HomeFeatures & Analysis5 phases for successful negotiations of legal contracts

5 phases for successful negotiations of legal contracts

Dawson Jenner, Binnington Copeland & Associates construction legal consultantNegotiation is one of the most utilised tools for conflict resolution, yet many individuals within the industry are exceptionally poor negotiators, says Dawson Jenner, Binnington Copeland & Associates construction lawyer.

“Negotiation is the default dispute resolution used by all parties, with varying degrees of success. My experience has mostly shown that the parties to the dispute are poor negotiators. Plenty of value is left unclaimed and one, if not both, of the parties leave the dispute unsatisfied,” Jenner explains.

The most common mistake made during negotiations is that the parties to the negotiation fail to recognise that negotiation is primarily a process driven activity, says Jenner, adding that the typical approach to negotiations normally follows a predictable outline.

The typical negotiation “dance”

Typically, the parties convene, most commonly at the premises of the party that holds the most bargaining power. “Then they begin engage in polite and casual conversation in a somewhat haphazard attempt to build rapport. It is at this juncture that the fate of the negotiation is all but sealed,” Jenner reveals.

“Once the informal and obligatory “chit-chat” has been exhausted, one of the parties will jump straight into discussing the material terms of the contract or the most contentious aspects of the claim, followed by an exchange of positions culminating in the ‘let’s meet in the middle’ concession.”

Once this agreement has been reached, the parties will conclude the negotiation and the meeting will be adjourned.

Negotiating the three-step approach

Essentially, the parties follow a three-step process: open; bargaining; and concluding. “The problem with this approach is that the agreements that are reached more often than not leave one or both of the parties dissatisfied with the outcome,” Jenner points out.

“Dissatisfaction with the agreement is primarily as a result of: the parties reaching what is often termed a ‘Win-Lose’ or more commonly a ‘Lose-Lose’ agreement; substantial value remains unclaimed or the parties have wholesale failed to create any additional value; damage to the on-going relationship; or any number of other reasons.”

The 5 phases of effective negotiation

What then can be done by the parties to ensure that they do not fall into the same trap during the next negotiation?

To answer this question, parties need to appreciate that effective negotiations consist of essentially 5 different phases, namely: preparation; opening; exploration; bargaining/problem solving; and concluding.

“It is only with a full understanding and appreciation of all 5 of the above stages that parties can hope to achieve the often elusive “Win-Win” outcome,” Jenner explains.

The preparation phase includes identification of the underlying issues and interests, gathering information, assessing both parties BATNA (Best Alternative to a Negotiated Agreement), and the development of goals, strategies and tactics.

The opening phase focuses on making the initial contact, developing a common agenda, determining priorities, identifying common goals/interests, and managing expectations, while the exploration phase considers positions against interests and generates creative solutions.

The bargaining phase includes presenting offers, making of concessions, moving towards solutions, and summarising progress, before the concluding phase which focuses on ensuring mutual understanding and reaching a binding and mutually satisfactory agreement.

“The 5 phases ensure a systematic manner to approach a negotiation and provide a robust framework to ensure that parties such mutually acceptable agreements. Provided the parties follow through on all 5 phases the negotiation will most likely result in what is often termed a ‘Win-Win’ agreement whereby all parties leave the negotiation satisfied,” says Jenner.

Considering other forms of dispute resolution

Negotiating successfully is key to avoiding other types of dispute resolution, such as adjudication and arbitration. “While adjudication was originally meant to be a rough and ready approach to dispute resolution, with the main aim of providing a form of certainty while the works progressed, adjudications are becoming more and formalised, plagued by many of the disadvantages faced by formal arbitrations,” Jenner says.

He quotes K.W. Chau’s views on arbitration, who says that “Arbitration in construction disputes, which was promulgated to be an informal, fair, and swift form of justice, has become a mirror of high court proceedings, with both parties often represented by senior legal experts. While arbitration was initially not intended to be adversarial, in some cases, the modern arbitration process may emulate the litigation process, and lead to procrastination and cost escalation.”

Against this background, Jenner concludes that the construction industry would do well to embrace mediation as a method of dispute resolution before resorting to the more formal channels of dispute resolution. “Despite its wide acceptance and use within the UK, mediation in South Africa lags substantially behind. Nevertheless, it remains one of the most effective and desirable methods of resolving dispute.”

Contact Dawson Jenner by emailing dawson@bca.co.za or visit www.dawsonjenner.com to read his detailed discussion of each of the 5 phases, which will be featured as a series on his blog.

 About Dawson Jenner

Dawson Jenner is a South African construction lawyer at Binnington Copeland & Associates, and is focused on revolutionising the way companies approach construction contracts, claims and dispute resolutions. He works with both employers and contractors in the construction and engineering sector, helping them to set up their projects for success and resolve any disputes that arise. He also provides insight at events with highly engaging talks that address common issues concerning construction law and dispute resolution, with engaging ideas that participants can immediately implement on their projects.

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