David Anderson
Schwabe, Williamson & Wyatt
Significantly more than 90 percent of disputes are resolved by a negotiated settlement rather than a court decision. Also, 100 percent of contracts are entered following some sort of negotiation process. Likewise, every change order or contractual adjustment follows a negotiation.
Businesses do not wind up in bet-the-company litigation all the time, but they do wind up in bet-the-company negotiations frequently. Some just do not recognize their own peril. Consider a few thoughts on the negotiation process.
Parties frequently wind up in disputes larger than necessary when they realize belatedly that they were involved in a negotiation. Additional, out-of-scope work is often required to complete construction projects.
Many parties do not realize that their contracts provide guidance for the conduct of the negotiation. Notice provisions, change orders and dispute resolution procedures are all ways to structure a negotiation.
Contractors that do not recognize the implementation of these mandatory provisions as the beginning of a negotiation place themselves in peril.
Recognizing that a negotiation is afoot does not open the door to opportunism. The negotiation opens the door to considering options. A change order process is not an invitation to fleece a partner on the construction project. It is a process to identify conflicting interests and resolve them in a way that both sides find agreeable. The negotiation thus opens the door to considering options.
Contractual obligations that can be enforced in court should be considered (to ignore such a provision can invite disaster). Likewise, relationships should be considered. A legal right to fleece a business partner tomorrow can be an opportunity lost the next day. Businesses will need to identify additional case-specific factors that inform their approach to a negotiation. Public perception may matter. Or a narrower subset, such as the construction community, should be considered.
A rigorous exploration of options can help prevent a hasty bargain. The discipline can also identify interests or values that must be protected even if such issues were not identified initially. This process of exploring options can be tailored to the appropriate set of issues or interests at stake. No one would recommend spending months evaluating options on a miniscule issue, but such time may be necessary for major subjects.
Substantive communication regarding a negotiation should begin only after a thorough analysis of options and interests is completed initially. There is substantial power to thoroughly understanding one’s own situation – many parties do not do this. And knowledge that there are alternatives to a negotiated agreement can aid in assessing a proposed agreement in the first place.
There is a debate among many folks over who should make the first move in a negotiation. Some would say that the person who makes the first move gets to frame the negotiation by establishing a starting point. Others note that the human impulse to compromise suggests that power lies in the second offer, which is where a person can establish a desirable midpoint for the parties to eventually land upon.
Either way, it’s more important to spend more time listening than speaking. This critical element is easier preached than practiced. The goal of a negotiation is to make a deal. If you have already identified your various options, you do not need to waste your time explaining your options to the other side. You want to learn what the other side considers its options to be. This critical knowledge is where the advantage in negotiation sits. In every negotiation, each side has the right to disagree. Knowledge about the cost of disagreement to yourself (your alternative to agreeing with the other side) and the cost of agreement with the other side (what it is offering) gives immense power.
Immense power comes from knowing the game that is being played. Too few people even realize that they are negotiating – they do not realize they are playing the game. More power comes from knowing the score of the game – the options that both sides are dealing with. All of this power can be had by first recognizing when you are in a negotiation, and then recognizing what the other side considers the score to be and what you consider the score to be. Negotiations happen all the time, and they can be won.
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David Anderson is a commercial litigator with Schwabe, Williamson & Wyatt. He focuses his practice on real estate and construction. Contact him at 503-796-2456 or at danderson@schwabe.com.
