tender negotiation process

The tender negotiation process is an essential part of the real estate development project lifecycle

residential development project can take a year, or even more sometimes. It’s not a quick, rushed job. A great job takes time, consideration, and hard work from multiple stakeholders. 

And each step needs to be considered, thought out and not rushed. Although each day has a dollar value attached, that value is determined by the quality of the work and the project manager

Hence, the tender negotiation process is vital; it determines the amount you’ll pay for the construction of your townhouses. And this is often the single most significant cost in a development project.

But let’s hold off for a minute. First, we’ll explain what the tender process is. Then, we’ll get into nine techniques you can leverage for your development projects tender negotiation process. 

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What is A Tender?

In simple terms, tendering in the real estate development context is a process where a development company or individual property developer invites building companies to submit bids to construct the new homes.

what is a tender

These duplex builders will vary from the big, volume guys (think MetriconPorter Davis) and smaller, independent firms. They will create a written submission including costings, otherwise known as a bid document. 

Other terms for it are tender or tender submission.  You can check out this list of tender documents needed for townhouse development builds here.

The critical fact here is that the tender process is when builders pitch their services to you, competing against one another for your dollars. The developer then assesses the tender submissions and decides. 

Chris Voss Masterclass in Negotiation

chris voss negotiation

I recently did the Chris Voss art of negotiation master class. Chris is a negotiation mastermind. He heads up the Black Swan Group, which deals in business negotiation. 

He is also a former FBI hostage negotiator which is where a lot of his knowledge and experience comes from.

In a hostage situation, negotiation can mean the difference between life and death for the hostages and if the bad guys get caught. Chris Voss was the FBI’s lead international kidnapping negotiator until 2008. 

This means he knows how to negotiate and do it under pressure.  

This masterclass was incredible, and I’m happy to share some of the tips with you here today.  

The Negotiation Process

This process begins once you shortlist your builders and begin working with them to see if you’ll accept their pitches or not. In some cases, you may only have one builder shortlisted, in which case you need to drill down the costs with them via negotiation. 

This is where these techniques come into play. 

A Reminder – Both Parties Need to Win

negotiation process

This is a helpful reminder in the tender negotiation process. Both the builder and the developer need to win. Both parties need to make money. Otherwise, everybody loses. 

Everyone needs revenue and profit to keep running their businesses. If you squeeze the builder and are desperate for work, they will accept an offer that isn’t feasible for their bottom line.  

This is an absolute disaster waiting to happen. In this case, you’ll get halfway through the project; the builder will look at his books and realise he’s not making any money off the build. 

He’ll walk off the job. Then it will become impossible to get him back to finish the project. This happened to us in our early days, and it’s not a good place to be. 

Aim of the Game in the Tender Negotiation Process 

The aim of the game in the tender negotiation process isn’t the lowest price. 

It’s like getting quotes for works or repairs on your home. The cheapest quote isn’t necessarily the best. 

You want the best possible builder at the market rate. This is because you want a quality build and not come across any defects after the construction. 

Go with the cheapest builder, and I guarantee you will hear from your buyers within months – it might be a leak, an electrical issue or even worse, something wrong with the foundation. Please don’t risk it.

So, get a good builder for the going rate. This doesn’t mean you don’t negotiate because builders love profit as much as the rest of us and will try to increase their margin wherever possible.  

Let’s keep exploring some more negotiation tips.  

Tone of Voice

your tone of voice

You will have lots of conversations with the builder during the negotiation process. These may be in person, at a cafe or restaurant over lunch. They may be over the phone or on a video call.

Try and make your voice smooth, calm and collected. Think about early morning or late-night radio presenters. Emulate their dulcet tones.

With your soothing voice, with downward reflections, you’ll create an atmosphere of empathy and trust. 

Stay calm, don’t raise your voice, or let it get agitated, as this will show that you’re on the back foot. You want the builder on your side.  

Pay Attention to Everyday Interactions

every interaction

One great tip from Voss’ masterclass is that he teaches you that you negotiate daily, going about your everyday life. It may be a conversation with your boss or someone below you at work. It could be a discussion with your spouse. 

Anyone who has kids will know how to negotiate with them. 

So, you’re already practising negotiation every single day. Use this to your advantage during the tender negotiation process.  

Use Mirroring

Mirroring is a classic communication technique that both salespeople, psychologists, and therapists have in common. 

Mirroring is matching your body language – how you sit, how you stand, your stance and posture, to the other person’s. 

It is essential to build rapport and show interest in the other party. If you seem bored or disconnected, you’re at a disadvantage. Most builders are passionate about their business, so mirroring and showing curiosity about them is a great way to get them on side. 

However, it also has the purpose of keeping someone calm while you gather information to use to your advantage. 

Keep your voice interested, keeping them engaged in the conversation.  

It’s Not Win or Lose, but Collaboration, That Matters

Stop looking at the tender negotiation process as being a win-lose situation.

If you stick so hard to your guns that the builder doesn’t have any wriggle room, you won’t get your project built. 

not win or lose

Instead, adopt an attitude of collaboration with the builder. As adults and professionals, how can you work together to come to a mutually beneficial arrangement? 

Sit With the Discomfort

If you’re not experienced in negotiation, you may experience some discomfort and awkwardness as you try these techniques. This is normal and is part of the growing process.

Learning any new skill can be uncomfortable, so sit with the discomfort but persist. This is a valuable skill to learn that will benefit you in every aspect of property development. 

This is because you are working with other people day in, day out. You need negotiation skills in all these dealings. 

Whether it’s the architect, town planner, bank, or surveyor, there are many relationships to manage proactively. Think of learning these skills as a serious upskilling. 

Learn to Say No

learn to say no

A builder may come up with a figure that you can’t make work.  

You’ll know this because it’s your job as a developer to check, double-check, and triple-check your numbers. Guesswork is a fatal error in this game. 

Know your feasibility, your figures and know what you can afford.  

If a builder comes at you with a sum that you know you can’t make work without losing profit, or breaking even, say no. And don’t be afraid to say no. 

After all, you’re in it for profit, so work with a builder that can make you both money instead. 

Avoid Common Mistakes in the Tender Negotiation Process  

Let’s go through some common negotiation mistakes and how to avoid them. 

Mistake 1 – Listening to Respond

One common mistake is listening to respond. This means that when you listen, you are simply waiting for your turn to speak instead of trying to understand the other person and their perspective. 

If you listen to understand, you demonstrate that you are actively listening to the other party. You also show that you want to understand their perspective. 

This creates connection and empathy, which results in collaboration, which is paramount, as I mentioned before. 

Mistake 2 – Saying, “I understand.”

Even though the goal is to understand the other party, saying “I understand” is not how to go about this. Saying this to someone does not demonstrate that you understand their side of things.

Another issue with this is that another person has heard this phrase; it is usually followed by “but”. A “but” will destroy any goodwill, as it negates everything they’ve said up until then. No one wants to feel disregarded.  

The goal is to make the other party feel understood. And you can do this by expressing their perspective back to them, using mirroring. You don’t want to be correct; you want them to feel “that’s right”. 

Avoid these common mistakes to become a better negotiator. 

Summing Up the Techniques to Use in the Tender Process 

tie in a bow

To tie it all up in a bow – we’ve shared nine techniques you can leverage for your townhouse development project tender negotiation process in this helpful article. 

Remember that this process is critical, as the construction is the single most enormous cost in a project in most cases. 

The goal is to get the best builder for the market cost, not bargain them down to a nub.  

Collaboration is the key here – have a mindset that negotiation means you are working together, not you are winning and the builder losing.  

Use these tips in your subsequent tender negotiation discussion and see if they don’t click for you. They did for me, and I can recommend them.