No free lunch in negotiation of project contracts

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. During contract negotiation, I often faced the situation that parties asked additional concessions without any reason or argument, just to close the deal. This came mostly from Employers because, in the current buyers’ market, they have most 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 no free lunch in negotiation

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 am taking, you have 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, one starts thinking about it: 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. 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 calculate it in form the start. My son never wants to wake up the first time I call him. So, I do it 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 concession without anything in 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 concessions… 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 unilateral concessions, 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 provide 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 concessions should be asked nor given. 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.

Contract negotiation team, setting-up a balanced team

In this post we will reflect on the following topics that help building the ideal contract negotiation team:

  • What team composition is beneficial for your negotiation?
  • How to provide adequate roles to each member of your contract negotiation team?
  • What behavior to expect from the team?

A balanced composition of your contract negotiation team

Bring a lawyer, or not?

Let us start with a controversial topic: to bring a lawyer, or not, on your contract negotiation team; that’s the question!

I’ve met a lot of people saying you should first reach a principle agreement with your counterparts and then call in the lawyers to spell out the deal.

I’ve also seen the opposite on many occasions: people that were afraid to take initiative and left everything up to there lawyers. They didn’t even open their mouth during the negotiation except for whispering in the ear of their lawyer. A very minimalist and stressed approach to negotiations, rarely leading to mutually beneficial deals.

My personal experience is as follows: On very few deals, I went to negotiate without a lawyer in my team. Through experience, I’ve learned most of what is needed to provide arguments and find solutions on contracts for complex projects (EPC, design-build, construction contracts, electromechanical turn-key agreements etc.) My many lawyer colleagues, the majority I can now call friends, can confirm this. Through circumstances (unavailability of lawyer or underestimation of the depth of the negotiation), I twice led a several-day negotiation without lawyers on our side. And, the other side did have their lawyers, several. On both occasions, things went sour, for multiple, interlinked reasons. Not because I didn’t find the arguments but rather due to overexposure, getting tired and worn out, lacking rapport etc. I will be very careful not to make the same mistakes again. For a balanced team, better to get a lawyer supporting you.

Size of the team?

Some managers want to cut costs on everything. Even for the negotiation team, they always wonder if you cannot leave some people out. Sometimes, they ask if you can’t do a complex deal over the phone and through email! Negotiation is “money time”. I can assure you that an insufficient team will destroy more value than their travel and availability costs.

Still, your team should not be too big. From experience, I believe the adequate size is between 4 and 6 persons per team. Of course, this depends on the complexity of the negotiation. That’s a compact team for a 10 to 500 million dollar negotiation; good value for money.

Take too many people and you lose control over the situation. I remember a price negotiation where, when we were about to  a lower price, some persons of our counterpart were whispering to each other “is it starting with a 4?”. We were a bit above 500. So we understood, we had to land at 499 million and not lower…

Aim for a diversified team: women & men, different cultural backgrounds etc. It gives a good impression and there are more opportunities to create rapport with your counterpart.

Characteristics of the team members?

The typical team for complex construction or electromechanical D&B contract negotiations is as follows:

  1. The team leader who is normally the one specialized in commercial subjects: price, payment terms, performance and delay LDs, etc. This person should be sufficiently versatile to also talk about insurance, tax, bank guarantees etc. If needed, occasionally, you can call in more specialized persons on these subjects.
  2. The lawyer (as mentioned above), handling the tougher legal issues: indemnities, limits of liability, warranties, everything that has to do with the governing law, dispute resolution etc… the nasty subjects.
  3. The technical person with a broad spectrum. For very specific technical issues, he can call in additional resources. But he should best remain on board for virtually the whole process.
  4. For international projects, the local business developer. Someone who is meeting the counterpart on a regular basis over months or years, also outside these tough negotiation sessions. She will have a good long term relationship with the counterpart. She doesn’t have to say much during the formal negotiations but should remain informed and ready for the parallel diplomacy, especially when the going gets tough. One thing is important though, this persons should be trustworthy and capable of handling confidential information. Sometimes this type of person suffers from a “Stockholm syndrome” and can’t avoid passing everything on to the counterpart. In that case, they should be kept “at arm’s length” without knowing the ultimate details of your preparation. This person will then automatically become much less effective.
  5. A really good observer, almost a “profiler” that can also handle some real subjects. This can very well be a more junior person with whom the team leader is very comfortable to exchange observations about the situation as it evolves. Even better would be to bring a negotiation coach on board; he can support with the negotiation tactics, do some part of the negotiation and especially give advice to all the members of the contract negotiation team.

Roles and behaviors of the contract negotiation team members

You should establish the following rules with your contract negotiation team:

  • The team members should concentrate 100% of the available time on the negotiation, even if it is not their subject. It is very counterproductive to put 20 persons in a meeting room and have only 3 or 4 actively participating. The rest is typing frantically on their keyboards or surfing the web. Not very polite for the counterpart and not very motivating for your own side. Active listening or better to leave the meeting room!
  • Balance out the subjects so that no person of your team should only handle difficult topics. Typically, the technical matters are less controversial. It is elegant from the technical person in your team to leave some easy technical subject for the team leader to resolve. The lead negotiator can then be seen to be solving issues. He is not only a blocker on the “deal breakers”.
  • The team members should be aware of their behavior (body language, tone of voice) and language (avoiding negative words, accusations, hesitation, sarcasm). Unless in very special occasions, everyone should talk with a calm voice, be relaxed and pleasant. If you are not a natural talent at this, you should train on it. Personally, it took me years and still improving.
  • Observation is so important in negotiation. Therefore, while one of your team is talking through a subject, the others should actively listen and especially watch. So much can be derived from body language. And not only at the center of the table. After the meetings, share within the team what has been observed. See also the following article: “Contract negotiation: after a long day of negotiation… 6 essential things to do
  • Brainstorm with the team about potential win-win solutions that can be proposed. More heads think better!
  • During lunch and coffee breaks don’t stay within your team but talk to and build rapport with your counterparts.

Conclusions

  • Go for a not-too-big team that can concentrate on the negotiation. Most of the time 4 to 6 persons.
  • Give balanced roles to the different team members in order to partially discharge the team leader.
  • Everyone to be self-conscious and to listen actively and observe.

For more articles on negotiation in this blog, click here.

Harvard Negotiation Masterclass, some feedback.

Recently, I’ve participated to the Harvard Negotiation Masterclass. Its objective is to instill advanced skills and new insights in participants already well-versed in the foundational concepts of a mutual-gains approach in negotiation. This is done in small groups, with access to negotiation experts from Harvard Law School, Harvard Business School and the Massachusetts Institute of Technology (MIT). The Program on Negotiation, a consortium project of these universities, is probably the world’s most vibrant effort for reflection and training on negotiation.

This negotiation masterclass clearly shows the importance, for a negotiator, to be conscious about the negotiation process, the situation of the counterpart and your own behavior. Far too often, we still send negotiators in front of their counterparts with barely the minimum information – the ideal outcome for one’s own side and some arguments to be stated in an affirmative way – assuming things will go smoothly or that the elected negotiators would be natural talents. Experienced negotiators know that is wishful thinking…

4 half-day sessions and networking

Creating impactful openings

Brian Mandell’s opening course was, not surprisingly, about creating impactful openings. He has extensively studied the “thin slice” of the first 5 minutes of a negotiation. Or, more generally, the pre-anchoring phase (before the first “anchor” offer is made), during which important things happen that will influence, to a great extent, the outcome of the negotiation.

Concrete tactics and skills have been provided to the participants to determine

  • “readiness to negotiate”,
  • shape process expectations,
  • ask probing questions,
  • control the amount of time and the tone of your speaking etc.

For those long and complex negotiations I’ve been taking part to, the pre-anchoring phase is definitely longer than 5 min. But I fully acknowledge that this pre-anchoring phase has a disproportionate impact on the rest of the negotiation. It should therefore attract a substantial part of our preparation and concentration.

We did 3 consecutive simulation exercises with 3 different persons, which was certainly helpful to fix the principles in our minds and learn by doing.

Cognitive biases

As Francesca Gino was unfortunately absent, Julia Minson introduced us to the subject of cognitive biases and the way to overcome them in negotiation.

I am quite a rational person, so -unfortunately for the sake of this course- my results of the upfront test didn’t identify substantial biases. Maybe, my personal bias was an excessive will to give what I perceived as the most adequate answer?

Still, understanding which biases occur and how they impact us is fundamental, both for knowing ourselves and understanding irrational behavior in our negotiation counterparts.

Some examples of these biases:

  • the framing effect,
  • sunk cost bias,
  • decoy/asymmetric dominance effect,
  • self-serving perception of fairness, etc.

A realistic simulation exercise of a classic building conflict around a rejected claim, was helpful to stir up the biases within these experienced negotiators !?! Food for reflection afterwards, I hope.

Emotional portfolio

“Diversifying the negotiator’s emotional portfolio” was the subject of the second day’s morning part, presented by Michael Wheeler (replacing Kim Leary).

Some of the topics:

  • The impact of anger and anxiety;
  • Emotional Intelligence;
  • Recognizing facial expressions;
  • Ability to recognize deception.

Reference was also made to various authors on the subject, including Chris Voss the writer of the bestseller “never split the difference”.

Project Negotiation, practical tips for negotiating payment terms

Multi-party negotiations

Finally, professor Larry Susskind shared with the participants his vast experience and research which is the product of actual practice (rather than experimental research). He gave passionate explanations on

  • multi-party negotiations,
  • winning and blocking coalitions,
  • devising seminars,
  • consensus building and
  • the helpful role of facilitators/mediators.

A very realistic simulation of a potential harbor investment project with all involved stakeholders (regulator, ecologists, unions, other harbors etc.) enabled the participants to exercise consensus building, avoid blocking coalitions and look for a mutually beneficial solution that maximizes the value creation.

Networking 

Apart from these sessions, there were also networking opportunities and breakfast & dinner events with the participants, the above-mentioned thought leaders and the negotiations coaches.

Contract/Negotiation training

Value of this negotiation masterclass

Target audience

For the investment that taking part in this negotiation masterclass represents (about 5 kUSD + hotel and travel expenses), it is clear that participation is an exceptional event that can only be justified for certain profiles of negotiators:

  • very experienced negotiators that want to further develop their self-consciousness and continue improving,
  • negotiation team leaders,
  • people training others (professors, consultants etc.).

The whole marketing of the course is around this. But one absolutely needs to be aware that this course is not a shortcut to reach negotiation maturity rapidly! You would not be able to draw enough basic learning from this negotiation masterclass without substantial prior experience and/or training.

Other participants

The advantage of the high “entry ticket” and “masterclass status” is that you get a more homogeneous group of participants. Homogeneous in terms of negotiation experience, while the participants were from all over the world, which was a big plus.

The quality of the other participants is particularly important in view of the large number of negotiation exercises, one-to-one or in small groups. It was important that the participants picked up the substance of the theoretical courses instantly. And also that they were able to apply this right away. Otherwise, the feedback from the other participants at the end of the exercise would not be of a lot of value.

Lack of personalized feedback

I personally regret that the organizer didn’t observe more during the exercises and provided personalized feedback; but the size of the groups (60 participants) and the time available (2.5 days) didn’t allow for that. As you can imagine, some of the participants could set aside any fresh learning as soon as an exercise started with their competitive nature kicking-in, leaving their counterparts hardly any time to talk. Not helpful for learning on finding win-win solutions and very much contrary to the substance of this negotiation masterclass.

Don’t hesitate to contact me if you would like to check out, with a completely independent person, whether this training is the right one for you. In case you fit into the descriptions I mentioned above, I can certainly recommend it to you.

Click here for other articles on negotiation from our blog.

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”. 

Want to get great at negotiation? Get a coach.

This time, I am going to be a bit lazy and just cite out of Atul Gawande’s TED talk. But how could I say it in a better way? His speech is about coaching in general and not specifically about negotiation. But still entirely relevant to see how coaching can be useful for your negotiation skills. I made very few adaptations to the context of negotiation coaching which you can see in between square brackets [ ] in my summary below.

How to learn and improve?

“How do professionals get better at what they do? How do they get great? There are two views about this.”

“One is the traditional pedagogical view. That is that you go to school, you study, you practice, you learn, you graduate, and then you go out into the world and you make your way on your own. A professional is someone who is capable of managing their own improvement. That is the approach that virtually all professionals have learned by. That’s how doctors learn, that’s how lawyers do, scientists … musicians. And the thing is, it works.”

“Now, the contrasting view comes out of sports. And they say “You are never done, everybody needs a coach.” Everyone. The greatest in the world needs a coach.”

Why should you get negotiation coaching?

“So I tried to think about this as a [contract negotiator]. Pay someone to come into [the negotiation] room, observe me and critique me. That seems absurd. Expertise means not needing to be coached.”

“Turns out there are numerous problems in making it on your own. You don’t recognize the issues that are standing in your way or, if you do, you don’t necessarily know how to fix them. And the result is that somewhere along the way, you stop improving. “

How does negotiation coaching work?

“[A coaching session] was a whole other level of awareness. And I had to think, you know, there was something fundamentally profound about this. He was describing what great coaches do, and what they do is they are your external eyes and ears, providing a more accurate picture of your reality. They’re recognizing the fundamentals. They’re breaking your actions down and then helping you build them back up again. After two months of coaching, I felt myself getting better again.”

“And we knew that just handing out a checklist wasn’t going to change very much, and even just teaching it in the classroom wasn’t necessarily going to be enough to get people to make the changes that you needed to bring it alive. And I thought on my experience and said, “What if we tried coaching?””

“What she worked on most, she said, was inculcating in them habits of thinking and of learning so that they could make their way in the world without her when they were done.”

Conclusions:

  • Negotiation Coaching is for everyone: starters to experts.
  • It provides external eyes and ears, a more accurate picture of your reality to help you continue improving.
  • Providing habits of thinking and of learning that remain after the coaching.

Click here for other publications on Negotiation Coaching on this website. 

5 Common Negotiation Mistakes and How You Can Avoid Them

This article (by Katie Shonk) was selected on the internet for its interest to the readers of this blog:

Sometimes our negotiation mistakes are glaring: We accidentally reveal our bottom line, criticize the other party when patience was warranted, or get our numbers mixed up. More often, though, our negotiation mistakes are invisible: We get a perfectly good deal, but are unaware that we could have gotten a better one if we hadn’t succumbed to common errors and traps. By studying these 5 common negotiation mistakes and how you can avoid them, you can set yourself up for even better outcomes:

1. We Fail to Thoroughly Prepare to Negotiate.

The top negotiation mistake business negotiators make is to rush into negotiation without thoroughly preparing. You may think you’ve prepared thoroughly if you have strong opinions about what you want to get out of the deal, but that’s far from sufficient. Wise negotiators understand the importance of taking ample time to analyze several aspects of negotiation carefully. Start by thinking about your best alternative to a negotiated agreement, or BATNA, a term coined by Roger Fisher, William Ury, and Bruce Patton in their book Getting to Yes: Negotiating Agreement Without Giving In. Your BATNA is the best course of action available to you if you can’t reach agreement in your negotiation. It is also important to calculate your reservation value, or your walkaway point, and to try to estimate the other party’s BATNA. All of these calculations will help you make more rational decisions.

2. We Focus On Competing Rather than Collaborating.

Fearful of being taken advantage of, novice negotiators (and even some experienced ones) make ambitious, even unreasonable demands and resort to threats and other coercive tactics to try to get their way. For a more effective negotiation, focus on creating and claiming value. When you take time to build rapport and trust, both sides will feel more comfortable sharing their underlying interests in the negotiation. This knowledge will allow you to identify potential tradeoffs: if there’s an issue you don’t feel strongly about, you might be willing to concede in exchange for a concession on an issue you value greatly. Smart negotiators recognize they’ll get more by looking for win-win solutions.

3. We Fall Back on Cognitive Shortcuts.

In negotiation, we all rely on cognitive shortcuts, particularly when we’re unprepared and short on time, psychologists have found. We tend to be overconfident of our odds of getting our way, for instance. And we pay more attention to vivid information (such as salary in a job negotiation) than to less flashy information (such as the length of our commute) that might have a bigger impact on our satisfaction. Deepak Malhotra and Max H. Bazerman’s book Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond describes these common negotiation mistakes. We can improve our negotiation skills and reduce the pernicious effects of these biases by preparing thoroughly and taking ample time to negotiate.

4. We Let Our Emotions Get the Best of Us.

In addition to cognitive biases, negotiators are susceptible to emotional biases that can prevent them from doing their best. Of course, our emotions and those of our counterparts can provide us with valuable information about how the negotiation is going. But strong emotions can also keep us from making rational decisions—and lead to negotiation mistakes. Negotiators often don’t understand how emotions affect negotiations. Anger can lead us to make overly risky choices, for example. And sadness can lead us to overpay in negotiation, Harvard Kennedy School professor Jennifer Lerner has found. When negotiations get heated, try taking a break to let everyone cool down. When you regroup, talk about what happened, giving everyone time to air their concerns.

5. We Take Ethical Shortcuts.

We tend to assume that only truly ruthless people behave unethically in negotiation. In fact, research by Harvard Business School professor Francesca Gino and others shows that most people are willing to cheat now and then in negotiation and other realms when they have a financial incentive to do so and believe they won’t be caught. We find ways to justify such behavior, whether by telling ourselves that the other party won’t feel the loss or by denying that we’ve done anything wrong. It’s important for all of us to stay attuned to ethical pitfalls in negotiation and avoid letting ourselves off the hook for even seemingly minor infractions that go against our moral code.

Other articles on negotiation can be found on this website by clicking here.

The original article can be found at the following location: https://www.pon.harvard.edu/daily/negotiation-skills-daily/5-common-negotiation-mistakes-and-how-you-can-avoid-them/?utm_source=WhatCountsEmail&utm_medium=daily&utm_date=2018-09-17-13-30-00&mqsc=E3989591

Contract Management & Music, what is the perfect “negotiation chill out music”?

When you are stuck in those long negotiations. Have battled too much for your points. Can’t listen anymore to the arguments of the other side. Can’t even listen to your own arguments anymore. Then you need to chill out. Take a break or leave a subject (where your intervention is less required) to your fellow negotiators and chill out. But how? Listen 5 minutes to “negotiation chill out music”. Something thematic, something relaxing.

What’s your choice? 

Listen to the music…

My recommendation goes to “Riders on the storm” from The Doors. You can click here to listen on YouTube while you read on:

… and dream away with the lyrics

I think most people will agree that the sound is relaxing. But what about the lyrics? Is it applicable to that feeling we can get as negotiators?

Riders on the storm
Riders on the storm
Into this house we’re born
Into this world we’re thrown
Like a dog without a bone
An actor out on loan
Riders on the storm

Contract negotiations are like riding on a storm. The “house you’re born” is the company you are working for and representing. The “dog without a bone” is symbolizing the hunger of the negotiator to achieve an acceptable agreement.

Negotiating contracts sometimes feels like being an actor on a play that has to be played. You know your arguments and can foresee the arguments that the other side will bring on the table. Some part of the theatre just has to be played. Otherwise you can’t say to someone of your back-office that you’ve sincerely tried to gain what he or she made a big deal about. Something that is simply un-negotiable. You know it and, when your counterpart comes with their arguments, it’s almost a relief.

Dependence and love

The world on you depends
Our life will never end
Gotta love your man

Your company depends on the contract you are negotiating. Jobs are at stake. This is important for the future. Order intake has to be achieved. A big pressure on your shoulders.

Our (professional) life are these negotiations and they will / seem to never end in spite of your eagerness to close the deal.

If you want to be in a win-win spirit, you have to love the other side of the negotiation (your client, your subcontractor, whomever you are negotiating with). Otherwise you cannot propose that balanced deal and would feel bad about any concession you make. But it is not easy when that party is hammering on your head with their arguments, is blocking.

Equally so, your back-office should love you as their negotiator. If there is no such trust, no such respect for the efforts you put into this, no such confidence that you will bring back home a good deal, you can better stop it and let someone else give it a try.

Take a long holiday
Let your children play

When you are out there, remember that better, more relaxing, times will come. See it as a mission that you have to accomplish. But thereafter you will take that holidays and spend some time with the kids.

Be careful…

There’s a killer on the road

If you give this man a ride
Sweet family will die
Killer on the road

Be careful for aggressive tactics of the other side. If you give in on something unacceptable for your company (your “sweet family”), the consequences can be disastrous. Keep your focus on that balanced deal. Don’t be intimidated. Don’t let the time play against you. Keep patient and insist on what you need and what you can or should get.

… and ride on

Riders on the storm


Riders on the storm

It’s OK. This “negotiation chill out music” has calmed you down. You can continue riding the storm. Hopefully grab a good wave. You can go on and reach a good deal !

 

This post is part of our series illustrating important contract management subjects by music to make it more fun. You can click here to see other posts of that series.

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 “advice@afitac.com”. 

Win-win negotiations, lessons from watching kids during holidays

During the holidays, I had the privilege to witness my kids in a real-life negotiation involving many of the behaviours you can encounter during professional life. Interesting food for thought on win-win negotiations!

The starting point

They were hungry after the hiking trip of the day and quickly finished their kids’ menu. So, we gladly allowed my daughter and son to share together a third one. So far so good, because splitting a pizza in two is easy. Then comes the dessert where they realize they now can choose 3 for the 2 of them (within those kids’ menus). So, who gets an extra dessert? They can both defend themselves well and needed to figure it out without adult intervention. Obviously, the process starts with each simply claiming her/his second dessert.

Win-win negotiations deal reached

I was impressed because, quite quickly, they reached a deal:

  • My son gets a second ice-cream in exchange for committing to buy, with his pocket money, the next volume of the series of books they both like.
  • My daughter accepts to only get one dessert but, in turn, will also benefit from reading that volume.

Seems a good deal with mutual benefits.

When it starts to go wrong!

My son comes whispering in my ear why he believes he did a smart deal. He would have bought that volume anyway. And, his sister will naturally buy the volume thereafter that he will be able to read also. So, he didn’t really give much. The very fact of whispering in my ear made it all go wrong. That feeling of a hidden, unspoken part of a deal is very discomforting for the other party.

So often, during professional negotiations, one sees this happen after reaching a partial or complete deal:
– seemingly disproportionate satisfaction of the other party
– smiles and talks at the other side of the table, or
– merely some body language.
All the above can give a twist to what was a win-win negotiation at the start.

Then all hell broke loose!

My daughter started to doubt. My son then explained what he told me. She didn’t accept the part that she would probably buy, as she always does, another volume of that series of books they both like to read: “Ah no; then I would have given that extra dessert without a real benefit. This time, I‘ll not buy the next volume after you.” No more win-win mood.

My son, seeing that the assumptions for his side of the deal didn’t stand anymore, tried to withdraw from it. He offered the extra dessert to me to balance the situation.

My daughter didn’t agree that he could withdraw from buying that book.

And it went on like this for quite a while. Much longer than reaching the initial deal and without creation of value. Both re-interpreted the original deal: no clear agreement; only verbal agreement with no proof; no right to withdraw/terminate the agreement, etc. Very similar to real life contract disputes.

At the end, even with the good news of an extra dessert to be shared/allocated, they both felt unhappy and had gained nothing out of fear of the other side benefiting more. No more value created by either part of the negotiation. Each one looking to avoid that the other side would benefit up to the point of preferring a lose-lose situation (at the risk of being punished for quarrelling at the restaurant table).

Conclusion

When making a win-win negotiations deal:

  1. Avoid giving the impression of a hidden part. You must be able to state, out loud, the whole deal without any party feeling affected or starting to doubt.
  2. Win-win negotiations require genuine generosity with acceptance of good benefits for the other party. There should be no need to measure the distribution of benefits in detail.
  3. Make a reasonable deal quickly and then move on. No hesitation as long as there is good value in your part of the deal.

Think about your own negotiation practice. Many negotiators end up in situations like the one described above. Reflection on the dynamics of a negotiation is essential to make you better at it. Get coaching if it can make you a better professional. Win-win negotiations are essential if you want to be successful in the long run.

You can find other articles about negotiation on our blog afitac.com or by clicking on the link here below:

https://afitac.com/?s=negotiation

Package deals, when and how to propose them in contract negotiations? 7 questions answered.

On several negotiations, when I brought up the idea of doing a package deal while brainstorming with my negotiation team, I mostly got resistance: too early; the other party will take and not give; showing too much into our cards; etc. We are talking  here about big infrastructure and power plant deals with negotiations that could last weeks or months. However, the principles analysed below are certainly transposable to most types of negotiations, except maybe to pure price negotiations. Let’s dig a bit deeper into this subject.

1) Why use a package deal?

A package deal is a powerful approach to resolve, in one go, a substantial number of issues during a contract negotiation. It can help unblock situations. Both parties can get what is important for them while conceding on what they can live without.

2) Better to be the first mover or wait for the other party to act?

Even though many people are afraid to propose a package deal, it is an advantage to be the first mover. The fear to take the initiative is based on an assumption that the other party will see the points that you are willing to concede and will disregard the concessions that are expected from their side in return.

3) Advantages and risks of being the first mover?

The first mover advantage comes from the fact that you can establish the reference framework for (that part of) the deal. Your package proposal, if credible, will inevitably be the starting point of further discussions. The inherent risk is that you propose something unrealistically favourable for your side. Then, this proposal cannot become the reference. There will be no value in your proposal and you will only have created distrust.

4) What are the criteria to establish the package deal?

The party receiving the proposal should be able to acknowledge it as a step in their direction, at least on some important points. It is still necessary to keep a bit of negotiation margin in your package deal. Not too much, just enough to let the other party adjust your proposal. Otherwise it will be seen as a too one-sided proposal where the other party feels they have accepted something exclusively coming from your side. This regardless of whether it was a balanced proposal from the start, or not. In their mind, you will be owing them one, which is a situation you have to avoid.

5) What is the right timing to propose a package deal?

Many people will have the tendency to think it is still too early to propose a package deal, no matter how much time you have already spent on the negotiation. This is linked to one’s personality. If you are of that type, you need to force yourself to start thinking about a package deal early in the process. Of course, you have to first conclude the round of explorations, where each party explains its arguments, where observation is key and concessions are not yet required. Delaying the package deal to the very end of the negotiations is a pity as explained below.

6) What is the impact on the dynamics of the negotiation?

In complex negotiations, it can be necessary to have various, consecutive phases. These will include some package deals and some direct exchanges on a point-by-point basis. The advantage of an early package deal is that it can create a positive dynamic in the negotiations. Once the negotiators from both sides have jointly resolved a substantial amount of subjects, you can feel the relief in the negotiation room. Suddenly, reaching an overall deal does not seem so far away any more. That’s why it can be a brilliant move to propose an early package of easy subjects.

7) How to present a package deal?

This time I have to make some advocacy for a bit of disorder. It is not a good idea to make the deal explicit by grouping the points showing the concessions for either side. Be smart, include as the first point a clear concession to the other party but then randomly present the other concessions. Let the other party do the counting and do not make it too easy. My recommendation is not to label the subjects too much as your points or theirs. You should present them as overall solutions for the good of the project. A win-win outcome for all at the table. On the other hand, you should do your best efforts to clearly spell-out the resolutions leaving no ambiguity. And always state that the deal is valid for the package as a whole but remain flexible to adjust a bit the package. If, in the end, you cannot agree on the package, you are back to square one without agreements on any of the points included in the package.

Conclusion:

Package deals are a “must have” in the toolbox of an efficient negotiator. Here above, we have analysed some important aspects around initiative, timing and presentation of such deals.

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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 “advice@afitac.com”. 

Contract negotiation, 5 things you should not do!

In previous posts, we already gave some tips on what to do in the evening after a day of negotiation and how to give negotiations a positive twist by going for win-win solutions. In the reality, as negotiators, we also need to be aware of the things we should not do.

Here we go with 5 “don’ts”:

  1. Avoid to start your reply to a passionate argumentation of your counterpart with a negative word or rejection sentence. Especially the word “no”. It is very tempting to counter an argument as quickly and powerfully as you can. But, when the other party explains or requests something, they have some hope that you will agree, at least partly. So, control yourself and don’t go for simple rejection or opposition. Try to find some common ground in their argumentation.
  2. Never get really angry because doing this will get you nowhere! There is no worse combination than the right arguments and anger; nothing worse than being right and angry at the same time. People will stop listening to you and concentrate on observing your angriness. In another post, I’ll give a more detailed REX on how I got “in the angriness trap” and what were the consequences. If you have the arguments to make your case, you also have the luxury to state them calmly. This will allow you to insist, patiently, up to inclusion, in some form, in the final agreement.
  3. Don’t admit that you are under bigger time pressure than your counterpart. Obviously, you will be pushed to accept ever more issues getting closer to that often self-imposed deadline. To get a good deal for you, you need to have the time on your side.
  4. Don’t mention, before each and every concession you need to make, that you first have to go back to your management. People don’t like to negotiate with counterparts that have no power at all. Therefore, make sure you always have some negotiation margin in your pocket and anticipate what your counterpart is going to ask. You don’t necessarily have to give in on the same day. Overnight, you can get those approvals that you need. But don’t admit that you parked the issue just because you have no authority. Only for the really big concessions, you can insist that they are to be approved by your board. This will show the seriousness of a specific concession and allow you to get an equal step-in-your-direction from your counterpart.
  5. Don’t try to benefit from obvious mistakes in the contract documents that are strictly opposite to what your counterpart has been defending. It is tempting to overlook something in the wording that is unfavorable to the other party. But, consider that – sooner or later – they will become aware of this mistake. It will be obvious that you had seen it. You can lose your credibility and their confidence over this.

The above points of things – not to do during negotiation – are pretty straightforward. Keep them in mind during your next negotiation session. You have to stay away from these to remain a credible and successful negotiator.

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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 “advice@afitac.com”. 

EPC Contract, win-win negotiation, LNTP on private investment project

Context:

In a previous case study, we analysed the positive impact on the atmosphere brought by negotiating a win-win subject like “completing the construction phase early and sharing the value generated by this”.

Many times, private investment projects take more time than expected to reach financial closure. Allow me please to state the obvious:

“The easiest way to finish early is to start early.”

In practice, starting early requires a Limited Notice to Proceed (LNTP) agreement. I would propose the following definition :

A limited notice to proceed (or LNTP) is a notice by the Employer instructing the Contractor to proceed with a part of the works. This situation occurs when all the conditions to fully proceed with the project have not yet been fulfilled. Typical obstacles to a full notice to proceed (or NTP) are the need to reach financial closure, lacking some permits or ongoing contract negotiations. Usually, the Contractor and the Employer share the risk for the spending during the LNTP period in case the full NTP is never achieved.

Here below, you will find a summary of the challenges and outcomes observed on several cases I actively participated to. Rather than lengthy descriptions, for once, I felt it was better to write some bullet points:

The advantages of an LNTP for the Project Owner are:

  • More work done before NTP (Notice to Proceed) can lead to a shorter time required between NTP and taking-over, which means less IDC (Interest During Construction).
  • If some extra project float is generated by the early start, the project risk is reduced.
  • It is a good opportunity to see the Contractor in action before full NTP. If this turns out to be a disaster, it is not too late to take the necessary actions (to put some pressure on the Contractor to implement corrective actions or, in the worst case, go back to the second evaluated bidder).

Contractor can benefit from the following advantages:

  • Reduction of the painfully long waiting time between contract signature and NTP will avoid increased cost from pre-mobilised resources that are just standing-by. The costs of pre-NTP idle time can rarely or never be recovered from the Owner.
  • Usually, Contractors have to overcome some inertia to start and reach good working speed. Nothing better than an LNTP period to do so and not accumulate delay in the first months after NTP.
  • Additional float generated during the LNTP period will reduce the risk of being late and of paying corresponding delay liquidated damages.

The challenges to conclude an LNTP agreement include:

  • Agreement on payment during the LNTP period: The Owner has considerable difficulties to pay out-of-pocket amounts because the development expenses often exceed initial expectations. Only at financial closure fresh cash will be available. On the other hand, one cannot expect the Contractor to finance the project during the LNTP stage. A compromise should be found.
  • Agreement on a potential reduction of the post-NTP time for completion: This reduction can rarely be on a-day-for-a-day basis because of the lack of full mobilisation. I’ve seen agreements going from no reduction and intermediate forms where 40-50% of the effective LNTP period was deducted from the time for completion.
  • Agreement on the scope of the works that should be performed during the LNTP. This goes together with the two previous bullet points; the wise thing to do is to select as LNTP works only those activities that have the most favourable impact on risk reduction and time for completion.
  • Agreement on the deliverables that can justify interim payments during LNTP or at termination. Because the LNTP period is usually relatively short (3 to 6 months), it can be extremely difficult to identify deliverables that can actually be completed and/or handed over to the Owner. Design documents are often the only realistic deliverables. Regularly, the only payment during the LNTP is a preliminary advance payment against a bank guarantee. This preliminary advance payment is then absorbed into the full advance payment at NTP by deduction.
  • Termination of LNTP, without direct continuity into the EPC Contract, is definitely the most difficult subject. If the Owner/project developer is a special purpose vehicle, not reaching financial closure almost certainly means liquidation with no recourse available to the Contractor. The parties need to reflect jointly and realistically on this regretful scenario and on the consequences of never reaching financial closure/full NTP.

Conclusion:

While negotiating an LNTP agreement represents additional work for the Owner’s and Contractor’s negotiation teams, they are worth the effort. The win-win outcomes brought by starting early include risk reduction, smoother project start-up and cost savings. Negotiating this can be a catalyst for a positive negotiation process and can avoid impatience and conflict between Owner and Contract before full NTP.

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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 “advice@afitac.com”.