Berton Lee Lamb and Sarah Klahn*
Offers made in a negotiation can come in a variety of “flavors.” The flavor you choose should be selected to maximize development of mutual trust, create open discussion, and search for good results. In an example of how not to open negotiations, one of our colleagues likes to tell the story of a client he was representing who directed him to make what amounted to a final offer at the start of a negotiation. The instructions he received were something like this: “Make X as an offer and don’t budge until they make a counter offer within a specific range.” Our colleague made the offer; the other party did not respond. The negotiation went nowhere because he was not allowed to engage substantively until the other side responded within the narrow confines dictated by the client.
“Make this offer and don’t budge” is an example of a opening with a final offer. A 2019 blog post presents the pitfalls of starting a negotiation with a final offer. One of the major problems with starting with a final offer is that it prevents development of the mutual trust that is so important in negotiation. That is what happened to our colleague.
Although his client eventually gave him latitude to negotiate outside the confines of the final offer, by then he was not trusted. The negotiation failed.
Instead of taking an initial hard line—such as opening with a final offer—it is often better to begin with questions and then listen carefully to the answers. To do this requires preparation. With good preparation it may be possible to design “contingent offers.”
A contingent offer is a way to negotiate that opens lines of communication and gives you a chance to listen to the other Parties as they consider your ideas. These might be framed as “if/then.” Here is an example: “What would you think if I did A and then you could do B?”
Another way to negotiate is with a straw man proposal. A “straw man” is something you can try to push over or take apart; such a proposal invites counter proposals and doesn’t formally commit the proposer to the suggestion. A straw man proposal can be comprehensive or address only part of the problem. It can be very detailed or reflect general principles. Of course, a straw man proposal does reveal something (or maybe everything) of a proponent’s thinking. But it may be thought of as an opening bid in negotiations, not the bottom line. Negotiations around a straw man proposal may be helped by another negotiation tool. This tool is sometimes referred to as a “negotiating text” or “term sheet.”
A term sheet refers to a list of concepts, positions, or outcomes that could be included in a final agreement. The idea is that it gives the parties a solution-oriented-something to talk about.. A negotiating text is not a text message. Rather it is a statement—sometimes in paragraph form—setting out the language of a possible agreement. Although the negotiating text may be a complete agreement in draft form, it is probably most useful to clarify individual parts of an agreement.
Both a term sheet and a negotiating text may be formal. Whether formal or informal, the language in a term sheet or negotiating text gives the Parties something concrete to negotiate about.
One way to use the term sheet or negotiating text tool is to ask the parties if they think you are close to agreement. If yes, then ask someone to draft that portion of the agreement with the understanding that all the parties will negotiate the final language.
Opening with a final offer or “bottom line” is usually not a good strategy. But at some point such an offer must be made. So when do you make a final offer? With skillful management of the negotiation, you may see an opportunity to make a final offer after a series of exchanges involving concepts expressed as contingent or straw man offers. This is because, at some point, all of the possible outcomes have been vetted through discussion of offers made via the contingent and straw man approaches. The final offer is then being made with a significant amount of insight regarding the issues or outcomes important to all slides.
*Sarah Klahn is a water lawyer with Somach Simmons & Dunn who tries cases when she has to and settles them when she can. Her offices are located in Boulder, Colorado. www.somachlaw.com
Pingback: The Term Sheet: What Is It and How Do We Use It? | Negotiation Guidance Associates