A SYSTEMATIC APPROACH FOR NEGOTIATING AGREEMENTS  

In  this MaY '14 edition of  NEGOTIATION STRATEGIES is a one-minute read in which we provide a systematic approach for negotiating agreements. For your reading convenience, we also distill these lessons into a brief lessons learned at the end of the column.

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Sincerely,

Raphael Lapin

As long as we are  active participants in the world around us, be it socially, professionally, commercially or diplomatically, we are always negotiating.  At home it might only be about what movie to watch, and with friends it might be about where to meet for dinner -  easy and low risk negotiations to be sure, and often, in these social contexts, we are not even aware that we are negotiating.

However, when we get to the professional, commercial or diplomatic context, negotiations assume a significantly more conscious and deliberate effort due to the potential opportunities and high risks involved. They may be  partnership agreements,  or about professional services and fees,  or perhaps the sale and delivery of goods. They may even involve nuclear non-proliferation treaties or serious international boundary disputes.  

In these situations, we are very aware that we are negotiating and take it very seriously.  Good negotiators will typically have a systematic  methodology that they apply regardless of what the context and object of the negotiation might be.  In this column, I would like to share with you a basic systematic approach that you can apply to any negotiation you are currently involved in, or may be in the future.

A contract is more than just a means of protection in the event of a law suit. It should also be an operating agreement and provide a context for the working relationship. Furthermore, it should set the tone and spirit which the parties entering into the agreement initially intended.  

When negotiating complex contracts, there are many details that come into play. A good place to start is to think carefully about the key issues that need to be clearly spelled out for the contract to be effective, operational, sustainable, compliant- prone and durable. Consider important paragraph headings  that the completed agreement should contain.

In a business partnership agreement for example, the key issues  to consider might be: Investments, ownership and equity percentages;  profit sharing; management; decision-making; admitting new partners or shareholders;  partner job description, contributions and performance benchmarks; conflict resolution mechanisms; and partnership termination or dissolution.

It is helpful to think about these things on your own or with your team first and then to engage the other party and say: "These are some of the things that would seem important for a contract to address. Are there any other items that come to mind that we have not thought of?"

This list of items then becomes your working "agenda' for the negotiation. 

On each item of  this agenda be sure to practice investigative negotiation. Question intensively, probe relentlessly  and listen carefully for what the other party really cares about on each issue.  What are their interests and concerns on every issue? Don't look for solutions just yet - just construct, develop and expand the information upon which the negotiation will be built.  By keeping an open mind, an attentive ear and an attitude of constructive curiosity, you  will be surprised at the wealth of valuable information you will learn which will later be helpful in crafting creative agreements.

Take the example of the large US company that was negotiating a very large deal with a small company in Taiwan to purchase an electronic component for a product they were manufacturing.  The US company had finally agreed to pay $13.75 per component, with a guaranteed minimum of one million parts per year. The US company however wanted a five-year exclusivity agreement to provide them with an important  cushion of competitive advantage, which the Taiwanese company refused to consider.  They appeared to be quite intractable despite the fact that this was likely the largest deal they had ever done. The US company was at their wits end and could not understand why the Taiwanese were being so "unreasonable". 

The US company retained the services of a negotiation specialist who was able to unlock the impasse with some investigative negotiation. Instead of asserting his demands, he asked questions and listened. He asked the Taiwanese business owner: "What is your greatest concern about giving us a  five year exclusivity agreement? Why are you not willing to do it?" The US executives expected the answer to be the obvious - because it puts limits on his profit potential. They were surprised to learn that the real reason was because the Taiwanese business owner was already committed to supply 150 components each year to a family relative and he was not willing to breach that agreement no matter what the payoff was.

By asking questions and listening, the US team was able to obtain valuable information which paved the way for further negotiations. In the end, they agreed to the five year exclusivity agreement, with the exemption of the existing contract with the  family relative, for a discounted price of only $12.00 per part!

After having obtained and shared information about each party's concerns, needs and constraints, be an adventurous explorer and explore all sorts of exciting and creative ways to meet those needs. Be sure to invite the other party to do the same. Try to generate two or three possibilities for each issue that you initially identified without committing to any. Just generate a menu of ideas for each item on the list from which you can later choose. 

Then identify any ideas which both parties feel have potential, and work to build, develop and refine those. Don't commit to anything until you have a comprehensive and integrated agreement covering all issues on the table. Only then commit to everything once you feel comfortable.

If possible, once you have completed the negotiation and reached agreement, try to obtain a sample contract template similar to the kind of contract that you have just negotiated, against which to cross check. You can get these on line or from your lawyer.  Make sure there is no glaring issue that you might have accidentally neglected to identify.  

By following this approach, you will be certain to negotiate contracts and agreements that are effective, operational, sustainable, compliant- prone and durable. They will also be amicable, and set a positive tone which will guide you and your partners towards a long and productive relationship.