Contract Negotiations and Maslow's Hierarchy of Needs

Contracts and Maslow’s Hierarchy of Needs

I recently made an intellectual connection on two separate concepts that up until recently I often struggled to explain.

On a conscious level I understood why certain contracting strategies worked and why others didn’t

But when it came time to explain the fundamental principles of my contracting philosophies it took quite a bit of explaining to convey the message.

(And often falling on deaf hears)

Then, the other day, I was drafting an article on “Why Negotiating Contracts Sucks”, and it dawned on me…

There is a direct correlation between an Owner/Contractor contractual relationship and Maslow’s Hierarchy of Needs.

Let me explain…

As a refresher, here is a brief overview of Maslow’s Hierarchy of Needs.

As you likely learned in HS or College, Maslow's Hierarchy of Needs is a theory that describes the different levels of human needs and how they influence our behavior and motivation.

At the base of the pyramid are the basic physiological needs, such as food, water, shelter, and sleep. These are the most fundamental needs that must be satisfied for survival.

The next level is safety needs, which include feeling secure and protected. This can be achieved through stable employment, a safe environment, and access to resources that prevent harm or danger.

Before we are able to move up the pyramid and into our Psychological Needs (and higher), we must first satisfy our Basic Needs comprised of the first two levels of the pyramid.

This is where the correlation comes in with contract negotiations.

So often, owners want contractors to act as “Partners”, or in a “Strategic Relationship” but fail to first address a contractor’s basic needs.

For example, let’s look at Liquidated Damages (“LD’s”) as a contractual provision that comes up frequently.

Some owners like to put LD’s on contractors for schedule in hopes that the pain felt from coming in late will motivate a contractor to meet deadlines.

But, the simple reality, is that this doesn’t work…

Don’t believe me?

Take this excerpt from Ed Morrow at Independent Project Analysis and their databased of over 22,000 projects:

“LDs are actually associated with projects being longer by 13 percent in execution and experience 15 percent more slip.”

The numbers don’t lie.

But why doesn’t it work?

Because putting a penalty on a contractor for coming in late creates a risk that a contractor’s most basic needs won’t be met.

As a result, it directly influences a contractor’s behavior and motivation.

And there is no way for them to be a “Strategic Partner” when their most basic needs are in jeopardy of being met.

So, the next time you find yourself in a contract negotiation, ask yourself, does putting this clause in the contract jeopardize a contractor’s basic needs?

If the answer is yes, it’s likely the clause is going to create unintended consequences that don’t serve you, or your project well.

And if you’re looking to engage a contractor as a Strategic Partner, do yourself a favor and make sure their most basic needs are met before attempting to scale Maslow’s pyramid.