Despite a fixed price agreement: renegotiating can be worthwhile
29.09.2025
The author of this guest article, Katharina Weber, is a founding member and CEO of NAG
Figure: Anne Kaiser
Rising material prices and wages, persistently high interest rates and weak demand – for many construction companies, the cost calculations just don't add up. What can be done?
In many real estate projects, which by their very nature stretch over many years, sometimes even decades, investors are currently struggling with higher costs for financing, materials and wages. In addition, changing project requirements and declining property prices due to economic uncertainty are throwing a spanner in the works for many private developers. Several real estate investors, such as René Benko's Austrian Signa Group, have already gone bankrupt. Others are facing insolvency if they are unable to renegotiate prices and terms.
Renegotiation is possible
Project contracts in the construction industry are often concluded in the form of an EPC contract. EPC (engineering, procurement, construction) means that the contractor acts as a general contractor and assumes responsibility for the planning, procurement and construction of a project. They deliver a functional, turnkey end product to the client, often at a fixed lump sum price, and also carry out the project with the help of subcontractors.
However, despite their seemingly weak negotiating position due to the fixed-price agreement, companies do have opportunities to renegotiate contracts. To do so, they must scrutinise the contracts for the entire process chain, from purchasing to production to sales, in order to identify starting points for renegotiation and develop a holistic negotiation strategy on this basis.
Exploit scope for cost reduction
There is often scope in existing contracts to delete or reduce parts of the project in order to cut costs, use alternative materials at lower cost or realise efficiency reserves. Companies should also seek dialogue with banks to work towards an adjustment of credit terms. If you have a realistic concept, suppliers, subcontractors and banks should realise that they are better off giving in and continuing the project with the prospect of success than having to write off their claims entirely.
In most cases, it is not a one-off project with these suppliers, subcontractors and banks. In such cases, it often helps to point out that a concession in this case will be taken into account in future projects.
Do not avoid controlled escalation
There are also points of departure in relation to customers, for example if the client has made changes to the scope of the project or the technical specifications after the contract has been signed. In such cases, one should not avoid controlled escalation without becoming emotional. This serves to clarify one's own position and give weight to additional claims.
A pain/gain share model can also be a solution. In this model, the client and the construction company share the financial risk and potential profits. This is because the economic situation may change again and the prices that are currently making the project more expensive may fall again. Both sides thus have a common interest in controlling costs and optimising performance. This model of risk and opportunity sharing promotes stronger cooperation. If the construction project can be realised despite these difficulties, this strengthens the partnership between construction companies, suppliers, subcontractors, banks and customers.
CONTACT
Negotiation Advisory Group (NAG)
Katharina Weber
Hafenstrasse 25-27
68159 Mannheim/Germany
Deutschland
