Getting a good deal is critical to survival

By Adam Bernstein, Monday 18 March 2019

Be the first to comment

Nelson Mandela, according to Harvard Law School, was one of the best negotiators in history. Well known for his patience, strategic thinking, practicality and unwillingness to quit, he could make concessions, but would refuse to back down from what he thought was most important.

negotiate

Donald Trump, a more contemporary negotiator, once wrote “my style of deal-making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing to get what I’m after. Some­times I settle for less than I sought, but in most cases I still end up with what I want.” 

On a topical note, perhaps the less said about the tortuous negotiations around the UK’s exit from the EU the better.

Printers of all shapes and sizes will of course be negotiating with their customers and suppliers on a regular basis. And for those printers involved in substantial contractual work, getting the right deal – not just any deal – is critical to success.

As Philippa Dempster, a commercial and disputes partner in Freeths, explains, this means having proper commercial terms because “there is no point in winning a contract that is not making money”. Further, she thinks that following a proper process demonstrates professionalism and, critically, “if there is a problem, then the contract will help resolve the issues and will set out who is responsible in certain situations. Without this, the general law will apply and one consequence of this is that there will be no limit on liability”.

Learning the skill

According to Dominic Wing, Higher and Degree Apprenticeship manager at the BPIF, “everyone is a negotiator – it’s something we all do to an extent day in, day out.” He explains that negotiation (and persuasion) involves a variety of knowledge, skills and behaviours that can be learned and improved on. The problem is, as he says, “because negotiation includes not only a number of tools and techniques, but also a considerable amount of psychology that tap into the subconscious, untrained  negotiators may not even realise when they have been out-manoeuvred.”

Shaun James, head of learning and skills at Huthwaite International, also feels that individual negotiation skills need refining. He says that when two skilled negotiators meet, “they are more likely to reach a deal that is creative, implementable and mutually beneficial to the organisations they represent.”

From his viewpoint, the process is all about the approach: “It is a very common perception that skilled negotiators are tough, drive a hard bargain and give little away. But if people approach a negotiation with this as a model of success, they are unlikely to reach a deal that creates value for both parties.”

It seems, then, that a pig-headed approach will only work where the  relationship is unimportant or where a win/lose outcome is acceptable. However, for most in business-to-business deals, the long-term relationship is usually important and it’s better that everyone comes out feeling positive. 

It is interesting to note just how much store – for obvious reasons to be fair – that James places on a level playing field. He tells of a case where one of his major clients “used to pay for their suppliers to attend our negotiation skills programme, in  addition to their own buyers, because they recognised they would get much better deals if both sides of the negotiating table possessed the skills to do so.”

Balance of power

Conducting a successful negotiation means more than just haggling over price; it requires an understanding of the situation, the relationship and how people negotiate. Says James: “Regardless of which side of the negotiating table the negotiator sits on, there is always a balance of power. Ultimately, they want something you have, and you have something they want.” It’s for this reason that he advises  clients to spend time analysing where the balance of power lies – the strengths and weaknesses they have, and the same for the other side. “It is important that negotiators,” says James, “plan how they are going to use the power they have, and how they can gain and maintain power if they need to. Power is a concept that resides in the head; if people feel powerful, they will tend to behave in a way that is powerful.”

To get the best from this means understanding the motivations of the other side. Indeed, both James and Wing reckon that it is not enough to simply appreciate that the other side has a different point of view; negotiators need to understand the motivation and underlying needs of the other party to help effective trading of issues. 

As Wing points out: “It is important to understand that people make decisions on factors other than pure economics. Both logic and rationality can be thrown aside if one side feels they are being treated unfairly.” Experience has taught Wing that understanding the personalities (and their personal motivations) on the other side can be as important as knowing what the competition can offer. Understanding the motivations from the other side’s perspective may mean that a negotiator will not need to retreat to a fall-back position.       

James says that when individuals hear proposals or suggestions from the other side that they don’t like, they may reject them in favour of something that suits their own needs. However, as he explains: “If we have a deeper understanding of why they are making that proposal, it can help reach an outcome that works for both parties.”

Outcomes end up being documented in contracts. Dempster emphasises that although a written contract comes into effect when its signed, a contract can be formed “by verbal agreement, on a handshake or exchange of emails provided the parties know what the deal is and that a deal has been concluded.” She says that all the law requires is an offer, an acceptance with an intention to create legal relations and a consideration (something of value – in a business context a price – to be exchanged).

Sight should also not be lost of the fact, warns Dempster, that negotiations conducted remotely – say by email, fax as well as texts and social media – can also lead to the formation of a contract, “especially if conversations or correspondence are in a business environment and between people who could generally be expected to make a contract”.

She cites a case that hit the headlines last year involving Sports Direct and Newcastle United owner Mike Ashley. He was sued under an alleged verbal contract for £15m agreed in a pub. The Judge said that a conversation in a pub could indeed create a contract in the right circumstances, but in this case, there was no formal agenda or structure to the conversation, it was largely a social rather than business meeting.

Common errors

It is easy to make mistakes. Some negotiating errors are common, and some are traps ready to be fallen into. James says that there are too many to list here, but adds that most follow on from planning deficiencies –  having unclear objectives, a lack of understanding about the issues that are to be negotiated, a lack of clarity on the mandate (best and worst case for each negotiable issue), or a failure to consider the position and interests of the other party. At best, these can all lead to a breakdown in the negotiation; worst case, they could lead to an agreement that gives one side a bad deal.

Wing worries about the personalities running the negotiation process as it’s not uncommon to detect a sense of bravado that attaches itself to a negotiation: “One strong personality in an organisation may insist that they are the best negotiator who only has to turn up to ‘win the war’. In reality, teamwork is one of the most important factors of negotiation.”

Some – like Donald Trump – say to never accept the first offer made by the other side. Whether this is right or not depends on how close to the best outcome the starting point of the negotiation is. Those with a selling price in mind, who are offered an amount above that, may choose to accept immediately. But if the initial offer is far lower than expected, a skilled negotiator may look to trade other issues to get an improved offer.

And this is the case for James. He says effective negotiating does indeed involve the trading of issues – getting something in return for something given. From his outlook what is sought should “be greater in value to you than what you give. The problem is that unilateral concessions risk creating an appetite for further, maybe deeper concessions. But making a concession to the other side on the condition that you trade it for something that you want in return sends a very different message.”

And, of course, there are some things that can never be negotiated over, such as ownership of intellectual property or anything that  compromises health and safety for example. The message here is that a good negotiator should set out what is not negotiable before they enter the negotiation.

Some say that talking first during a negotiation is bad. James thinks  differently, suggesting that asking questions can actually help uncover useful information and “find out what is important to the other side, what motivates them, and how they feel about certain issues”. He says that it’s not that talking is “bad” per se, it’s just that talking should be used strategically in revealing some  information, while holding some back deliberately.

Wing agrees, but believes that probably the most important skills used in negotiation are those that relate to listening and observation. “Tone, inflection and body language conveys the other sides’ feelings and attitudes far more effectively than the words they use,” he says.

By definition, negotiation revolves around pricing issues. The question is, should a printer itemise a quote or keep it as a single bundle price to avoid salami-style dissection to the printer’s disadvantage? While there is no correct answer as each situation will turn on the facts, James says there are some universal considerations to make when presenting price and solutions. 

He says the first is that any justification for the price should have already been built through the sales process – “buyers will pay for what they see value in. If insufficient perception of value has been built for the buyer, then you can probably expect challenges over price”. 

Secondly, in some situations, itemised breakdowns can be exploited if there are elements of the proposed solution that the buyer perceives they can live without and will therefore not want to pay for. “Some buyers may request a detailed breakdown with the objective of opening a price negotiation,” says James. “If you do provide a single bundle price; assuming that this has been thought through with great care, be proud of the price.”

And if there are sticking points, Dempster recommends emphasising the benefits of working with a printer that has a track record, can offer a good customer experience and has the capability to provide what is needed. “If necessary,” she adds,  “discuss why you want the particular clauses or terms in a contract.” She says that by explaining a point of view, the other side may see reason.

Ultimately though, where negotiations do fail, Wing suggests that it’s normally a function of not gathering intelligence, understanding the  market, noting historical matters or the competition and personalities that a negotiator will face.

Concluding the negotiation

As to who should conduct negotiations and sign contracts, Dempster says it doesn’t have to be a director, “but it does need to be someone who understands what you need in a contract and what are the key risk areas for the business.” Importantly, she notes that a junior employee can bind the business “if they have authority or are perceived as having authority”. For this reason, she says it’s a good tactic to use statements during negotiations such as “subject to board approval” or “subject to contract” which means the deal needs to be signed off by someone with authority.

Naturally there will be those who lack confidence in their negotiating skills. They ought to fall back on an advisor. From a legal perspective, Dempster says that lawyers may be an option as they will be aware, from an independent point of view, what is reasonable to ask for, the risks and how to protect against them. She says: “Lawyers can interpret what the contract says and also what it does not say, guiding the business in their negotiations.”

A second route is the BPIF which runs a Negotiation & Persuasion Workshop that covers areas such as basic skills, strategy, psychology, gathering intelligence and negotiation models.

And then there are third-party trainers. On this, James says that finding the right negotiation skills partner can be as complex as many negotiations are themselves – with the same risks if it goes wrong. 

He suggests that those seeking help should ask a number of searching questions including their record of success. “Companies that have used negotiations training probably won’t shout about it publicly, so there won’t be a plethora of case studies. Ask the bidding training providers to link you up for private conversation with their clients and ask those clients if they experienced real and lasting behaviour change, and whether the lessons they learned in the training translated into real business gains.”

He adds that theory, models, strategic planning tools, what-if preparations are all very well, but “unskilled negotiators are most anxious about what they’ll actually do when they sit down face-to-face with real live counter-parties.” This is why he says to enquire how detailed and robust their verbal behavioural models are as fact and experience are very different from anecdotes: “The world is full of one-man bands ready to tell their war stories – but that isn’t training, and it doesn’t create skills improvement. Find a partner who has done some evidence-based observational ground work into what makes successful negotiators successful and assure yourself that their training is all about embedding that best practice within your team.” 


Dempster’s key contractual points to negotiate 

Limitation of liability, as without this commercial liability is uncapped. Usually this will be set at the value of the contract or a multiple. Some matters such as breach of confidentiality and intellectual property will have no cap. Certain aspects cannot be limited by law, including death or personal injury due to negligence.

It’s also usual to limit certain types of loss or exclude them altogether. For example, loss of profit and damage to goodwill are often excluded, as are indirect and consequential losses. This would still mean the cost of repair or replacement is covered by the printer (including buying paper) but not loss of profit. Another area is the effect on adverts – if the error or defect is associated with an advert, then the printer may want to limit this to the cost of a replacement advert or 50% of a new advert.

Delays need dealing with. It should be specified that time is not of the essence. This means that if a printer slips by a few days or a week, it  does not become a compensation event. Where a job is time critical, the printer should consider adding some protection such as limiting costs to additional transport to minimise delays.

The ability to suspend work or terminate for non-payment or insolvency. Surprisingly, there is no general right to do so under the law if there’s a contract unless it can be said to be a fundamental breach (which is rare).

A defects clause is needed because contracts often create very high if not impossible standards, such as the work must be free from defects and exactly to specification. It’s important to build in tolerances in specifications and to state that minor defects will not create a breach – the printing process does not lend itself to perfection. What is generally acceptable as a market standard should apply rather than perfection.

Printers should negotiate the right to charge extra in certain circumstances, such as last-minute changes, short print runs or expedited delivery.

Press passing and responsibility for sign-off on copy and colours must be discussed.

A force majeure – no fault clause – is necessary for events where there is a delay outside of either parties’ reasonable control.

Discussions should cover price reviews for raw materials and annual increases.

Brexit cannot be ignored because of its potential impact on currency,  tariffs and delays.

Choice of law and jurisdiction if an overseas contract is part of the deal.

Latest comments