactic he sees commonly, which he considers a pressure tactic, is when a party states that this is their “standard agreement,” which insinuates it cannot be negotiated.
“One thing I can guarantee is that the standard form you’re receiving was 100% drafted to favor the company that produced it and to shift risk to you,” Koger said.
Negotiate with someone who has authority
If you’re being told that language in a proposed contract can’t be negotiated because proposed changes need to be approved, Koger recommends asking to speak to someone who has the authority to negotiate the agreement.
Recognize an unwillingness to negotiate as a red flag
Koger said another common pressure tactic is when you have a justifiable concern, but the other party is unwilling to acknowledge it. He gave the example of a proposed contract that expects a subcontractor to take a risk without appropriate insurance.
“(Not having appropriate insurance) is a very understandable concern and if the other party just says ‘nope, we’re not going to make an adjustment so that you can get insurance for this risk that you’re taking on,’ you need to really hold your ground in those instances.” Know when to walk away
“If you cannot negotiate a fair contract that allocates risk fairly, it might be a good sign to walk away from the deal,” Koger said.
But, he added, walking away or threatening to walk away can often lead to more leverage in negotiations.