Partnering in construction: building innovative relationships and avoiding conflict

Negotiations (Tendering)

Partnering for Innovation and Maximizing Profits

Negotiated Tendering, another term for partnering, is an integral part of the construction industry. Seldom does one company possess all of the skills and labor necessary to complete a job by them. The construction industry has specific guidelines to help companies operate in a relationship that is beneficial and avoids conflict situations. Conflict is costly in legal expenses, time lost, and the degradation of the relationship. The best solution to resolving conflicts is to avoid them in the first place. The following will explore literature regarding the hypothesis that partnering is the key to the formation of innovative relationships. Innovative relationships result in maximizing profits by taking advantage of the innovations of both companies and by avoiding costly legal battles. This research will explore the elements that result in a successful partnership and those that can undermine the ability to develop a successful partnership.

What is a partnership?

Partnering, in its most simplistic form, means people working together. It construes a voluntary system of handling normal, everyday jobsite construction problems in a mutually agreeable manner. The goal is to resolve conflicts before they turn into major issues that result in costly lawsuits. There is nothing mysterious about partnering, but it does require the right attitudes from all parties involves. In a partnering relationship all stakeholders resolve problematic issues by peacefully employing a positive and cooperative attitude. The partners must be able to focus on the big picture and common goals, rather then individual wants and needs.

Real world problems are complex. The first step prior to negotiations is to narrow the focus of the problem and clarify what is needed to resolve the issue. Service means a willingness to meet the client's needs. Endless contract-based disputes can jeopardize the ability of companies to meet the service needs of the client. The client must be the primary focus of all parties involved. Taking the time at the start of the project to identify common goals, common interests, lines of communication, and a commitment to co-operative problem solving, and organisational structure will encourage dispute resolution and the ability to achieve project goals.

Partnering means establishing a working relationship among all team members that is based on co-operation, teamwork and achievement of mutual goals and objectives. Structured organizational learning is a key element in the ability to develop cohesive teams. Partnerships have a long-term viewpoint, whereas lesser relationships tend to focus on short-term gains for selfish reasons. Building team cohesiveness occurs on several levels. The first level is within the individual companies that will be involved in the negotiation process. The second level of team cohesiveness arises from the common objective of serving the needs of the client. All companies must share in the accomplishment of job objectives and strategies. At times there may be a conflict between team goals within an organization and team goals between organizations.

The first step in developing effective partnerships on the job site is to gain an understanding of the value of partnerships and strategic alliances. However, it is not enough to simply desire to develop these types of relationships. Developing sustainable relationships means knowing the hallmarks of a successful relationship and the characteristics of an unsuccessful relationship. Both sides must be committed to the maintenance of the relationship and be aware of situations that could harm the relationship.

When many people think of partnering and negotiations, they refer to lawyers and contracts in their lexicon. However, partnering and strategic alliances mean more than legal agreements and the enforcement of individual rights. Partnering means creating a positive and supportive environment that nurtures relationships that will endure not only for the present contract, but that may lead to further collaboration in the future. As one can see, partnerships and strategic alliances are much more complex and involve a number of psychological and sociological factors that go beyond the initial contract negotiation phase.

The Anatomy of a Strategic Alliance

Strategic alliances in the construction industry have many characteristics that are unique due to the nature of the industry. In addition, each and every jobsite has conditions that are only applicable to it. However, these differences aside, strategic alliances have many things in common with any other strategic alliance. The strategic alliance is a joint venture that can be formed for many reasons.

The most common reasons for forming a joint venture are cost-sharing, conflict management, or the complete merger of two companies (Lexis-Nexis 2006). The strategic alliance comes together for a specific purpose and for the accomplishment of a defined task or goal. There are several legal reasons for forming a strategic alliance. The first is to create an organization that can better compete in the marketplace (Lexis-Nexis 2006). Sometimes the partnership is designed to roll-up different organizations into a single legal entity. However, this is not typically the case in the construction industry, with a majority of the projects. Most partnerships in this industry are formed for the accomplishment of a defined task with a specific start date and end date. Partnerships make all of the organizations involved stronger, both economically and in their ability to combine resources to get the job done.

As one can see, there are many advantages to forming a strategic alliance or partnership. However, there are several disadvantages as well. One of the key disadvantages of strategic alliances is that many of them fail (Lexis-Nexis, 2006). The failure of a strategic alliance can cause more harm to the entities involved than if they had never formed in the first place. The old adage, "nothing ventured, nothing gained" may hold true, but one must also consider the downside in every business venture. In some cases the gains and loses may be personal, but on other hand, they may also place the entire project in jeopardy. Before embarking on a partnership, one must carefully weigh the risks and advantages to each.

According to Lexis-Nexis, there are several considerations that must be considered before entering into a strategic alliance of any type. These factors apply to the construction industry, just as any other joint venture. The points to consider are:

Costs of operating

Ownership and control

Profits and losses

Labor and employment laws

Potential liability exposure

Insurance coverage

Tax consequences

Regulatory hurdles

Administrative issues

Marketing angles

Many of these factors are not under control of the parties involved, such as labor and employment laws and regulatory hurdles. However, many of these factors can be terms of negotiation between the two parties. Administrative issues, ownership and control are important elements in the formation of the partnership. The amount of legal planning depends on the nature of the alliance and the goals of the partnership.

Many times on the construction site companies are together as a result of the job award and proposal process. They do not have the luxury of choosing with whom they will work. The owner or their representative is often responsible for hiring the various contractors involved in job completion. In some circumstances the owner will hire a general contractor, or project manager to oversee and coordinate the various entities involved. In this case, the organization and relationships are the result of external forces and not the result of individual negotiations. The general contractor will make the rules and will be the solve person responsible for dispute resolution. They act as a communication line between the contractors and the owner of the building or project.

In this type of scenario, relationships among various contractors may be strained or difficult. The contractors may have different structures and organizational cultures that affect their ability to work together for common goals. Sometimes the contractor may have to work with a partner that they would have avoided in any other situation. This creates a strained or difficult relationship at best. However, with the proper skills and knowledge, both parties can learn to work together for the benefit of everyone involved.

Partnerships and Negotiations

Partnerships are forged from the negotiation process, whether they are self-forming or the result of general contractors and the competitive tendering process. Partnerships are dynamic and change throughout the duration of project, each time needing to renegotiate one or several factors that formed pat of the original partnership. At times negotiations may be hostile and result in one firm attempting to dominate the other. Studying these negotiations and the dynamics of power in the relationship is one way to help define and improve the chances of success in a partnership (Subramanian 2003).

When one hears the term "negotiation" they automatically envision a table to people sitting across from one another arguing back and forth. However, Cindy Saunders (2005) feels that negotiation should be seen as a process instead of a one time event. Saunders feels that the process should be seen as collaborative instead of combative. However, that is not to say that the two parties should take the stance of such complete cooperation that they are placed at a disadvantage. She sees the goal of the negotiation process as the need to strike a balance between competition and cooperation among the parties involved.

The goal of negotiation is mutual gain. Therefore, the attitude that treats the other party as a partner rather than an enemy is the most likely scenario that will lead to a successful negotiation in which both parties come away feeling as if they have gained something. Saunders feels that unsuccessful negotiation strategies are the number one reason why 70% of all business alliances fail. Saunders also highlights the importance that the people that negotiate the terms are the same people that will be managing it throughout the project duration.

One of the key techniques used in vendor or contractor negotiations is that information is often kept back on one side. Saunders stresses that the sharing of information is the most important aspect of successful negotiations. The expectations and commitments by both parties should be stated clearly so that both parties can concentrate on achieving these objectives. Saunder's perspective and techniques are a new way of looking at the negotiation process. This is perhaps one of the most useful books on negotiations in recent years. It provides a fresh perspective on an old subject.

Saunder's perspective is an important element in understanding the elements of a successful relationship. Often one sees the negotiation process as being separate from the formation of partnership. This is especially true of negotiations that take place after a merger or acquisition. However, if one considers negotiations to be a form of partnership, then it is easy to see how successful partnerships are the result of skilled negotiation techniques.

Like partnerships, negotiations have several characteristics. In a negotiation communication is open and interactive between the parties involved. Intermediate solutions are possible. Both parties can make temporary offers and counteroffers directly to the other person. An agreement is not reached until both parties accept a proposal from the other. The nature of negotiations provides a mixed motive in the process. Negotiation implies that a tension exists between the creation and claiming of one's values (Lax and Sebenius 1986).

Negotiators can be grouped into two different categories. Those with individualistic orientation tend to use argumentation, calls for concessions and threats to enhance their position. Negotiators with a cooperative orientation end to use integrative behavior such as multiple issue offers, information exchange, and statements of a supportive nature. When two negotiators are cooperatively oriented they tend to achieve higher mutual gain than those that are individualistically oriented (De Dreu et al. 2000).

When two negotiators of differing orientation meet then members adjust their choices depending on the choices of the other. Liebrand and associates (1986) found that cooperators shift their behavior towards non-cooperation if the other person chooses to not cooperate after several turns. However, in these experiments individualists were not as likely to reciprocate their opponent's behavior. They will cooperate if they feel that it is in their self-interest to do so. This research by Liebrand and associates reflects several tendencies that not only affect negotiations, but that affects the formation of partnerships as well. Cooperatively oriented negotiators are more likely to mirror the behavior of the other party. However, individualists tend to avoid mimicking the behavior of the other, but remain true to their own self-interests.

The purpose of a joint transaction, such as a negotiation is to achieve an outcome that is favorable to all parties involved. If one party is treated in such as manner that the outcome is not fair and equitable, then the negotiations can not be considered successful. A primary concern is not for the individualistically oriented negotiator, as they are more likely to defend their own position and look after their own interests. The concern is for the cooperatively oriented negotiator. There is a concern that this negotiator, in their quest for cooperation will attempt to match the demands of the other to such an extent that they will receive an unequal distribution of the outcomes. In the experiments conducted by Liebrand and associates, individualistically oriented negotiators have the advantage because they have planned for the contention of the other. They also tend to contend first and to contend more persistently.

In the beginning of the negotiation, there is an expectation that the other person will be of the same orientation as oneself. Therefore both negotiators will prepare to meet someone that is like themselves. The individualistically oriented negotiator will prepare to meet contention. However, the cooperatively oriented negotiator will prepare for an interactive negotiation. This creates a mismatch that does not become apparent in the beginning of the negotiation proceeding as both negotiators begin to react according to the assumption that the other party is of the same orientation as themselves.

As the negotiation opens, the cooperatively oriented party tends to openly share information in order to move the proceedings towards a common advantage. However, the individualistically oriented negotiator will take advantage of this in order to get more information from the other party. They present demands to gain an advantage in the negotiations. They may strategically misrepresent their own goals and level of cooperation to gain an individual advantage. This was exactly what occurred in simulations conducted in a study by (Rhoades and Carnevale 1999). Individualists are more persistent then cooperators in their contention (O'Connor & Carnevale 1997; Carnevale & Pruitt 1992).

There is another perspective that becomes apparent as one studies the negotiation process. Pruitt (1990) found that cooperators see the outcome as a pie with fixed dimensions. They try to slice the pie in such as manner as to optimize the outcome for all parties involved. The cooperative negotiator may not have a strong objective and will be less likely to defend their position in the negotiation process. The outcome of the negotiation process is the most important factor in the negotiation process. Both parties must feel satisfied with the outcome, or they will not be willing to put the agreements into action to engage in future negotiations with the other party (Brett and Rognes 1986).

Much of the information on the actions of negotiators in the negotiation process is the result of studies involving simulations. These studies have an advantage in that they place the negotiators in a situation where the scenario is quite realistic. However, there is one point that those conducting studies such as this failed to address. Although, the situations for the studies were very realistic, the emotional state of the negotiators was not. In a simulation everyone knows that the stakes are not real. There is a sense that "this is only a game." In a real negotiation setting the stakes are real and the parties will be affected by the outcomes. A negotiation that takes place in a research simulation may not have the same outcome as if the negotiation were real and took place in another setting. One can find numerous academic studies on the negotiation process, but of the ones reviewed for this research, none addressed the difference in emotional state between real and simulated negotiations.

There are several factors that may be affected by the emotional state of the negotiators in a real-world setting. The first is that each of the parties may be more likely to engage in risky moves during the simulation. Risk taking behavior could be expected to change in a real-world situation. This is a factor that was not addressed in any of the studies found during the course of this research, but that may be considered a limiting factor in the ability of the study to make accurate predictions regarding real-world settings.

This limitation may be difficult to control and account for in the research setting, as it is difficult to gauge the effects of this factor when the stakes and outcomes are real. One way to eliminate this factor would be to study transcripts of real negotiations and compare them to simulations in order to determine if any differences exist that could affect the outcomes. However, this presents a problem in the research setting that could account for the lack of studies conducted in this manner. The primary limitation in conducting this research is that the information and strategies in real negotiations are highly sensitive and involve confidential information. It is highly unlikely that researchers would be able to gain access to the highly confidential nature of the material in a real negotiation setting.

Further investigations into negotiation styles revealed that the order of negotiated issues determined whether individualistically or cooperatively oriented negotiator would prevail. In instances where groups were instructed to consider all issues sequentially, those that were cooperatively oriented tended to gain the advantage. However in instances where the groups were instructed to consider the issues simultaneously, the individualistically oriented groups did just as well as the cooperatively oriented groups (Weingart, Bennett, & Brett 1993).

Studies also confirmed that each of the participants assigns a priority to the issues. Both types of negotiators are inclined to give in on low priority issues, but will remain firm on issues that involve a higher priority (Thompson 1998). This is true whether the negotiators are individually or cooperatively oriented. Prioritization is an important element in the negotiation process. In the construction setting priorities are often set by the general contractor or others that are outside of the negotiation process. The parties must adhere to group objectives, which tends to favor cooperatively oriented negotiations, rather than individualistically oriented negotiations.

In mixed groups interactions become complex. There were several studies found that involved groups of mixed orientation (Pruitt & Lewis 1975; Beersman & De Dreu 1999; and Weingart et al. 1993). However, upon examination it is difficult to credit them as valid. There were too many variables to be considered predictive. Studies that pitted well-defined dyads of individualistically oriented groups with cooperatively oriented groups were better able to isolate the variables for comparison. In mixed groups there are not only dynamics between the two groups, but also dynamics within the group that make the ability to analyze power structures difficult to say the least.

The goal of academic research is to develop the ability to make predictions regarding future events. In order to be able to do this it is important to be able to isolate the variables involved. Investigations of negotiations and partnerships are a key example of how complex studies on human motivation can become. The most important aspect of the studies examined is that they are useful in the ability to make predictions on future outcomes. The only studies that are able to do them from a validity standpoint are studies that can clearly isolate and define the variables involved. In this research, only studies that divided negotiation participants into two distinct groups were able to present conclusive evidence regarding negotiation styles. Studies that involved mixed groups were unable to make predictive analyses due to the inability to isolate variables.

From a strictly academic standpoint, it would appear the studies which divided participants into to distinctive groups are more useful in making predictions on the outcomes of negotiations. However, in the real-world one will seldom encounter negotiating groups that are so clearly defined. In the real world, negotiations involve random groups of people that may or may not have the same orientation. The motives and degree of cooperativeness is random as well. Individual motives will affect group motives. There are simply too many factors in the real world to even consider making predictions about the outcome of any one negotiation.

If this is the case, then one must ask why we should devise simulations and attempt to learn anything about negotiations at all if they will not be able to make predictions about the real world. The answer to this is simple. We need to understand the mechanics of the negotiating process to gain perspectives into the reasons why negotiations fail and why they succeed. The ultimate goal is to improve the outcomes of negotiations. Even though the studies examined on negotiations are not predictive from an academic standpoint, they still represent qualitative insight in the processes that may affect the ability to maintain equality in negotiations and assure that all parties walk away from the table feeling satisfied.

Attributes of A Successful Partnership

Several factors were discovered during the course of a study of materials regarding negotiations that help in our objective of identifying factors that affect the ability to form effective partnerships. In order to create an effective partnership both parties must be willing to share information with each other. The second factor is that the parties must be able to trust each other and focus on joint problem solving. When both parties have high aspirations for their own personal gain and have high expectations for the gains of others as well, then they will be more likely to achieve successful negotiations, even if they are individually oriented. To achieve this means that even an individually oriented person will have to make some concessions and put their own wants and needs aside for the time being (Fisher, Ury, and Patton 1991).

As we mentioned in the beginning of this analysis, partnerships are based on team building between organizations. This attitude of team building is an essential element of any partnership. Team building goes beyond contract negotiation and formal arrangements. It involves an attitude that develops in response to changes in daily activities. The most important feature in the development of a team approach is a strong desire to accomplish mutual goals. This is important regardless of the negotiating personality of the parties involved.

Through the course of our investigation we learned that one of the key hallmarks of success is compatible orientation as to the elements of success. When one translates the principles learned from negotiation strategies, into partnerships, it stands to reason that partnerships will be more successful when both partners have a cooperative orientation. Two partners that are individualistic in orientation will not make any better partners than they will be successful in reaching mutually agreeable negotiations.

Organizations are the collective reasoning and abilities of the individuals. A representative from the organization may be responsible for the negotiations and formation of the partnership. However, the day-to-day performance of activities will be carried out by those that were not present at the negotiation meeting. These people must be able to embrace the feeling of cooperation and mutual team building in order for the partnership to be a success. Individuals may be individualistic in their orientation, but the organizational attitude must over ride these individuals and retain a collective position. One cannot control the attitudes of the individual, but it is possible to build an organizational culture that nurtures cooperative behavior from all employees.

We found that organizational structure was an important deciding factor in whether the partnership will be successful. Organizational structure affects many elements of the organizational culture including management, communication styles, and conflict resolution procedures. When two partners have different organizational styles, they can be rather dysfunctional when it comes to decision making and daily operational procedures. This can lead to conflict and develop into an antagonistic relationship.

In the construction industry, this can be a difficult situation. The parties involved in a construction project often did not choose to work beside each other. They were thrust together by their selection to complete their specified portion of the project. The project manager typically selects the contractors based on other factors than rather they would make good team based on the key factors of successful partnerships. They are selected based on their reputation in the field, competitive pricing, and other contract factors. They are chosen as experts in their profession and are expected to get along with other contractors on the job.

However, as we all know, regardless of everyone's best intentions, conflicts do arise on the jobsite. Many times these are the result of differences in organizational structure, organizational orientation, or other incompatibilities. These differences would not make the parties involved food partners if they were outside of the current job situation. They would not be likely candidates for a partnership, yet they are expected to work together at the job site. How to accomplish this task is tricky and requires a commitment to satisfying the customer.

In order to form successful partnerships and have successful negotiations, all parties must be willing to make certain sacrifices (Hall 1993). There is almost no single situation where all parties are completely happy with the work to be performed, or the actions of all other contractors. The resolution of differences is almost never achieved by selfishly holding on to all of one's desires and wishes (Hall 1993). Each person and party must be willing to sacrifice in order to obtain a mutually beneficial outcome. The organizations need to focus on the customer and the customer's needs in order to achieve ultimate satisfaction for everyone involved.

There was one more key element that was not directly mentioned in the literature review, but that can have a significant impact on the success of the negotiations and the partnership. All organizations must stay focused on the final outcome of the project. They must remain focused on the long-term goal, not winning short-sided arguments. They may win a small argument or point, but in the end they jeopardize the project and in turn their reputation and likelihood of being selected for future projects. If the organization can keep focused on the long-term goals and benefits, then they will often be more likely to compromise regarding small details. This is an important element in the formation of a successful partnership.

Summary and Conclusions

Our investigation of what constitutes a successful partnership in the construction industry took us to many areas outside of the industry. We found that successful partnerships in the construction industry are no different than those that exist in other situations. We found that the formation of partnerships is closely related to the elements that constitute successful negotiations. Both parties can achieve maximum benefits that extend well beyond the project life by participating in successful partnerships (Fisher and Brown 1988). However, they also have much to lose in a failed partnership. Failed partnerships make both companies look bad and may result in the loss of future projects for both. It is in everyone's best interest to strive for the formation of successful partnerships.

We found that successful partnerships are the result of compatibility in the areas of organizational culture, conflict resolution, and an attitude of cooperation. Outside of the construction industry, partners will not be likely to participate in a relationship that is not mutually beneficial. They will seek partners that are like themselves and will not engage in partnering with corporations that are not compatible. However, in the construction industry various organizations have little choice in their work partners. They are thrown together for better or worse and must try to make it work out for the best.

This research gives organizations guidelines that they can use to help develop better relationships even in situations where they must work with an incompatible organization. They may be able to recognize their own negotiating style and how it affects the overall outcome of the many daily mini-negotiations that are a part of the jobsite. Forging successful partnerships takes work and a considerable amount of self sacrifice, but in the end the results can be mutually beneficial to both parties.