Basic Principles of Negotiation - University of Houston-Downtown

Basic Principles of Negotiation Paul W. Fulbright, MBA, JD, LLM Assistant Professor of Business Law © 2018-2024 Law Office of Paul W. Fulbright, PLLC  Overvie w 1. Our Focus: Good-Faith Contractual Negotiation. a. A Closer Look at the Definition. 2 What Determines Succe...

Basic Principles of Negotiation Paul W. Fulbright, MBA, JD, LLM Assistant Professor of Business Law © 2018-2024 Law Office of Paul W. Fulbright, PLLC  Overvie w 1. Our Focus: Good-Faith Contractual Negotiation. a. A Closer Look at the Definition. 2 What Determines Success or in. Failure Negotiation? a What define Success or. Results Negotiatio Failure in n? b What Determine Whether You Will Factors or Fail. Succeed Likely in Negotiation? 2  Our Focus: Good- Faith Contractual Negotiation Our focus in this class is: Good-Faith Contractual Negotiation. Definition: A good-faith contractual negotiation is: 1. A series of communications 2. exchanged between 2 or more parties (directly or through their representatives), 3. each party having alternatives to agreement, 4. and each party having imperfect information about the interests of the other, 5. for the good-faith purposes of enabling the parties to enter into a valuable enforceable contract, if possible.  A Closer Look at the Definition of Good-Faith Contractual Negotiation A few things to note about that definition: 1. The negotiation is the process, the back-and-forth communications that occurs between, the. A lot of preparation occurs behind the The meetings & parties but that prep isn’t the negotiation. scenes, communications are. 2. There are two possible results: (a) one or both parties decide to NOT enter into a contract; OR (b) the parties enter into a contract voluntarily. Party A and Party B both have alternatives, and voluntarily entering into a contract is one of them. Sometimes, one side has a much weaker bargaining position (that is, it needs the agreement more and has fewer good alternatives), so perhaps the deal it agrees to 3. isn’t very good. But it still chooses In contractual to enter the parties the deal. exchange (talkin negotiations, emailing), and they evaluate information g, that information as they cobble together a potential agreement. Question: What are they talking about? Answer: What each wants, what each would find acceptable, etc. Thus, they start out with imperfect information, and then they communicate, and those communications (a) reveal information (which may be true or false) about their interests 4 and  WHAT RESULT Defines Success or Failure? SUCCESS in a negotiation is NOT based on: Simply whether you “got a deal”. After all, the deal you got may be a bad one! Whether you got everything you asked for. After all, you may not have asked for enough! PROFESSIONAL NEGOTIATORS usually focus on the following principles to determine whether they view the negotiation as a success. Pros grade themselves hard! (critically)! SUCCESS = WALKING AWAY FROM A BAD DEAL: If the best deal that could reasonably be negotiated by you was a bad deal (compared to your alternatives), you should have walked away from it. That’s right – sometimes success in contractual negotiation means NO CONTRACT at all. Food for thought: A great deal of research suggests that auctions produce significant “buyer’s regret.” (Question: Why might this that: be so?into entering Answer: the Theywa paid too much!) better than your available ; SUCCESS (a) (b) = IF AGREEING contract the contract you enteredTO the sA best DEAL, contract alternatives GETTINGthatTHE could be negotiated BEST DEALand by you POSSIBLE: If you entered into circumstances. was the contract, Example: then under Everyone the at your Acmenegotiation will be viewed Inc. is congratulating Stanason a success the sale to of the extent Widget Division for $7M, because almost everyone associated with the project expected the deal to close at around $5.9M. Privately, Stan thinks to himself, “If I had handledI’llthat differently, be Ilast couldnegotiation have gotten session them to $7.9M. Hmmm… I give 5 myself a B.” WHAT FACTORS Determine Whether You Will Likely Succeed or Fail in Negotiation? NEGOTIATIN G TECHNIQUE (Behaviors, Tactics, Communications ) ANALYSIS / BARGAININ PREPARATIO G N STRENGTH (Evaluation of (Alternatives BATNAs, Available to Interests, Each People, Options, Party) Criteria, (BATNAs) Processes) 6  WHAT FACTORS Determine Whether You Will Likely Succeed or Fail in Negotiation? What Determines… Whether you should WALK AWAY from a Bad Deal? Whether you will likely GET THE BEST DEAL possible (the BEST TERMS possible) in your YOUR ALTERNATIVES determine whether you should WALK negotiation? NEGOTIATING AWAY. TECHNIQUE Alternatives drive the Bargaining Strength of the (Behaviors, Tactics, Parties. Communications) Example: If the party on the other side has a great “Plan B” (and really doesn’t need the Contract), then it’s often then you almost often almost impossible get to DICTATE to pressure him intothe agreeing to ANALYSIS / BARGAININ PREPARATIO terms. your terms. G N STRENGTH You have no enormous bargaining bargaining strength strength.. (Alternatives (Evaluation of On the other hand, if he has What determines the ACTUAL TERMS NO good alternatives, Available to BATNAs, Interests, Each NEGOTIATED? Party) People, Options, Its TheNegotiating Technique. done by the Analysis / Preparation (BATNAs) Criteria, Processes) That party;is, if you prepare thoroughly, AND you perform well and during the negotiation, you maximize the probability that you get the best deal possible under the circumstances. 7