Author Archive

Negotiating when you have nothing to give

Thursday, April 22nd, 2010

How can you negotiate well when you have already been committed to a limit, either by your previous actions or by someone else?

Consider this example: a general contractor works out an agreement with a landowner to build a custom home at a remote location in a vacation area during the next building season. He lines up tradespeople, and gets commitments from them on costs and timing for their work. He enters into a fixed price contract with the owner based on these commitments. When the building season starts, he starts the project and for a few weeks all goes well. Then several of the tradespeople come to him and say they want more money.

The contractor is stuck: the tradespeople are in great demand, and if he alienates them he risks them walking off the job. In this situation he will not be able to complete the project, therefore becoming subject to penalties; just as importantly, he will lose credibility and reputation and future business. If he lets the tradespeople walk away or get more money, he fears being taken advantage of in the future by them. He is not willing to go back to the owner at this point because he has already committed to the price as a condition of the contract, and any change will result in a financial penalty. If he simply tries to absorb the cost increases, he will not make any money on the project himself.

He decides to have an initial conversation with the tradespeople to investigate the reasons for the demand. He decides not to express his concerns at the outset; instead, he resolves to take on an attitude of being curious, and to investigate without worrying about who is right or wrong or what the contract says. What he discovers after some digging is that the increase in the price of motor vehicle fuel between the time he set up the contracts and the time building started has created a significant burden for the tradespeople, who all have to drive their large vehicles and supplies to the remote worksite every day. With this information, he sits down with them and generates a new question: is there a way we can deal with the fuel price problem without me paying you more money? The solution they come up with together is to work a four day week: each day will be longer, so the total work time and the schedule for the project is the same, but the tradespeople save one round trip every week, or about 20% of their fuel use, and several hours of travel time in total.

With this change they end up receiving the profit they anticipated because they have lowered their costs, and the contractor fulfills all his interests in completing the house on time and on budget. During the long days of summer the tradespeople are happy to have Fridays off, and light and temperature conditions are safe to work in.

What can we take from this kind of example? First, don’t assume a preset limit or your constraints will automatically prevent you from dealing effectively with a situation: you must understand what is driving the constraint or demand, not just what the constraint or demand is. Second, look for creative solutions first, solutions that do not require you to give up your constraints or compromise to meet them, but solutions that allow you to accomplish your goals as you work within the constraints. To do this, you need to enlist the creativity of the other negotiator and frame the situation as a joint problem to be solved. Third, if there are no ideal solutions, work to find other measures to mitigate the impact of the limit: for instance, a budget freeze may still allow you to make non-monetary changes that benefit staff. Finally, even if compromises are necessary, searching sincerely with the other party for solutions can reinforce your good intentions and maintain your working relationships. People who are dealt with this way will remember your efforts, even if you are not completely successful, and work with you again in the future.

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Friday, February 8th, 2008

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