Negotiation is about more than simply bargaining over price; it is about shaping a business relationship and protecting your company’s interests for the long haul.
This is especially true inconstruction, where a well-negotiated enterprise resource planning (ERP) system, human resource information system, or project managementplatform can mean thedifference between successful adoption and an unpleasant, expensive undertaking.
The first installment of this four-part series1 examined the early phases of technology adoption and the importance of due diligence in software selection.
This second article dives into what may be the most consequential and often misunderstood phase of any major technology adoption: negotiation.
Over the past decade, as industries such as health care and finance transformed digitally, patterns have emerged, providing lessons that construction companies can apply immediately to avoid common fumbles and secure better outcomes.
Start Smart: Early Negotiation Tactics & Key Players
Negotiations start the moment you first engage with a vendor.
Most assume the negotiation begins when a contract is sent for digital signature, but in reality, every product demonstration, discovery call, and informal conversation forms part of the negotiation, as it gives the vendor a window into your decision-making process, timeline, internal alignment, and urgency.
Those cues can influence the initial offer you receive, often to your disadvantage. But the good news is that almost everything in a software agreement is negotiable, including licensing models, pricing structures, data ownership terms, implementation timelines, service and technical support, termination clauses, and even access to training resources.
The key to effective negotiation is to approach each of these components as individual levers and not just line items buried in a proposal.
Additionally, successful negotiation is a team sport. A typical construction company might reference the following key roles to assist with certain functions:
- CFOs lead on financial terms
- Chief technology officers or information technology directors ensure system compatibility and integration
- Business unit or operational leaders ensure alignment with end-user needs
- Procurement professionals, contract leads, and software administrators translate vague sales language into enforceable terms and identify red flags that could become future liabilities
- If available, legal counsel clarifies clauses related to indemnification, data rights, liability, termination, and breaches of contract
Each voice at the table brings a unique perspective, and negotiating without this cross-functional input increases your exposure to risk.
Hidden Pitfalls in Contract Fine Print
Certain contract terms consistently lead to trouble if not carefully managed.
Auto-Renewal Clauses
Auto-renewal clauses often carry hidden escalators that increase fees annually, sometimes by 7% or more.2 To protect your budget, price increases should be capped (e.g., tied to the Consumer Price Index (CPI) or set below 5%).
Data Ownership
Another red flag is ambiguous data ownership. If the vendor controls your system’s data, then you may lose your exit strategy once the platform no longer meets your needs.
Favorable terms should explicitly confirm that your company retains data ownership, with free, unrestricted access to export your data at contract termination.
Licensing Terms
Licensing terms can be a source of bloat. Insist on transparency and specificity by determining if licenses are named or concurrent, and if you need premium licenses for report-only users.
Other Areas
Other crucial areas include:
- Implementation scope, which should include clear deliverables, reporting of vendor time incurred each week, and a change order process
- Support service level agreements (SLAs) with tiered response times and penalties for missed targets
- Termination rights, ideally with a 30 to 60-day termination for convenience clause
Exhibit 1 offers a snapshot of seven key clauses to monitor closely.