3.2 Negotiation

Let’s start this section with an example. A tent manufacturer has a supplier of tent fabric that supplies an appropriate water-resistant fabric to construct the tents. After many years of a good working relationship, there is an issue with the fabric supplier. Specifically, the fabric delivered was not water-resistant, despite the necessity of water-resistant fabric to produce the tents. The tent manufacturer notifies the supplier of the problem and the supplier denies that there is any issue with the fabric sent to fulfill the order. The tent manufacturer refuses to pay for the fabric. The supplier insists on payment before any future delivery of additional fabric. Without water-resistant fabric, the manufacturer cannot continue to produce tents.

This is an example of a business-to-business (B2B) dispute. Despite the problem, the manufacturer will likely want to continue working with the supplier and preserve a good, long-standing relationship. Accordingly, the parties will probably want to resolve this dispute quickly and without hard feelings. If this is the goal of the parties, it is unlikely that either one will immediately hire an attorney to file a formal complaint. That does not change the fact that there is a dispute that needs to be resolved.

One of the first strategies that the manufacturer and supplier are likely to employ is negotiation. Negotiation is a method of alternative dispute resolution (ADR) that retains power to resolve the dispute to the parties involved. No outside third party is vested with authoritative decision-making power concerning the resolution of the dispute. Negotiation requires the parties to define the conflicts and agree to an outcome to resolve those conflicts. Often, this can take the form of a compromise. Note that a compromise does not mean that anyone “loses.” Indeed, if both parties are satisfied with the result of the negotiation and the business relationship can continue moving forward, then both parties will be very likely to consider this as a “winning” situation.

Benefits to negotiation as a method of ADR include its potential for a speedy resolution, the inexpensive nature of participation, and the fact that parties participate voluntarily. Drawbacks include the fact that there are no set rules, and either party may bargain badly or even unethically, if they choose to do so. In a negotiation, there is no neutral party charged with ensuring that rules are followed, that the negotiation strategy is fair, or that the overall outcome is sound. Moreover, any party can walk away from the negotiation whenever it wishes, even going on to pursue another method of dispute resolution as appropriate. Negotiation is not guaranteed to resolve the dispute.

Generally speaking, attorneys are not involved in many business negotiations. Attorneys are not prohibited from being negotiators, or providing legal advice to a party that is negotiating, but they are not required to have a successful negotiation. Some parties might find it helpful not to have attorneys get involved when they feel capable of handling the negotiation themselves. Whether attorneys get involved, therefore, will depend on the circumstances of the negotiation.

Though the example above is a B2B dispute, the parties may or may not have equal bargaining power. If the manufacturer and the supplier are both dependent on each other for roughly equal portions of the respective businesses, then they are most likely relatively equal with respect to bargaining power. But if the manufacturer is a very small business but the supplier is a very large fabric company, then the B2B negotiation is potentially unbalanced, since one party has a much more powerful bargaining position than the other. For example, if the business needs that particular type of fabric, which is only available from one supplier, but the supplier doesn’t need the relationship with the tent business, this would result in unequal bargaining power.

When the negotiation occurs as a result of a dispute, then the party with the weakest bargaining position may be in a vulnerable spot. While anyone can engage in negotiation, this is a skill developed by people who are charged with settling existing disputes or with creating new agreements. The goal of negotiation is to achieve a “win-win” outcome, unlike litigation where one party must win and the other lose. The book Getting to Yes by Harvard Program on Negotiation members emphasizes principled negotiation and provides steps and strategies for achieving this goal. Common concepts in negotiation include BATNA (best alternative to a negotiated agreement), WATNA (worst alternative to a negotiated agreement), bargaining zone (the area within which parties can find an acceptable agreement), and reservation point (a party’s “bottom line” beyond which it will not agree to terms). This is just one strategy for negotiation.

Going back to the example, imagine that after negotiating with the fabric supplier, the tent manufacturer learns that the fabric supplier believed that it sent the correct fabric as a new tent employee inadvertently ordered the wrong fabric. Business records then confirm this was the source of the error. This sort of misunderstanding should be cleared up through negotiation. Any number of outcomes are now available to the parties once they’ve identified the source of the problem. It is likely that the dispute can be resolved in a professional manner, and the working relationship between the two businesses can be preserved.

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