Most negotiations end up involving multiple parties

Most negotiations end up involving multiple parties
Image Credit: peteandcharlotte

When you are planning your next negotiation, what is running through your mind? You can probably see yourself sitting at a table negotiating with the other side. This tends to be how we view most negotiations. However, it turns out that reality often looks much different than this. Negotiators often have to deal with more than one party to reach their goals. This requires us to tailor our negotiation styles and negotiating techniques towards this end. These negotiation scenarios pose unique challenges for us. However, most negotiation advice focuses on talks between two parties.

The Challenge Of Multi-Party Negotiations

Understanding how a negotiation can unfold when there are multiple parties involved is a complex subject. The good news for you and I is that studies have been done of these very types of negotiations. Some very smart scientists have studied real-world mergers-and-acquisitions (M&A) deals, which tend to involve experienced lawyers, bankers, and businesspeople. The deals that are being negotiated are often prices at many millions, even billions, of dollars. As I believe that we are all very aware of, some of these deals prove successful; others are well-known disasters.

One of the biggest challenges that we can run into as negotiators is that when there are multiple parties involved in a deal that we are trying to negotiate, things can change very quickly and they can change at any point in the negotiations. The worst time for these changes to start to show up is after we’ve been able to sign a deal and before we’ve been able to actually close the deal. Many things can happen during this time that can have an adverse impact on the deal that we are working so hard to put together.

In the world of M&A, the negotiators realize that there are a number of things that can go on during this time period between the signing and the closing. What they are looking for is a way to minimize the number of things that could cause a deal to become undone. What they have discovered is that if they can come up with a way to bind the different parties together between the signing and the closing, then they’ll have a much better chance of actually making their deal work out in the end.

How To Make A Multi-Party Negotiation Work Out

So all of this talk leads to the inevitable question: when there are multiple parties involved in a negotiation, how can you hold things together in order to be able reach a successful deal? One lesson you may be able to adapt to the complex negotiations that crop up in your business and personal life is deal protection. Deal protection is a heavily negotiated issue in M&A transactions; however, deal protection is rarely negotiated outside the M&A context even when it could create value.

In a typical negotiation, sellers can use deal protection. As an example, take a typical residential real-estate bargaining session. In the time between the purchase-and-sale agreement and the closing, the person selling the house is bound irrevocably to the transaction. This clause protects the buyer, but it means that the seller can’t accept a higher offer—a condition that can be inefficient for both the seller and the buyer. Imagine you’re selling your home. A prospective buyer falls in love with your house and (unbeknown to you) one other house. After much debate, he makes a successful bid on your house. Soon after you’re under contract, you receive a blockbuster offer from another party. It’s too late to back out, right? Not if you had negotiated deal protection.

For example, you might have proposed a clause that would allow you to withdraw between signing and closing by paying the buyer a breakup fee of perhaps $25,000. For a buyer who is virtually indifferent between your house and another house, this should be an attractive alternative. It turns out that Buyers can make similar moves. Suppose parties are at an impasse, with the seller asking $500,000 and the buyer offering $450,000. The buyer might offer a “loose” $450,000 deal that allows the seller to accept a better offer between signing and closing by paying a modest breakup fee, such as the buyer’s out-of-pocket costs.

What All Of This Means For You

Although when we try to imagine our next principled negotiation, we often picture ourselves negotiating with only one other party, all too often this is a mistaken belief. In the real world we find ourselves in a complicated multiparty negotiation. In order to make a deal happen in this situation, we’re going to have to understand how to deal with all of the different viewpoints.

One of the biggest challenges that we may end up facing in a multiparty negotiation is the simple fact that between the purchase-and-sale agreement and the closing a lot of different things can happen that will cause your deal to become undone. The good news is that you can take steps to prevent this from happening. If you work with the other side to implement a form of deal protection, then both parties will have a way to react to changes in a way that will allow them to both get the best deal possible.

As negotiators we need to learn to adjust to the way that the world really works. Although we’d like to be able to live in a world where we don’t have to worry about the complexities associated with negotiating with multiple people at the same time, it turns out that we have to. Using deal protection you can ensure that once you’ve reached an agreement with the other side, you can be assured that you’ll be able to finalize a deal with them.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: How significant do you thing that your deal protection will need to be in order to ensure that the other sides will be willing to do a deal with you?

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What We’ll Be Talking About Next Time

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 Words can be tricky to get right

Words can be tricky to get right
Image Credit: Alastair Bennett

As a negotiator, our goal is always to find a way to reach a deal with the other side. We spend a lot of time using all of our negotiation styles and negotiating techniques to reach a common understanding that will allow a deal to be agreed to. However, once both sides have found the agreement that is needed with which to create a deal, now comes the hard part. We have to write everything down and get both sides to sign the agreement. How hard could that be? It turns out that it’s actually quite difficult and there are three common things that can go wrong.

The Contract Is Not What We Agreed To

We spend our negotiation going over the various issues that both sides need to find a way to resolve. Generally what happens is that we work our way through each of these issues and are able to come to an understanding with the other side regarding how a given issue will be handled. This is all well and good, but this agreement all too often is a verbal agreement or a set of hastily jotted notes on a piece of scrap paper.

In order to this agreement to carry any weight, it’s going to have to find its way into the final agreement. This means that one of the sides involved in the negotiations is going to have to sit down and create formal language that documents the agreement. It turns out that the words that are used in this documentation are very, very important. The misplacement of a single word or the use of a word that can be interpreted in more than one way can lead to confusion on both sides of the table.

Terms Of The Deal Are Either Missing Or Vague

If you are the one who is trying to document the agreements that have been reached by both sides, then you have a challenging task ahead of you. You may feel that you understand the agreements that have been reached regarding the various issues that this negotiation has covered. However, creating the words that are going to accurately capture the intent of the various agreements is going to be difficult to do.

One of the biggest challenges that you’ll be facing as you try to document what has been agreed to is that you are going to have to account for every possibility. What this means is that there are a number of different things that may occur during the lifetime of the agreement. You are going to want to identify the most likely contingencies and make sure that they get documented in the agreement. This is important to because when an event happens, both sides will be taking a look at the agreement in order to discover what their obligations are.

Terms Of The Deal Contradict Each Other

Any issue of even moderate complexity that is being negotiated will generate a complex deal document. This deal document will generally have multiple sections and each section will attempt to cover multiple scenarios. As you can well imagine, things will start to get complex very quickly in a scenario like this.

It’s entirely possible that the written description of a negotiation that you are creating will contain one or more contradictions. Clearly you are not going to want to sign any agreement where the meaning is not clear or where the single document provides more than one way of dealing with a given situation. What all of this means is that you are going to have to make sure that you allocate the time to review the final document with an eye towards finding any contradictions. You’ll want to be looking for parts of the document that explain who has to do what in a given situation. If you find the document instructing the same person to do two completely different things in a given situation, then you’ve found a contradiction and you’ll need to rewrite that part of the agreement.

What All Of This Means For You

Just reaching a deal with the other side of the table is a major accomplishment for a negotiator. However, the principled negotiation does not end there! Rather, now comes the hard work. Each of the agreements that both sides have come to now needs to be documented. This is where things can get tricky because it is easy to make one of three common mistakes.

The first error that can occur is when the words in the contract do not accurately reflect the verbal agreements that were reached during the negotiations. There can be many different reasons for this happening, but as negotiators we need to be able to both detect it and then have each of the disagreements resolved. Just because the deal document talks about the various agreements that we’ve reached does not mean that it does it well. There is a very good chance that one or more of the discussions in the document are either missing details or are too vague to be implemented. Once again, a rewrite is going to be called for. Finally, the more complex a negotiation is, the longer the deal document is going to turn out to be. A long document holds the real potential of containing one or more contradictions in it. As negotiators, we need to realize this and take steps to both detect them and then resolve them.

Each negotiation that we are involved in s only as good as the agreement that comes out of it. These agreements are designed to solidify the verbal agreements that we’ve made during the negotiations. However, such documents can be very difficult to create correctly. The next time that you negotiate, take the time to make sure that your final deal document accurately reflects the individual agreements that you reached during the negotiations.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: What’s the best way to review a deal document in order to find any contradictions?

Click here to get automatic updates when The Accidental Negotiator Blog is updated.

P.S.: Free subscriptions to The Accidental Negotiator Newsletter are now available. Learn what you need to know to do the job. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

When you are planning your next negotiation, what is running through your mind? You can probably see yourself sitting at a table negotiating with the other side. This tends to be how we view most negotiations. However, it turns out that reality often looks much different than this. Negotiators often have to deal with more than one party to reach their goals. This requires us to tailor our negotiation styles and negotiating techniques towards this end. These negotiation scenarios pose unique challenges for us. However, most negotiation advice focuses on talks between two parties.

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