Building Bridges by Resolving
Negotiation Strategies
February 2018
Negotiating Without Trust
Or The Convenient Contingency Clause
Dear Clients and Friends,

Should we negotiate with those we don't trust and if so how do we protect ourselves. That is the subject of this February '18 edition of Negotiation Strategies.

For your reading convenience, this column is also summarized in the Lessons Learned bullet points at the bottom of the page.

With fervent hope that you find this column read-worthy and useful!

Raphael Lapin
Negotiating Without Trust
Or the Convenient Contingency Clause
A few years ago, while working with the European Union (EU), I was having lunch with several European lawyers in Copenhagen. “Why”, one of them asked me in a thick German accent, “when negotiating deals with Americans, they always come with an army of lawyers and reams of contracts?” (In their countries, lawyers play a very minor role and deals are often still consummated on a handshake).

Thinking quickly on my feet, I responded: “In America, people do business on the basis of not trusting one another, hence armies of lawyers and reams of contracts. When Europeans do business, it is on the basis that you do trust one another and therefore less need for the lawyers and extensive contracts”.

This highlights the cultural differences of whether or not to negotiate with someone we don’t trust. In Europe and Japan for example, establishing trust before negotiating is considered a prudent practice in business. The United States however, with more of a “throw caution to the wind” attitude, and a greater risk tolerance, is less concerned about trust, as long as they do the utmost in mitigating risk with very tight contract language and a strong legal system to enforce any breach.

What happens in a culture that typically builds their negotiations on trust such as the Europeans, and finds they need to negotiate with a partner whom they do not trust?

Brussels finds itself in this very situation while negotiating a transition agreement with Westminster, regarding Brexit. The EU does not trust the stability of the British parliament and questions as to who might be in power a year from now. Might it be the hard-line Brexiteers that will be less sympathetic to the EU’s interests, and disregard any agreements reached with the current government? This is a very new situation for a culture that chooses to negotiate mostly with those it trusts.

What can Brussels do to counter their concerns about trust and what can we do in our own negotiations to further protect ourselves, when trust becomes in issue?
Use Contingency Arrangements to Counter Mistrust
One effective approach to use when you do not fully trust the other party, is a contingency agreement. A contingency is intended to leave elements of the deal unresolved until uncertainty is resolved in the future.

To design a contingency clause, first identify where the lack of trust lies, and then seek to invent contingencies that will adequately address the lack of trust issue and protect you.

Say, for example, you are negotiating the sale of a large block of apartments with the Binyan Group, a well-known developer in town. Binyan has assured you that they can only use the building for residential purposes, and not condominiums or commercial properties due to zoning laws, and are offering a lower price. Despite this assurance, you feel uncomfortable, and suspect that due to their close ties with the zoning board, they may know that these zoning laws are subject to change soon and they may be exploiting you. What should you do? This might be the time to consider a contingency agreement.

In the Binyan negotiation, such a clause might look like this:
“The sale is agreed to for a base price of $18 million with the provision that if the land is used for commercial development in the next five years, purchaser will pay seller an additional $8 million”.

This simple clause will adequately protect you against any further exploitation.
Interestingly, this is the same approach that the EU is proposing, to deal with their trust issues with the UK (referred to earlier in this column). They are seeking a contingency clause which will state:

“Should Britain breach the terms of the transition, the EU reserves rights to ground flights, suspend single market access and impose trade tariffs during the Brexit transition period. Furthermore, the EU will have unprecedented legal powers without the oversight of the European courts to enforce these terms unilaterally in the event that Britain should breach the terms of the transition”.
These are harsh terms to be sure, but an effective response to the severe lack of trust between the EU and Britain. 
Consider Contingencies as Concessions
In certain situations it might behoove you to offer a contingency so as to reassure the other side.

Suppose a supplier is delivering a large quantity of goods to a customer across the country. For the customer, time is of the essence and they need these goods in no later than ten days. To ensure a timely delivery, they have requested that the supplier ship these goods via air at the suppliers (considerable) expense, as they do not trust the supplier company’s in-house trucking system. The supplier, on the other hand is quite confident that their trucking system will deliver it with time to spare. Negotiations are getting heated as the customer threatens to look elsewhere for these products.

It might be wise for the supplier to propose a contingency whereby he agrees to ship by air while at the same time tracking the truck. If the truck arrives before the ten day deadline, then the customer will pay for the air freight costs. Should the truck arrive beyond the deadline, than the supplier will absorb the additional costs.

In this way the supplier has addressed the customer’s distrust with a contingency arrangement. This is far better than to make a futile effort at persuading the customer of a timely truck delivery.

There will be times where we need to negotiate with people whom we don’t trust or who don’t trust us, and contingencies are a very effective way to deal with these situations.
Lessons Learned
  • Even in situations where there is a lack of trust, effective negotiation and assured compliance is still possible.
  • Identify exactly where the lack of trust lies.
  • Seek to invent contingency arrangements to protect yourself.
  • A contingency arrangement is intended to leave elements of the deal unresolved until uncertainty is resolved in the future.
  • Offer contingencies to the other side when trust is an issue for them.
  • Contingencies that you offer should be low risk to you and high value to them.
  • Make sure the contingencies are reasonable because irrational punitive measures will not be enforced by a court of law
Lapin Negotiation Services offers training, consulting, advising and executive coaching in negotiation, business diplomacy and dispute resolution services.

Our proprietary and aggressively results oriented services are designed to help your leadership, teams and individuals master the essential negotiation, relationship-building and conflict management skills that increase revenues, decrease the high cost of conflict and build strong working relationships.
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