NEGOTIATIONS
I.
Introduction: As any lawyer would be happy to tell you, the
process of negotiating a contract is more of an art than a science.
Nevertheless, one can learn from the experiences (and mistakes)
of others.
We will discuss the basic vocabulary and structure of conducting
productive and successful negotiations. The “pointers” discussed
in class should be taken into consideration when conducting your
own negotiations for your class project. You should also try to
use as much of the vocabulary/idioms/terms of art/buzz words as
possible when carrying out those negotiations.
II.
Basic language:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
III.
negotiate
haggle
deal
negotiator
negotiable
strike a bargain
make a deal
put it in writing
stalled
an impasse
deadlock
The Stages of Negotiation – normally 6 stages:
1. Preparation – identify issues and objectives/research
2. Develop a Strategy – set clear goals, find a way to make these
goals a reality
3. Begin Negotiations – each side presents objectives
4. Understand the other side – try to understand other sides
position / make your position clear.
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5. Find a common ground/ mutually agreeable terms – manage
conflict, bargain, make concessions, quid pro quo
6. Close Negotiations – agreement reached and “memorialized”
in the form of a written final contract.
IV.
Stage 1 : Preparation
1. Know your objectives:
a. “Top-line” Objective = best possible outcome (a.k.a.
“best-case scenario”)
b. “Target” Objective = a reasonable, realistic outcome
c. “Bottom-Line” Objective = minimum acceptable
terms.
2. Entering into negotiation MUST:
a. have “done your homework”
b. tried to anticipate the other sides position – needs and
wants
c. identified alternatives to the best possible outcome
d. Once identified, these alternatives must be evaluated as
to their desirability.
e. determine your “walk away” point
3. The BATNA principle = Best Alternative To a Negotiated
Agreement
a. Must be prepared that NO agreement will be reached
b. Must have alternatives to a negotiated agreement
available (BATNA)
c. Stronger the BATNA, the stronger your negotiating
position
4. To strengthen their BATNA, and thus their negotiating
position:
a. Are there better deals to be made with other
suppliers/partners/customers?
b. Is there a way to remove or alter any of the limitations
of my current BATNA?
c. Is there a way to change my negotiating terms that
would improve my BATNA?
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Language – must be clear and at least sound fair and reasonable,
otherwise the negotiations will “get off on the wrong foot”.
Useful phrases:
“It would be to our mutual benefit to…”
“Our situation is this…”
“We would prefer to…”
V.
Stage 2: Developing a Strategy –
Two Types of Negotiation – Win/Loose and Win/Win
1. Win/Loose situation –
a. Parties compete for the benefits of the contract.
b. Everything gained by the one side is a lost to the other side.
c. Also known as a ZERO-SUM Negotiation = because the sum
of the benefits of both sides equals zero:
If Party A negotiates for €1 , Party B gives up €1.
1 + (-1) = 0
(the sum is Zero – “hence the name” Zero-Sum!)
d. Examples: - “One Time” purchase
- Divorce (short term/no kids)
- Consumer goods (TV, food)
- House
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e. Strategy :
Do – 1. Start negotiation with right (high) ANCHOR price
2. Learn as much about other side as possible – to find
their weaknesses and exploit them!
Don’t - 1. Reveal info. About your circumstances (“keep your
cards close to your chest”)
2. Be too greedy – you do not want to scare the other
party away from the “bargaining table”
Exercise 1: Negotiations. The following terms are all common words/phrases used in
discussing how parties come to an agreement on a business deal. Match up the
word/phrase with its meaning: (We will take time to break into small groups and do this
exercise in class).
a. “in the loop”
b. “a stalemate”
c. “hit a snag”
d. “iron out the details”
e. “a sticking point”
f. “hard ball”
g. “strike a bargain”
h. “get a bargain”
i. “drive a hard bargain”
j. “at arms length”
1. a few minor points remain to be worked out
2. a very good price
3. a part of the contract is problematic
4. fair, professional negotiations
5. a (hopefully) small problem has arisen
6. decision to be very tough in negotiation
7. the negotiations have broken down
8. to be kept informed
9. to give the other side tough terms in a deal
10. make a deal
3. Win/Win situation –
a. parties cooperate to increase the benefit to all
b. gain by one side does not necessarily mean loss for
other side
c. price alone is not the only important factor
d. Examples: - a partnership deal / important supplier
- divorce (long term with assets / children)
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- long term business relationship envisioned
( all = long term involvement with other party)
e. Strategy:
DO - 1. Try to find and build on areas of agreement
2. Learn about other side and find creative ways
to benefit you both
DON’T – 1. Use Win/Win if your only goal is financial
2. Start a Win/Win negotiation with numbers
3. Hide information – the more the other side
knows about your needs and demands, the
easier it is to find “mutually beneficial” terms
VI.
WHO?
QUESTION: What are the advantages of negotiating as an individual?
What are the advantages of a team of negotiators?
INDIVIDUAL NEGOTIATION (One on One):
ADVANTAGES:
1. Easier to build relationship
2. Making decisions is easier and faster
3. no one can take advantage of the other sides “weak link” and
direct questions at them!
4. neither side can create disagreement among counterpart’s team
members (“dissention in the ranks”)
5. Save time = Save money
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TEAM NEGOTIATION
PROS:
1.
2.
3.
4.
5.
6.
individual personalities play less of a role
“strength in numbers”
“two (or 3 or 4) heads are better than one”
more ideas
more areas of expertise
divide up work (“many hands make for light work”, “a burden
shared is a burden halved”, blah, blah, blah)
CONS:
1. “too many cooks spoil the pot”
VII. HOW? / WHERE?
CHOOSING THE RIGHT “MEDIUM”
QUESTION: What are the advantages and disadvantages of
the following means of communicating during negotiations?
1. e-mail
( + ) - no emotions (inexperienced / “lack” self-confidence)
- time to think / reflect
- “paper trail”
( - ) - risk misinterpretation (no way to correct immediately)
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2. telephone
( + ) – can express emotions (voice tone)
- more personal
3. “in person” / “face to face”
( + ) – preferred method!
- map out ideas visually (“a picture is worth a thousand
words”)
- non-verbal body language
- eye to eye
VIII. OPENING OFFER – “starting off on the right foot”
DO –
1. establish a rapport (personal connection)
2. make small talk
3. compliment your “counterpart” (the other person)
DO NOT –
1. Start talking numbers immediately
2. Let your emotions show
3. Be “negative”
A. The opening offer is one of the most important
step in the negotiation process.
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B. Avoid:
1. informal or “off the record” comments
2. stating a “price range” = “divulge” tell the
other side your upper and lower limit.
C. Provide justification for your opening offer
D. Open High (or Low) = “ANCHORING” = Most
common in Win/Loose negotiations
1. Studies show, first # has a major psychological
effect and is usually not very different than the
final #.
2. The “Anchor” sets a basis for the upper and
lower limit of negotiable price.
3. Reference point for the entire negotiation
4. Set “Anchor” a bit higher than the other sides
“reserve” price = psychological victory of them
bringing you “back” to their reservation price,
but you get the best price.
5. Justify your opening offer
Language:
Testing the Water “We’re prepared to offer you …”
“What would you say to …”
“We are looking for …”
Take it or leave it –
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“… is the best we can do.”
“… . That is our offer.”
Responding to Offer – out of range “That is out of the question.”
“It looks as though we have nothing to discuss”
“Let me know when you are ready to negotiate seriously”
Responding to an Offer – within the range –
“Well, it is a starting point. I hope you are prepared to negotiate.”
“We have every intention of…(A)…, but only if…(B).”
Building toward an agreement –
In a “Win/Win” negotiation, the opening offer will not be the main
focus. Rather the focus is on creating a beneficial “two-way
exchange”.
QUESTION: How can the parties work together to make the
negotiations a positive experience and a “Win/Win” for both sides:
1. Ask open-ended questions = gather info.
2. try to get a feel if other side is willing to make “trade-offs”
3. express empathy for the other side’s perspective, needs, and
interests
4. listen closely
5. be patient
6. honor commitments
7. do not jump to conclusions
8. acknowledge “thorny issues” (difficult issues) and do not “sidestep” (avoid) them
9. adjust your assumptions as you learn more about the other side
10.assert what they need and want – and why
11.build trust (honesty, integrity, reliability)
Source: Negotiations, Harvard Business School Press, 2003.
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UNDERSTANDING THE OTHER SIDE
It is vital (very important/essential) to learn as much as you can about the
people/company/organization you are negotiating with before the
negotiation begins.
QUESTION: What questions/answers about the other side might strengthen
your position during negotiations and thus increase your chances of a
successful outcome?
What are the other side’s objectives?
What are their expectations?
Are they taking an “adversarial” or “constructive” approach?
Are the people on the other side of the table experienced or novice
negotiators?
5. How critical is this negotiation to their business?
1.
2.
3.
4.
QUESTION – What if the other side cannot be trusted? What steps can you
take to preserve your client’s interest?
1. Ensure that every point is measurable
2. Ensure that every deal point is linked to a specific date
3. build protections (not penalties!) into the contract for nonperformance or non-compliance
4. build in rewards for successful performance
5. agree to “arbitration” (neutral, 3rd party to resolve dispute).
QUESTION – What if the other side “plays dirty”, how should you
respond?
1. Threats (stop negotiations or penalize you for not accepting terms) :
Response? = tell them you do not respond to threats and that you
will not continue negotiations under such conditions
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2. Insults (you personally, your partners, firm, client, qualifications,
product/services, your honesty, etc.)
Response? = do not “rise to the bait” or take the comments
personally, “restate” (say again) your position, letting the facts make
the case for you
3. Bluffing (about facts/alternatives in order to improve their
negotiating position.
Response? = “Call their bluff” and ask them to produce
evidence/proof.
WORKING THROUGH PROBLEMS
CLOSING THE DEAL
Giving & Asking for Opinions:
Strong:
It’s quite clear that…
I strongly believe that…
I’m completely convinced that…
Obviously…
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Neutral:
I think that…
In my opinion…
From my point of view…
Tentative:
I would say that…
I think it would be fair to say that…
It seems to me that…
Asking for Opinions:
What do you think of…
What is your (initial) reaction to…
I’d like to hear your views on…
Asking for a Reaction:
Could I ask for your reaction on…
Would you like to comment, Ms/Mr/Attorney________
Copyright: AA Legal Consulting 2007
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Key Phrases for Negotiations
How do you:
1. Offer a compromise to someone?
2. Ask if a compromise is acceptable?
3. Accept a compromise but add a condition?
4. Reject a compromise but leave the door open?
5. Accept a compromise?
6. Reject a compromise?
7. Walk away from the negotiating table gracefully?
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Offering a Compromise
We are prepared to…on condition that..
I think we could…provided that…
We are ready to…with the
understanding that…
We are willing to…with the provison
that…
We are more than ready to…as long
as…
I believe we can…if…
Asking if it’s acceptable
Is that acceptable?
Can you live with those terms?
Would that be acceptable?
Is that acceptable as a compromise
solution?
We hope that this will be acceptable.
How does that strike you?
Adding a Condition Positively
We see no objection whatsoever,
provided that…
If we agreed, it would be
conditional/hinge/depend on
If we agree, we hope you would
reciprocate by…
If you would be prepared to…then we
could…
We would be willing to entertain your
offer, providing that…
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Reject but Keep the Door Open
Unfortunately, we cannot accept the offer
as it stands, we might be willing
however to …
That is not what we are after/looking for,
but we are on the right track.
Accepting a Compromise
That would be acceptable
We have a deal
I think we both can live with those
terms.
Rejecting a Compromise
I
I’m afraid we cannot accept the offer as
it stands.
Unfortunately, that is not enough
(or acceptable)
You need to give me a bit more to work
with here.
Walking away from the negotiating
gracefully
It doesn’t look like you are willing to
play ball at the moment.
I am afraid there is nothing more to
discuss/talk about at this juncture
We seem to have reached a stalemate,
call us when your willing to be more
reasonable.
I am sorry, that just won’t fly.
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