When we built our first office in the mid 90s, we knew nothing. About construction. About negotiation. And especially about leverage.
In any commercial space build-out there are usually three participants. The renter, the landlord and the general contractor.
The landlord will often press to have “his people” do the work. Doing so is death by a thousand cuts. Usually of your standards. Followed by your will to live. Rent rebates being no substitute for functioning air conditioning in the dog days of summer.
We had avoided this fate and had brought in our own GC. The work took six months, twenty percent longer than promised and cost twenty percent more. Typical in all regards. We know now.
Towards the end of the project things started to get tense, and disagreements between the GC and the landlord’s electrician had become hourly events.
There are twenty three steps between deciding you want an outlet in a room and being able to plug in a toaster that toasts. They are all required if the biggest issue you face each morning is to be bagel or muffin.
Our nascent business depended on technology. A million dollars worth, give or take. And having the right kind of power in the right kind of places was a fundamental assumption of our business plan. A poor assumption we discovered. In the end, we withheld payment from the GC, who placed a lien on the building for the landlord’s failure to comply with the contracted scope of work.
The landlord, rattled from arrogance for the first time in a year-long negotiation and construction process, came cap in hand to us and agreed to correct everything they had previously denied responsibility for. In return we agreed to settle with the GC.
We accepted the deal, signed the revised agreement, and went to the GC with the happy news.
Did I mention we signed the agreement? An act also known as giving away your leverage.
Because now, instead of sitting on the top of the pyramid of power in which the chain of non-compliance sat beneath us, we had unwittingly made ourselves the fulcrum. We were now responsible for settling with the GC. We were now responsible for getting the work finished.
The GC, rather than lifting the lien, decided that he now had issues with various other aspects of the scope of work, and demanded payment for areas we had assumed were settled.
Never assume. Particularly during construction.
The GC refused to complete the project or remove the lien until his issues were resolved. The landlord reminded us of the agreement requiring us to settle with the GC and have the lien removed. Our lawyer reminded us of the terms of the lease and the first day rent was due. Our newly hired staff reminded us their paychecks were due. And our clients. Actually, we didn’t have any clients. Because there was nowhere for them to be clients.
Between a rock and a hard place choose the rock. It hurts more. But is over faster. And time is your greatest asset.
We paid the GC, who finished the work and we opened our office.
The cost of signing the Agreement with the landlord before we had used our leverage with the GC? About $200,000.
You have leverage in every negotiation. Exercising it requires two things.
Recognizing what it is.
And understanding when to use it.
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