Contract Negotiations 2

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Negotiations
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When do we negotiate

• Negotiations during contract drafting or as a
  form of dispute resolution in the oil and gas
  industry
• A dispute is a situation in which two or more
  parties perceive each others rights, interests,
  duties and obligations on a particular subject
  matter differently

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Important to Note

• Resource owners and companies share an interest
  in exploiting the resource but have different
  motives and may see this from a different vantage
  point from each other
• It is inevitable that we will hold divergent
  opinions as to the true state of things
• Consequently, they will need to argue their point
  through or succumb to the opinion of the other or
  in fact meet at some point along the line, the
  middle

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Definition

• The process of stating views, listening to the
  others opposing views and thereafter reaching a
  consensus on the issues or  issue in dispute is
  negotiation
• Negotiation has been defined as a basic means of
  getting what you want from others

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Categories of negotiated agreements

• static agreements A static agreement is a
  one-time deal, for example, if you are interested
  in buying my house
• dynamic agreements These involve extended
  performance obligations, collaboration, or
  partnering after the agreement is successfully
  negotiated

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Negotiation outcome

• Negotiations can be Successful or Unsuccessful
• During every negotiation, the evolving terms and
  conditions of a potential agreement are
  constantly measured against the alternative of no
  agreement
• The concept is often stated as the best
  alternative to a negotiated agreement, or
  BATNA.
• This refers to the line at which it becomes more
  attractive to walk away from the transaction than
  to accept the terms being offered or to continue
  trying to resolve the disputes that have emerged

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The lawyer as negotiator

• Can a lawyer in a business negotiation think only
  about the legal issues that can arise in the
  transaction?
• What value does the lawyer add to a business
  clients negotiating team?
• What are a lawyers weaknesses as a business
  negotiator? What can a lawyer do to overcome
  these weaknesses?
• How does the culture of legal practice in a
  particular country affect the functions of the
  lawyer in a business negotiation

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Role of the lawyer-negotiator

• work with the clients technical experts to
  assist the client to navigate through the maze of
  alternatives to identify the reasonable
  compromises that facilitate the final agreement
• To understand how the legal issues arising from
  the business transaction can be resolved in ways
  that advance the clients business object
• Bridge differences, solve problems, and assits
  parties in moving toward a common understanding.
• To remain cognizant that not every negotiation
  will have a favorable conclusion.
• Ensure negotiation is headed toward an acceptable
  end from the clients overall perspective.

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Customary styles of negotiating

• soft bargaining techniques
• hard bargaining techniques
• the principled negotiation style

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Soft Bargaining

• Negotiator tries as much as possible to avoid
  conflict
• he places a high value on the relationship
  between the parties and thus makes concessions in
  order to avoid the escalation of the point of
  divergence
• He strives to reach an amicable settlement

This sort of negotiation style can be seen in a
situation where a company is in dispute with its
regulator.
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Hard negotiation style

• Take it or leave it kind of bargaining  
• The negotiator assumes a position and is
  unyielding to any sort of pressure or reasoning
  emanating from the other party. 
• He sees the situation as a contest of wills in
  which the strongest survives. It is either his
  way or the highway
• This method has no concern for future
  relationships and often lacks objective
  reasoning. 
• when this style is used, it has the tendency of
  exhausting the negotiator, results in a waste of
  resources and time, and usually ends with a
  breakdown of relationships.
• The hard negotiator succeeds where his opponent
  is soft. 

The hard negotiating style may be encountered
when in dispute with military/authoritarian
governments. 
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The hard and soft negotiation styles are
encountered in positional negotiations or
competitive negotiations in which each party,
based on its perceived interest in the subject
matter, picks a position from which it
negotiates. 
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The principled negotiation style

• This style is neither hard nor soft and is
  designed to deal with issues on their merits as
  opposed to a haggling process between the parties
  (which usually leaves them exhausted in terms of
  resources, time and emotions). 
• It suggests that mutual gains are looked for and
  highlighted whenever possible and, where
  interests clash, the resolution in such cases
  should be based on an objective and fair
  standard. 
• It is hard on the merits and soft on the parties.
  The overall justification of this style is
  fairness and mutual gains, which is pretty much
  what is understood by consensual dispute
  resolution. 
• In this type of negotiation, neither party is a
  winner or a loser invariably, both parties are
  winners to a large extent.

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Four principles used when practising principled
negotiation

• A negotiator should understand that he is dealing
  with people and there is a tendency for their
  emotions to overtake and overshadow their
  interests thus, the negotiator should set apart
  the people and their personalities from the
  actual problem
• The negotiator should avoid taking positions or
  negotiating on positions rather, he should focus
  on the interests of all parties concerned as
  opposed to their respective positions
• The negotiator should evolve a large range of
  possible solutions geared at mutual satisfaction,
  before he and his opposite number actually pick
  one by which to settle their diffrence
• Resolution should be based on objective and fair
  criteria

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Negotiation Styles Should be reasonably judged on
the basis of three criteria

• it should produce a wise agreement
• it should be efficient and
• it should improve or at least not damage the
  relationship between the parties

A wise agreement is one which meets the
legitimate interests of the parties to the extent
possible, resolves a dispute impartially, is long
lasting in nature and which considers the
interests of all concerned.
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DISADVANTAGES OF COMPETITIVE OR POSITIONAL
NEGOTIATION

• Positional bargaining is a situation where a
  party takes an extreme stance in the hope that
  the other party will make a concession favourably
  to it.
• A  perfect example of positional bargaining
  occurs in the buying and selling of a second-hand
  car from an unreasonable private party.
• When positional negotiation is used, although
  parties are well informed of what the other side
  wants explicitly (or in the worst case scenario
  have an idea), it rarely produces a wise,
  efficient or amicable settlement.
• When negotiators take positions, there is a
  tendency for them to become engrossed in the
  positions and they often stray from their
  interest in the subject matter. The more they
  rationalise and defend their stance the more they
  get sucked into it and the more difficult it is
  to change. 

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DISADVANTAGES OF COMPETITIVE OR POSITIONAL
NEGOTIATION

• Their ego becomes attached to the position and
  the position becomes the argument this way, the
  parties main interests becomes sidelined by a
  war of wills as opposed to the resolution of the
  underlying interests of the parties
• A perfect example is when parties argue as to the
  number of times the Health and Safety Inspector
  visits the offshore platform as opposed to the
  quality of inspections per visit

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Major disadvantage of Competitive Negotiation

• It is inefficient and time-consuming Parties try
  to increase their chances of a favourable
  settlement
• by starting from extreme positions the process
  continues with each party making ridiculous
  concessions calculated at keeping the
  negotiations going
• Each side offers a position that it knows the
  other will counter this invariably leads to a
  long time-consuming process and poses a risk of
  non-agreement
• When positions are taken, the situation becomes
  adversarial and there is a high possibility of
  one party perceiving the other as inconsiderate

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PRINCIPLES OF PRINCIPLED NEGOTIATION
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Separate the people from the problem

• Put yourself in their shoes
• Do not deduce their intentions from your own
  fears
• Do not blame the other side for your problem if
  you want to discuss a problem you think they
  might have caused, identify the problem and then
  ask for their opinion
• Discuss each others perception
• Find opportunities to act inconsistently with
  their perceptions
• Give them a part to play in the outcome let them
  play a part in the process and give credit
  generously for ideas even though emanating from
  you
• Help them save face for example, by letting them
  announce the agreement or rephrasing the
  agreement to suit them but containing the same
  substance

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Important to negotiators in separating people
from problem

• The negotiator needs to understand the emotions
  of all parties including his
• Voice out your personal views on the subject
  matter talk about your emotions to the other
  side and listen to theirs
• Allow the other side to let off the steam allow
  any pent-up anger or frustration to be aired
• The negotiator should never react to emotional
  outbursts
• A negotiator should use symbolic gestures and
  apologise whenever necessary

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Three problems identified in communication during
negotiations

• negotiators may not be talking to each other and
  rather are playing to the gallery
• negotiators may not be paying attention as they
  are thinking of the next step or counter argument
  or listening to their principal
• negotiators may be misunderstanding each other,
  eg when translation is involved

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Solving communication and people issues

• These problems can be solved by active listening,
  acknowledgment of what is said by the other
  party, speaking comprehensibly, speaking about
  problems in terms of their effect on your party
  and speaking only when necessary and for a
  purpose.
• Once the psychological problems have been
  identified and dealt with properly, the
  relationship between the parties is strengthened
  parties can then work together in finding a
  mutual solution to their problem. 
• Separating the people from the problem is a
  continuous process lasting the life of the
  negotiations and beyond. It is a principle that
  should be adhered to whenever there is a conflict
  of interest.

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2) Disregard positions rather focus on interests

• In order to arrive at a wise solution, one needs
  to focus on the interests of the parties as
  opposed to their stance on the issues. What
  exactly does each party desire? How can this be
  resolved amicably? Not, How can we divide the
  subject? 
• Interests define the problems and also define the
  positions. The positions become diluted and
  influenced by ego, perception, emotions and other
  psychological factors thus, it is better to go
  beyond the positions taken by the parties and
  identify the interests, as within the interests
  lie the wisest solutions. 
• The parties need to communicate properly and
  effectively with one another, and share their
  interests in the subject matter of dispute. The
  only way an efficient and wise agreement occurs
  is when all interests are taken into account in
  the deduction of a resolution.

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How Interests are discovered, discussed and
focused on

• when speaking about his interests the negotiator
  should give specific examples
• should acknowledge everyones interests when
  deducing the problem
• should lay down his interests and reasoning with
  respect to the problems before proffering
  solutions and not the other way round
• should always look forward and not
  retrospectively at what has been said or done
• should be constantly thinking of various options
  that could satisfy his interests
• should be hard on the problem, pursuing his
  interests vigorously, and soft on the people,
  giving positive support to the other party,
  acknowledging their time and effort

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3) Deduce options for mutual gains

• It is often misconstrued that the solution to a
  dispute or problem is one that can be found along
  a straight line between positions or reaching the
  middle ground of the subject matter in dispute. 
• Deducing options for mutual gains has the
  advantage of bringing the negotiating parties
  closer, looking at the dispute from a different
  perspective and espousing the winwin scenario of
  a principled negotiation.

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Major obstacles that may hinder the creation of a
variety of options

• Premature judgement
• Trying to find the solution
• Assumption of a fixed pie
• Leaving the other sides problem to be their
  problem not yours

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These obstacles can be overcome by the following
techniques

• separate the process of inventing from the
  process of deciding
• creating a variety of possible solutions
• searching for mutual gains
• inventing methods of making the decision easy.
• Brainstorming, where parties come together to
  invent all sorts of possible options with the
  prior knowledge that these are only options and
  not concessions. The best options are selected,
  improved and deliberated upon by all parties at a
  future date.
• Look at the problem from the perspective of
  different experts, inventing agreements of
  different strengths, 
• identifying shared interests mutual gains can be
  deduced 

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EXECUTIVE NEGOTIATION

• This negotiation is usually used in dispute
  resolution where the dispute is taken out of the
  hands of the direct disputants and passed on to
  their higher-level managers to deal with
• This process is often used in the resolution of
  conflicts of a personal nature, principles or
  differences in the modus operandi of the
  different organisations or government agencies
  involved

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Senario and problem questions