Contracting and Negotiating Final Project

Running head: CONTRACTING AND NEGOTIATING 1

CONTRACTING AND NEGOTIATING 6

CONTRACTING AND NEGOTIATING

Edwin Villa Rivera

MKTG 410

American Military University

14 April 2021

Introduction:

Negotiation is part of every individual life since the beginning, but the tactics vary according to age, profession, and capabilities. Negotiation is generally seen as a win-lose or competitive situation, but in some scenario’s the parties also opt for a more collaborative approach, specifically when both parties want to have the win-win scenario. Whether parties select competitive or collaborative strategies, both require proper planning and responses to be successful (Thompson, 2010). Most of the negotiations at a professional or personal level fail to acquire favorable outcomes because they are poorly planned, or parties fail to listen. Properly planned and well-executed negotiation tactics, whether collaborative or competitive, allow parties to achieve their pre-conceived objectives. 

Collaborative Negotiation Strategy

A collaborative negotiation strategy is chosen when both parties want to achieve a win-win outcome that is acceptable and beneficial for all. Collaborative negotiation is also called a positive, principled and interest-based negotiation strategy in which relationships between the parties are considered a significant and valuable factor at stake while looking for a reasonable and fair agreement. In such negotiating strategy, both parties aim to create more value from the agreement to get more and allocate it fairly. This tactic involves more action than definition, as it is an attitude which the parties require to solve the dispute. In this strategy, both parties are searching for ways to enlarge the potential value for both, rather than striving to cut each other value down, which results in a collective outcome and therefore is considered a win-win situation (Coleman, 2001).

Value creation in collaborative negotiation means that after agreeing to the negotiated arrangement, both parties should be sure that the agreed negotiation outcome has left them well off compared to the scenario of no agreement at all (McLachlan, 2014). Value creation in collaborative negotiation requires both parties to be cooperative and motivated to consider an agreement that produces substantial gain to both parties. 

Benefits of Collaborative Negotiation Strategy

Collaborative negotiation offers tangible benefits to the concerned parties, which might not be visible until negotiation starts. In such negotiations, the involved parties feel secure and valued since each of their demands is being heard and placed on the table for further discussion. Collaborative negotiation supports active listening and sharing of information, clarifying the misunderstanding and reaching a mutual agreement. Active listening fosters mutual understanding, compassion and respect among the parties, which create a positive environment for further negotiation. Such agreements assist in creating innovative solutions that can maximize communal and individual outcomes (Roy J Lewicki, 1996).

Challenges of Collaborative Negotiations

Collaborative offer many positive benefits to the parties involved, but this strategy has its limitations too. Collaborative negotiation is comprehensive and requires a lot of time, resources, and effort from the concerned parties. Apart from employing increased resources, such negotiations might also negatively impact workplace productivity and enhance workplace resentment and tension.

Real-life Example of Negotiation

Covid-19 pandemic and the lockdown has affected every business, retailor and individual on a financial scale. The sudden closure of business and workforce retainment in their houses created difficulties for many tenants and businesses to pay off their rents. The tenants' inability to pay the rents also created pressure on the landlords since their income source was being halted. In such a scenario, many landlords refused to negotiate to rent terms with their tenants. Still, some realized that the cost of replacing the tenants in such unprecedented financial times would be very high, and there is a lot of uncertainty regarding the timing till when space will be left empty. My landlord and myself were also stuck in the same scenario, as due to pandemic, I wasn't able to pay off my rent, and my landlord being a sensible person, understood the situation and wanted me to stay, as, for him, the cost of replacement will be high and uncertain.

To reach a rent settlement that can benefit both my landlord and me, we followed the negotiation process's significant steps such as preparation, exchange, bargain, conclusion, and execution.

Since we both knew that following a competitive negotiation strategy wouldn't benefit us both, we prepared for the negotiation with a cooperative and open mindset. While initiating the negotiation, we both prepared for our financial limits that could be agreed upon. In the next step, we both exchanged our financial limitations and tried to bargain on the amount of rent that would be acceptable to us and sustain the current financial crises. Since my landlord knew the market's financial condition and the cost he would have to bear in searching for new tenants, I presumed that he would be flexible while negotiating the rent terms.

According to my expectation, my collaborative approach while negotiating the rent terms allowed us to reach a percentage-of – sales deal in exchange for a rent reduction. According to this deal, the property’s rent was reduced by 25%, and in exchange, I have to pay 5% of my retail sales to the landlord. This outcome was beneficial for both of us since my landlord received some portion of the rent, and I was being relieved from the high rent rate, specifically during the market financial crises.

The negotiation was a success. After all, I recognized that besides being a tenant and in a disadvantaged position, I had the power to bargain because my landlord was aware of the market condition. The cost of replacing me as a tenant was high. Furthermore, before initiating the negotiation process, I researched the local listings to check what other tenants were being paid for the same property during such financial crises and what types of the deal have been offered by the varied landlord to fill in their vacancies. This data not just allowed me to prepare a deal that would be acceptable to both parties but also assisted in making a persuasive case for a rent reduction and percentage-of -sale deal. Another factor that helped in the negotiation between my landlord and me was my landlord position in the current financial crises. While making a list of the possible deals, I never considered my benefit or gain; instead, I tried to be in my landlord's shoes and view the scenario from his perspective. Viewing from the negotiation table's opposite side allowed me to be considerate and create a practical value for us both.

The strategy I employed for this negotiation was "The Prisoner's Dilemma Game", which allowed value creation for both parties. According to this dilemma, two accused are being interrogated for a crime in separate cells. The outcome is if neither of the accused admits, no one will be convicted; however, if one of them will admit, both of them will be convicted. However, the dominant strategy that will create value for both convicts is that they both agree to crime, though the value created will be less than if they both have denied it. Still, in case of an agreement to crime by one convict, the other convict would bear a long-term sentence. Therefore, considering the scenario, the best possibility is to accept (agree-agree) even if the outcomes are not as favorable as possible for both parties (Schneider, 2012).

Using the same strategy, even though accepting the sale-to-percentage ratio was not beneficial for me, but to get a rent reduction, I must agree upon it to create a win-win outcome. The same is for my landlord; even though he won't be receiving full rent during the presiding financial crises, he will be receiving a percentage of my sales when the business will resume along with the reduced rent, which is better than not having a tenant or rent at all. By employing the Prisoner's dilemma and focusing on collaborative negotiation, both parties achieved a win-win outcome.

  

References Coleman, P. T. (2001). A systematic approach to evaluating the effects of collaborative negotiation training on individuals and groups. Negotiation Journal. McLachlan, S. (2014). Collaborative Negotiation – 6 Important Reminders About This Win-Win Approach’. https://www.thoughtexchange.com/collaborative-negotiation-6-important-reminders-about-this-win-win-approach/>. Roy J Lewicki, A. H. (1996). Think before you speak. John Wiley & sons. Schneider, A. K. (2012). Teaching a new negotiation skills paradigm. Wash. ALJ & Poly. Thompson, L. L. (2010). Negotiation. Annual review of psychology.