Splitting the difference
Is ‘splitting the difference’ really fair? Ian Motley explains how to respond to suggestions in fee negotiations.
Over the course of my fee negotiations career one word has proved itself to be more popular than any other. That word is ‘fair’.
When making financial agreements people like to give the perception of fairness, which explains why negotiations are frequently plagued with phrases like “I only want what’s fair…” or “let’s be fair about this…”
This also explains why splitting the difference is such a common method of reaching an agreement. It gives the perception of fairness, but is it really fair?
Not necessarily. An underhanded negotiator could take your proposal and partner it with something that has limited or no relevance to the current situation and then offer to split the difference to give the perception of fairness when what they are actually doing is anything but fair!
What is splitting the difference?
To demonstrate how common this approach has become let’s take a look at an example from my own career.
I was once invited to submit a proposal for a new client on a multi-unit high rise residential project. Being a new client, we weren’t familiar with their modus operandi so you can imagine our surprise when, within hours of our submission, we received a call inviting us to meet with the client to discuss our proposal.
Like many fee proposal negotiation situations, the meeting commenced with introductions and an exchange of pleasantries. The client went as far to say they’d heard a lot of great things about our firm and was looking forward to working with us. They also confirmed that they didn’t have much time and wanted to get the project started immediately.
These were two very encouraging statements… so what could possibly go wrong?
The conversation then moved on to fees: The client addressed the situation by opening our proposal to the section marked ‘Design Fees’ and verbally reiterating our fee request with the type of inflection that suggested a question more than a statement.
After a dramatic pause and some uncomfortable eye contact, the client continued the conversation by saying that they’ve completed many similar projects across the country, however, they’d only paid their previous architects approximately half the fee we’d requested.
They gave us a second to ponder this situation and then, with precision and confidence, said:
“This is our first project together and I’m keen to get started… in a spirit of compromise and fairness how about we split the difference and formalize this agreement?”
When placed in these highly stressful situations it’s hard to know how to respond. You want to appease the client and continue with the ‘spirit of compromise’ the client has put forward. You also want to leave the meeting as soon as possible and return to your office with good news.
These conditions help explain why too many of us, ill-prepared for the situation, will inevitably talk ourselves into accepting the client’s counter proposal. Later we will reflect on our new contract with bewilderment at the fee… and resentment towards the client. Neither of which help foster a positive working relationship and successful project.
However, some of us will respond in the opposite manner. We’ll be stunned by the client’s aggressive counter proposal: our egos will be bruised and our response, driven by emotions, will likely destroy the relationship we’ve been carefully trying to build.
How can we handle this situation more effectively?
The key to all successful negotiations is not to simply respond to the client’s counter proposal but instead to put differences aside, open up the dialogue and looks for ways that both parties can benefit from the situation. In the famous negotiation book ‘Getting to Yes’ this process is described as ‘creating options for mutual gain’.
How did we create options for mutual gain?
So, what did we do in my example above? Before we reacted to the client’s aggressive counter proposal we started by asking the client if it would be okay to ask some questions of our own. When asked in a positive and friendly tone it’s a very difficult request for clients to decline.
We began the discussion in a gentle manner by building on issues they’d previously mentioned such as our firm’s reputation and the project time constraints. This was shortly followed by a more detailed analysis of their service requirements and expectations. Once we understood the situation from the client’s perspective we were able to suggest a reduced design service that aligned with their expectations for a more competitive fee. That is, we were able to exchange concessions rather than simply give them away.
Unfortunately, the fee didn’t remain completely unharmed – we also agreed a moderate discount as a gesture of goodwill. However, by creating options for mutual gain. we were able to significantly reduce the fee erosion that we would have experienced had we failed to exchange concessions. This approach also helped us establish a healthier relationship with the client moving forward.
This approach to negotiating is part of a strategy called Principled Negotiation that not only applies to the negotiation process but should also be applied to the fee proposal process.
Ian Motley is a design fee consultant with Blue Turtle Consulting www.blueturtlemc.com
Blue Turtle Consulting is conducting Fee Proposal Workshops during May 2016 for architects and design professionals who want to learn about the art and science of writing more successful fee proposals.