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Negotiation: it’s not what it used to be

September 21, 2020

At its best, negotiation is an activity that supports discovery and establishes an alignment of interests to secure mutual value. Too often, what we call ‘negotiation’ is in fact the opposite – it is an exercise that prevents or constrains discovery and results in terms dictated by the more powerful party.

Will the pandemic and the disruption it has created alter our approach to negotiation? I believe that it will, both directly and indirectly. Here’s how.

  1. Organizations recognise that there is increased vulnerability. For many, financial health is fragile and this is increasingly factored into negotiations – in both directions. Suppliers are concerned about being paid; customers are concerned about receiving supply. This drives a need for better understanding of sources of funding, cash flow and on-going reporting, as well as possible payment guarantees.
  2. There is also recognition that re-negotiation in some form is likely to occur and hence greater attention is being paid to the terms that may be the subject of those future discussions. Examples include rights of delay, change management provisions and revisions to payment terms. When the pandemic hit, many organizations resorted to the Force Majeure clause as a way to initiate contract review. Negotiators are becoming more sophisticated and recognizing that FM is a blunt instrument and in any event rarely applies, nor does it eliminate obligations.
  3. Most negotiations will continue to be conducted virtually. Negotiators are becoming more comfortable and more skilled in their use of technology. In reality, it has some advantages – for example, it allows greater inclusion of experts; negotiation sessions can be better phased, with more regular breaks. On the other hand, there is a risk of increased fragmentation when more people are involved and those informal side-conversations and social activities that build trust and explore options are inevitably lost.
  4. Technology adoption is being accelerated and bringing some real benefits to the (virtual) negotiating table. The use of artificial intelligence and machine learning to undertake contract analytics is equipping some negotiators with far more knowledge – for example, about historic dealings with a specific customer or market, their preferences and past performance issues. Better knowledge can streamline the process – for instance, starting from a more realistic position or reducing the need for extensive discovery. That knowledge is also powerful in influencing – a key skill for any successful negotiator.
  5. The form of the contract is changing. A by-product of the pandemic is an acceleration of simplification and digitization. The importance of ensuring shared understanding across stakeholders is promoting greater thought about contract design, structure and even the medium being used. This could have massive implications, such as negotiations being recorded on video and therefore providing an absolute record of the conversations and terms of agreement. A digital record facilitates faster and more accurate contract implementation – but it also creates the need for non-traditional skills as part of the negotiation, such as programming or graphic design.

The changing form of negotiation is the subject of the World Commerce & Contracting TASK program being made available on September 21st. It will also feature in the up-coming Most Negotiated Terms Report to be published early October.

One Comment
  1. Paula Doyle permalink

    Thanks Tim. These points are well made and very much reflect what I am seeing on the ground. The uptick in enquiries we are receiving around terms and conditions simplification is evidence that organisations are understanding the benefit of using plain language and concepts in their contracts. We know that these redesigned contracts not only reduce negoatiation times but they also help to improve the starting point between the negotiating parties. They are considered to be more collaborative and aimed at allowing all stakeholders, not just the lawyers, to fully understand
    commitments on both sides.

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