In economics, people are familiar with the “no free lunch” theorem. It means that, whatever goods and services are provided, they must be paid for by someone. I often faced the situation that parties asked additional, free concessions in negotiation -without any reason or argument- just to close the deal. This came mostly from Project Owners because, in the current buyers’ market, they have more power. But the same could also come from Contractors when they have a strong position.

It is important to understand that, asking a concession from your counterpart without giving anything in return, is detrimental to the entire negotiation process.

As you will see from this post, there should be “no free lunch in negotiation either”.

Easy analogy of free concessions and free lunches

To make this perfectly clear, let me start with a non-controversial analogy based on holiday experiences:

A couple of years ago, on transatlantic flights, each passenger could take a luggage of 32 kg. Airline operators quietly reduced it to 23 kg at some point of time. Now, on the latest flight I was taking, you had to pay for every luggage you take.

Of course, these additional payments could make passengers upset. But, one can also look at it from a more practical point of view. Over the years, airport taxes have increased substantially. Airline operators, under heavy pressure (e.g. by low cost companies), have lowered their part of the ticket price. The biggest driver for the airliner’s cost is the weight the plane is carrying. It determines the amount of fuel required which represents the biggest part of the variable costs.

Before, ticket prices obviously included the cost impact of “free luggage”. And there was no incentive for passengers to take less kilos. I could take a big amount of books on holidays and might not read them all. Now that luggage has to be paid for, I should think about optimization: shall I take a reasonable amount of books, maybe rather paperbacks? Or, shall I buy some books or magazines at my destination instead?

Both passengers and airline operators optimize ticket prices when the impact of the luggage weight on the costs is understood.

Risks of asking unilateral concessions

Let’s face it, there is “no free lunch in negotiation” either. Therefore, there should be no free concessions in negotiation. Here are some consequences when asking unilateral or unjustified concessions at the end of a negotiation:

  • Everbody will quickly know that -in your company, country or culture- it is a habit to give a last-minute negotiation discount. So people will calculate it in form the start. My son never wants to wake up the first time I call him. So, I come the first time 10 minutes earlier and let him stay in bed a bit more.
  • In case you really push your counterpart a bit further to give that final free concession in negotiation without anything return… he will be in for revenge. Such concession can be a discount, but not only. It can also be a painful carve-out on the limits of liability, an additional year of warranty, worse payment conditions etc. Revenge is a meal best served cold. Not a good ending of a negotiation. No win-win mood. And, we all know what that does for long term relationships.

What to do instead ?

Don’t ask for unilateral free concessions in negotiation… and also do not give any.

For many of us, it will be a change of mentality. Of course, you have to continue “defending” the interests of the company you are representing. But look beyond your own interests. Actively listen to the interests of your counterpart.

The outcome of a negotiation can only be optimized by finding solutions that generate more value for one party (or both) than they cost for the parties. Allocate the cost correctly and share the upsides.

When someone asks you a free concession in negotiation, don’t panic. Think what you still want from her/him and ask it in return. As a reminder, the right way to give a concession is as follows: “if you can give X to us, we are willing to give you Y”. Start with what you expect from your counterpart as a condition for your concession. When you say “I will give you Y if you give me X”, your counterpart will have stopped listening after you say “I will give you Y” and “forget” the concession that is required from their own side.

Conclusion

Very simple: there is no free lunch in negotiation! No one-sided free concessions should be asked for nor given in negotiation. Well-chosen bi-lateral concessions generate value and lead to project optimization.

From their respective going-in positions, parties should work hard to understand the interests of the other party. Concessions should maximize value for both parties. This optimization process will automatically stop when the parties can no longer find sufficient value to be exchanged, when concessions can’t be matched anymore.

Negotiation is a regular subject on this blog. Click here to see other negotiation topics.

About AfiTaC

AfiTaC.com is the blog on commercial and contractual subjects for the Project Businesses (Construction, Infrastructure, Oil & Gas, Power & Renewable, Water Supply & Sanitation, etc). Its objective is to stimulate reflection, learning, convergence to balanced contracts and positive dispute resolution. You can subscribe to our newsletter by writing to “newsletter@afitac.com”. You can also connect to our LinkedIn page. Engagement with the readers is what keeps us going. So, don’t hesitate to exchange with us by commenting here below, liking our publication on LinkedIn and writing to us “info@afitac.com”. 


Jan Bouckaert

Jan Bouckaert is a FIDIC Certified Adjudicator (President's list) with 25 years of worldwide experience in negotiation of complex construction, renewable energy, power and infrastructure projects. He is also specialized in contract management, project controls and alternative dispute resolution. During Jan’s career path, he lived in France, Belgium, Egypt, India and Portugal and worked for GE Renewable Energy, Alstom Hydro, Besix/Six Construct. He is a Civil Engineer from the University of Leuven (Belgium) and has an MBA from ISEG (Portugal). He speaks fluently English, French, Portuguese and Dutch. Jan is the founder of AfiTaC, a company giving advice on international tenders and contracts., and Managing Director of Proove SAS. Be welcome to connect on LinkedIn: https://www.linkedin.com/in/afitac/

2 Comments

Ahmed Mohamed · 7 October 2019 at 22 h 59 min

Very interesting read. We most commonly face such situations during last minute negotiations, and when under pressure to finalize a deal, ‘free lunch’ could be given, only to regret it later on.

Sandeep Pandharkar · 8 October 2019 at 4 h 22 min

Negotiations have strongly to deal with human psychology and behavioural sciences.
A smart negotiator must learn some tricks & understanding of emotional aspects. A human being is full of emotions. So, one must handle the emotional quotient inorder to get what he expects as the outcome of negotiation. Rather this understanding can bring out win win situation without hurting or hard feelings. Each person views the same situation differently. Both parties in negotiation assume some amount of risk and therefore play their cards accordingly.

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