Bargaining chips

The valuation of variations, extensions of time and a project’s final account should all be matters of fact and entitlement, as in the amount of time or money calculated exactly in accordance with the contract change control mechanisms. However, it is commonplace in construction and infrastructure to have to negotiate agreements, particularly where the form of contract contains variation and extension of time mechanisms requiring one party or the other to make a fair and reasonable assessment of entitlement. In these circumstances, it is helpful to develop a clear negotiating strategy that will enable the parties to reach an amicable and equitable agreement.

Establishing positions

The level of disagreement between the parties will dictate the strategy required to reach an amicable settlement. The following five positions describe the level of disagreement and the appropriate intervention strategies for resolving them. Note that an amicable agreement will not be reached until the parties move to position 1.

1. Proactive problem-solving
Both parties agree what the problem is and want to solve it within agreed timescales without blame. This requires a general openness about people and information; the parties establish a mutual problem-solving team that focuses on building consensus. No intervention strategy is required.

2. Disagreement
Self-protection is uppermost in the parties’ minds, although there is some desire to help. Effort tends to be concentrated on inadequacies in the other party, with growing emotional pressure. Parties will withhold critical information. Intervention strategies will focus on trust and team-building, to move up to proactive problem-solving.

3. Contest
The parties have developed false perceptions and assumptions and dialogue is uneasy. In this case, the intervention strategy is to create a structured approach with firm ground rules, to help move towards proactive problem-solving.

4. Fight
The parties have developed a desire to withdraw or to hurt and humiliate each other. Winning on principle becomes more important than proactive problem-solving. The intervention strategy will be for each negotiating team to exert strong leadership and overcome aggressive factions in their number, then to move up through the phases above.

5. War
The parties seek to destroy each other using any means. Intervention is needed to enforce separation of the parties and expel disruptive team members.

Preparation

It is important to spend time ahead of negotiation to prepare properly. A few issues to consider are as follows:

• examine the causes, possible interventions and range of outcomes of the dispute
• try to establish the other parties’ interests and goals in order of priority
• think about who should attend the preliminary meeting
• consider the venue, equipment and seating plan for the meeting.

You should ask yourself these questions:

• What facts are missing, and what facts will be required for the negotiation? b What documents need to be prepared for whom, by when? Do they need to be exchanged in advance?
• What are the time limits for the negotiation, and what are the implications of breaching them?
• What are the current target settlement and worst case reservation numbers and other variables? What are the past patterns of interaction between parties, and what might go wrong during the sessions?
• What are the preferred negotiating patterns for the other party?
• What authority to settle do the parties have, and will they need to consult with third parties during the negotiation?
• What doubts will parties air to support their views and destabilise your position? b What are the possible and probable outcomes for this negotiation?

Opening the negotiation

Negotiations inevitably start with opening offers from the parties and can be typified as detailed in Table 1.
It is important to understand how your opening offer will be viewed and the effect it will have on the opening positions of the parties. There is then the question of how to make the opening offer, which can be done in four different ways.

1. High or low, soft: this involves the offer of a high price, but with a hint of willingness to negotiate; or the offer of a low price, but the indication of a willingness to increase. These offers will be just inside the insult zone, but will elicit questions for clarification from the other side, on which negotiations can build.

2. Reasonable firm: this will be received as an opening offer if credibility has previously been established. It can also be used to close down an element of the overall deal. It is often more acceptable from more senior negotiators, and is a good way to open if you have sound, objective criteria from which to work.

3. No offer – start with problem-solving: this is a good technique for increasing the range of variables available to the parties.

4. No offer – start with silence: sometimes it’s just good to hear what the other party has to say.

Concluding negotiations

As the negotiation progresses, it is helpful to record agreements made progressively, to narrow down the areas of disagreement. This will help both parties see the advances being made, and will form the heads of terms to help draft a settlement agreement if required. It is worth remembering that we are likely to have to deal with people with whom we disagree on a regular basis, so it is worth developing good negotiating skills and building collaborative solutions to preserve otherwise valuable relationships.

Finally, reflect on RICS’ global professional and ethical standards (rics.org/ethicsprofessionalstandards):

• act with integrity
• always provide
• high standard of service
• act in a way that promotes trust in the profession
• treat others with respect
• take responsibility.

Chris Green is Group Commercial Director at J. Murphy & Sons Limited.  Read full article at RICS Construction Journal February-March 2018