Out-Law Guide | 30 Aug 2011 | 11:26 am | 3 min. read
With financial cutbacks, even long-established arrangements with key suppliers can come under considerable strain. Suppliers may attempt to breach agreements that have become costly or burdensome, or object to any attempt to renegotiate or re-scope existing arrangements. All of this is likely to place an enhanced premium on negotiating skills so that your objectives can be met without costly litigation.
This guide provides some tips for more effective negotiation.
Know your rights
Make sure that your negotiating team understand what your agreements entitle you to and that any contractual mechanism for dispute resolution is being followed. It is essential that you have an informed overview of the options you have, should the time come to enforce or defend your legal rights. If your objective is to renegotiate, ensure that you are on top of any procurement issues which may arise.
Preparation, preparation, preparation
It may seem too obvious to state the need for proper preparation, but many negotiations fail because this is overlooked. You need to be clear about what you would like to achieve as well as the likely objective of the other party.
Establish your 'best alternative to a negotiated agreement' (BATNA) up front so that you appreciate how much the alternative would cost or benefit you. This seems obvious, but surprisingly parties to negotiations frequently have no credible alternatives in place. If you don't have a BATNA you are a difficult person to negotiate with. If you have little idea of what you want, don't expect your opponent to have any idea either. Ideally you should establish your best, worst and most likely outcomes and evaluate the chances of these occurring.
Disclosing your BATNA
By disclosing your BATNA you are telling the other party what would cause you to walk away from the negotiating table. This can send a very strong signal that you are confident of your position but it is crucial that it is disclosed at the right time. Until you disclose it, your opponent may believe that it has you over a barrel and you may make little headway until you correct this misconception. Disclose it too early, however, and you may lose the chance of a better outcome. Always consider carefully how the other party may react - it may not share your bullishness. Disclosure may generate more options and result in a speedier resolution but if done in anger or frustration over the process it is never likely to be productive.
Some form of risk analysis should be considered in every case. This should include consideration of factors such as the likelihood of success if the matter goes to court and the capacity of your opponent to see court action through, the cost consequences of failure and the irrecoverable costs, even in the event of success. Consider carefully your re-provision strategy. The strategic importance of the supplier and the potential disruption caused by the escalation of the dispute will need to be evaluated.
It is essential to know your own and your opponent's risk profile before embarking on any negotiations. Establishing whether your supplier is going to have a risk tolerant or risk averse approach is likely to be highly significant, especially in the later stages of any negotiations.
Identify essential points
Make sure you identify what you need to achieve from the negotiation, as well as the other side’s essential items. If the difference between what each party needs to achieve and its ‘nice to haves’ is not understood, negotiations are unlikely to end successfully. Offering solutions based on what the other party wants to achieve rather than on essential points limits your bargaining position for resolving differences and is not a good basis for going forward.
You will obviously want to start negotiating from a position of strength. Consider any cost-effective steps which can strengthen your arguments or position, or its appearance, before the negotiation starts. These could include expert reports or witness statements that have not yet been disclosed.
Consider also any 'carrots' or 'sticks' you intend to use as negotiating tools. In a contract renegotiation for example, sticks might include the threat to terminate or the ability to place work elsewhere where there is no exclusivity. Carrots might involve possible extensions of term and scope, the grant of exclusivity or a volume guarantee.
It is essential to obtain a firm commitment to have decision-makers at the negotiation to reduce the scope for any game-playing. Too often the negotiator professes satisfaction with an offer but thinks it will be impossible to get approval from the decision maker.
Don't underestimate the human dimension
Rarely does everything come down solely to the financial or technical aspects. In any negotiation it is not just a case of what you say but how you choose to say it which can determine your effectiveness. Listening, collaborating and maintaining rapport is fundamental, especially where all other aspects are equal. Seeking to understand rather than telling the other party how it is likely to elicit a far more favourable response. It is a sign of strength, not weakness.