Whether to hide information about your own position, or whether sharing information in negotiation is the best approach (to find, jointly with your counterpart, a solution covering both parties’ interests) is a question every negotiator has to consider.
Popular wisdom is to hide information
Intuitively, most of us believe that it is better to keep what-is-important-for-you hidden from your counterpart. The view is that, the more the counterpart will know about you, the more he/she will exploit this information for their own benefit. Negotiation coaches that are just providing tips and tricks to squeeze out the most form the negotiation, to the detriment of the counterpart, are often promoting this idea.
But is that really the right thing to do?
Interest-based negotiation: initial stage is sharing information during negotiation
In interest-based negotiation, modelled by Harvard, one should look beyond the stated positions and search for the actual interests of the parties. Once these interests are understood, the parties can brainstorm to find solutions fulfilling these to the maximum extent possible (and preferably symmetrically). Positions are easy to know. They are what parties state right away. But understanding interests requires further information sharing during the negotiation process. Chris Voss is the guru of the techniques to stimulate your counterpart to table that highly useful information: mirroring, labeling and calibrated questions.
Negotiation is a two-directional process: the other party should do as much effort as you to understand their counterpart’s interests. If any party is doing great efforts to hide information from the other party, the interest-based negotiation process is obviously not going to work.
Example case study: extending the validity of a bid
Let’s look at a realistic situation I’ve encountered multiple times on the negotiation of the construction of large power-projects. Such projects need time to be implemented: time for obtaining financing, obtaining environmental permits, performing preliminary works, … It is therefore very common that the bid validity should be long and/or should be extended several times.
We will analyse two scenarios of how the conversation can go between the Project Owner, also named Employer, and the Contractor.
In the “classical situation”, the conversation goes as follows:
Employer talking to the Contractor: “We need your offer to remain valid for 9 months”.
Contractor: “It is against our company policies to give such a long bid validity; we can only give you three months of validity. At the end of that, we will see. Anyway, we are in a hurry to book the project and start the works.”
Employer: “That’s not acceptable. We may reject your offer for a too short bid validity. We will definitely take your tough stance into consideration while evaluating your bid and while comparing to other bidders.”
The Contractor’s negotiator is probably just following the instructions she/he has obtained during the Risk Board validation meeting. Maybe she/he doesn’t even understand the underlying reasons for this stance. “A company policy is a company policy!”
The Employer is playing hardball. However, they may not be in such a comfortable position: Do they have good alternative offers? Didn’t the other bidders also refuse such a long bid validity?
Less-recommendable-negotiation-coaches may learn you how to keep strong in this “arm-wrestling” situation, how to “overpower your opponent”, how to use manipulative tactics to get what you want (ultimatums, threatening to escalate unacceptable behavior to superiors, lying about competitor’s position etc.)
But what if we do it in a different way?
In the exchange here below, comments and observations are given between square brackets .
Employer: “We need your offer to remain valid for 9 months”.
Contractor: “9 months of bid validity is a long period and difficult for any Contractor to accept. What makes you require such a long period? Did you not say you intend to select the winning bidder by the end of the month?”
Employer: “Yes, but after selecting the contractor, we still need to take further steps.”
Contractor: “further steps?” [This is a technique called mirroring: repeating the last couple of words the counterpart has said to stimulate them into sharing further information on the subject.during negotiation]
Employer: “Yes, we need to obtain the building permits, which will be based on the winning contractor’s tender design. And, that takes at least three months.”
Contractor: “At least three months.” [This time, use an upward inflection of your voice, which shows your understanding.]
Employer: “And, that’s not all. Both the signed contract document and the permits are needed to apply for financial closure.”
Contractor: “Hmm, financial closure.”
Employer: “The commercial banks financing 80% of the project value need to do their due diligence and get a board approval. This takes at least another 3 months after all information is available to them.”
Contractor: “It looks like a long bid validity is very important to you”. [This is called a label.]
Employer: “It is. Trust us, we are very familiar with this process in this country.”
Contractor: “If I understood well, you need a substantial, uncompressible period, after you have selected the preferred bidder, to finalize the permits and obtain the financing.”
Employer: “That’s right” [Such a statement is important in negotiation as it signals that the Employer is reassured about the Contractor’s empathy for their situation.]
Contractor: “If you are ready to finally select us now as the winning contractor, we will have 3 months to get the building permit plus 3 months to reach financial closure. With the status of the winning contractor, I would be able to check, and most likely convince our Board, that we can handle 6 months bid validity. If ever they say no, you can drop us.”
[You will note that up to this point, the Employer has mainly provided additional information to the Contractor. Now that the Contractor has proven its empathy and understanding, similar information about the Contractor’s interests have to be tabled.]
Employer: “6 months is only enough for an ideal situation. Things always take longer than expected. We need 9 months bid validity; we told you already!”
Contractor: “Yes, we acknowledge that. But, at the end of the validity period, you can ask for another extension. We will examine the economic reality and will certainly do whatever we can to make this deal possible. Once we have been retained as the preferred bidder, we never disappoint.”
[Here there are different possibilities depending on various factors:
- How much confidence can the Employer have in the Contractor (e.g. prior dealings)?
- How difficult is it for the Employer to engage an alternative contractor in case the selected one becomes unreasonable, abusing the fact of being in the driver seat?
- How variable are the market conditions are?
Let’s assume, for this example, that the Employer absolutely needs a 9 months’ validity.]
Employer: “The Banks won’t start discussions if we don’t have 9 months’ validity. But tell me, why do you want to limit the validity period if you are already sure you have the job? Then it is just a question of the timing of mobilizing your resources, isn’t it?” [The Employer also starts asking calibrated questions now.]
Contractor: “Indeed, it is a question of mobilizing resources and we can schedule that. But not only. it is also a matter of inflation and raw material & equipment price volatility.”
Employer: “I see. But can’t you protect yourself against the latter?” [Another calibrated question to further investigate this point.]
Contractor: “If we are not 100% sure to get the order – and that’s the case, as long as there is no financial closure – we can’t actually buy the raw materials & equipment nor place any options.” [The problem is spelled out very clearly now.]
Employer: “Yes, we are in a similar situation.” [Empathy achieved from both sides!]
Contractor: “In order to accept very long validity periods, we need to be able to adjust the price.” [Gentle introduction of a solution]
Employer: “Adjust the price? How will we know this will be done in a fair way?”
Contractor: “We can establish a price revision formula based on published indexes and consider an adjustment for a currency basket.” [Objective Criteria, as in Harvard’s theory]
Employer: “OK. If you can provide a concrete proposal, I can bring it to our Board and the Banks to see if they can accept it.”
Comparison between Scenario 1 and 2:
Here above, the first scenario seems much shorter. And faster? Only in case of a strong power imbalance, it will lead to a decision. But the weaker party will look for revenge. The parties are in fighting mode and haven’t learned anything about the other party’s needs and interest. Obviously, nothing is done to satisfy the other party’s needs. This is what is called a win-lose situation (which often ends in a lose-lose outcome).
Splitting the difference is a little better but not much. It is just about anchoring, haggling and then getting an unsatisfactory outcome for both parties on the assumption that nothing else was possible.
The second scenario walks a clear and different path: first looking for the reasons and interests behind the initially expressed positions. Then determining the variables of adjustment and finding a solution that is satisfactory for both parties.
A bit of advice from a negotiation veteran
I must admit, I also started as a Scenario-1-Negotiator and it took me years of practice to become a Scenario-2-Negotiator. Now, with hindsight, I understand that I should have taken advice earlier. Not just theory; I got some trainings. But also that rare practical advice concretely adjusted to the context – coaching, in fact. The theory, which is often very general (developed for selling cars and insurances) should be adapted to complex projects. And should be immediately applicable to your world, to maximize results and strengthen the learning.
I must admit, it took me more words than expected to make my point about sharing information during negotiation.
But I hope you got the message:
- Proper information sharing is essential to achieve a win-win deal.
- Hiding information makes this goal more difficult or even impossible.
Top negotiators use specific skills to help the other party table information: mirroring, labeling and calibrated questions. In turn, they are also willing to share information with their counterpart. By doing so, all the variables that can optimize the deal for both parties are determined.
If you really become good at it – and so does your counterpart – you can move to the next level of negotiation: Smartnership and NegoEconomics, which are trademarks of Keld Jensen’s awarded negotiation methodology.
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 “firstname.lastname@example.org”. 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 “email@example.com”.