As a dispute resolution method, the purpose of negotiation is to avoid arbitration and litigation altogether. Arbitration and litigation can both be heavy and long-lasting considering the value of the dispute and other consequences such as the end of cooperation of the parties.
Negotiation is almost always worth it from perspective of all parties. Only when the parties want a final decision instead of a negotiated one, it is beneficial to seek arbitration or litigation.
Negotiation differs from mediation because there is no third, neutral party to guide the discussion. The parties are entirely dependent on their own communication skills and assessment of progress.
1. Advantages and disadvantages
The great advantage of negotiation is its affordability because there is no third-party to add their compensation to the costs of the procedure (mediator, arbitrator) or to decide on the duration or costs of the procedure (judge). Another advantage is the negotiating partners have an opportunity to influence everything whether it is organizing negotiations or the result. When the parties can influence the end result, it may never be completely unpredictable.
The disadvantage of negotiating is a prolonged procedure in which the parties are stuck and there is no results for the conflict, which wastes a lot of time. Another disadvantage is the result, which is yet another contract. Especially in breach of contract situations, it can be acknowledged that the settlement is merely a new contract for which there is no guarantee of compliance – when the previous agreement was breached.
Good preparation to negotiate will shorten the duration of the dispute and decreases time spent on negotiating. It also gives assertiveness, helps to see the big picture and keeps your own goals and opportunities in mind during the negotiations.
Identify the main facts of the dispute and know your situation
Be aware of what the disagreement is about and how did you end up in the current position. Be especially aware of the rules and practices of your organization, which may affect on who may negotiate and what is in the scope of negotiation. Do not spend time on what is not negotiable. Identify what is the best outcome for your organization and where you can be flexible or make a compromise.
One of the most important elements of negotiation is to understand your BATNA, which means best alternative to a negotiated agreement. One of the best cards in negotiation is to know when it is best to end negotiation as unprofitable and find a better solution at a cheaper price and more certainly somewhere else. Long-term negotiation is waste of time and money if there will be no consensus or the other party’s strategy is to avoid the resolution of a dispute altogether. BATNA can be a very creative way of solving the problem or simply, a very strong case in court. During the negotiations, BATNA helps to focus on your goals and to analyze the progress of negotiations as your knowledge of the other party’s interests increases.
Set a timetable
Determining a timetable is important if the dispute should be resolved quickly. It is always advisable to define a deadline for negotiations – whether it is the time limit for starting the negotiations or a date by which an agreement must be reached or another dispute resolution method will be selected.
Analysis of negotiating partners
Additionally, I would use a few moments to determine what kind of people will attend the negotiation. People’s negotiating behavior can be roughly divided into four different styles: the first is a laid-back negotiator who wants to maintain human and business relationships, but is also not aggressively seeking their own interests (a teddy bear). The second type is a completely opposite: a negotiator who aggressively seeks out their own interests and ignoring maintenance of human and business relations (a shark). The third type of a negotiator is passive. They do not to raise their own interest nor contributes effectively to maintenance of relationships (ostrich, head in sand). The fourth type is the opposite of the third type: a negotiator who has good interpersonal skills to promote their own interests by also promoting the interests of their negotiating partner (some call this type a cat, because of good adaptation skills).
Understanding negotiator’s type helps to better understand and change your own negotiating strategy: when negotiating with a person similar to a teddy bear it may be a good idea to aggressively ask what the other party really wants in the deal, whereas if a negotiating partner resembles an egotistical shark, it might be wise to choose another dispute resolution method.
Remember always to make sure the negotiating partner has enough power to decide to commit to a new settlement agreement.
According to research, polite and relationship enchanting discussion and getting to know your negotiation partners greatly improves the outcome of negotiations.
The purpose of the discussion is to highlight how the parties see the situation at the start of the negotiations: where are we and where to go. The most important skills during discussion are active listening, and asking and clarifying questions. Do not assume that you know everything or hear everything you need initially to negotiate, however avoid talking too much at the expense of not hearing or understanding the other party. Do not jump directly to offers if the other party has not had time to make their own point of view clear.
Please make specific questions about the points that seem to be at the top priority of your negotiating partner. It may be wise to take notes at the beginning of negotiation to make sure you remember all your remarks or to ask for clarifications later on. Determining the other party’s priorities at this stage can be very important if the disagreement is difficult or complicated and the solution will require a number of practical measures, such as in construction disputes.
The most important step of negotiation is to find out what kind of outcome would benefit both sides.
The purpose of the negotiations is to reach to a mutually acceptable, good solution that avoids arbitration or litigation. In other words, both sides will have to benefit from the outcome of the negotiation, even as little as saving the legal costs.
Providing effective alternatives is beneficial because the parties are easily stranded in one part of the negotiation: the price. Understanding the issues that one party values as priorities, but where you can easily come across (easy compromises), lets you offer something that will help you negotiate and avoid being stuck.
An open mind and a good understanding of the interests of the other party are important to reach an agreement. An agreement can not even be established if the views and interests of all parties are not dealt with or further negotiated.
e. Enforcement of contract
The durability of the agreement will be better if special dates, meetings or dispute resolution clauses have been negotiated. Dates promote the progress of the project and its management. Future appointments, however, help the parties to stick to their own goals and to keep the contractual partners practically up to date with the progress.
If the previous agreement did not include a dispute settlement clause, it is sensible to add one to the new agreement. A dispute resolution clause refers to a paragraph that determines how a dispute should be solved (usually in mediation or arbitration – if they are not included, then usually in negotiation or court) and what law is applied to the dispute arising from the new agreement. Sometimes dispute resolution clauses are called midnight clauses – after the long negotiations, once parties have reached a successful agreement, they will easily forget to negotiate any possible dispute resolution methods. In addition, if the parties are from different countries, it is very important to agree on the law applicable to the agreement.
3. If negotiation fails
Negotiation fails if the parties are stuck or if the other party can not afford nor has the resources to agree. Failure of negotiations is possible without it being caused by any of the partie. In that case, it may be reasonable to move on to arbitration or litigation to save time and money.
It is advisable to seek mediation if it is still possible to find a consensus and continuing the business relationship is desirable or a must.
If there is a doubt that the negotiating partner would not be able to pay the costs of the dispute, even if it is likely they will lose in arbitration or in court, it is advisable to consider the resumption of negotiations or the mediation and prepare for a greater compromise.