Managing Conflicts

Scenario: Agency Issues in Negotiations

Al and Bob entered the third meeting with some confidence. As the representatives for Symbiot Services (SS), they had hammered out some detailed language with the Department of Natural Resources (DNR) that would meet all of the prior objections raised during negotiations by the agency, and would still assure SS a reasonable profit for the services that SS would provide.

Al had been the primary negotiator for SS. Bob was now entering the negotiations to provide the final legal fine points to the agreement in principle, and to thereafter give the legal departmentÐŽ¦s blessing to the agreement. On the other side of the table, Rhonda and Sarah unpacked their notes meticulously. Rhonda, DNRÐŽ¦s primary negotiator, had worked with Al to identify all the issues raised by the respective organizations and craft an agreement that weaved together all the parts into an effective agreement. Sarah had joined Rhonda for this meeting to sign off for the States Attorney Office, putting the legal seal of approval on what had been written.

While Sarah and Bob unloaded their papers and books, Al and Rhonda chatted about how difficult it had been to identify all the issues raised at their respective home offices, then figure out how things could be addressed in a way agreeable to both sides, and then reduce the entire wall of post-it notes, taped copies of e-mails, and highlighted letters to a readable document. Because they are the talking links between their organizations, Al and Rhonda had to almost personally bridge the gaps between the organizations, and often it seemed they were a team of their own, arguing with the two ÐŽ§home teams.ЎЁ

The last sticking point had been the issue of how much SS would discount its regular charges for services. DNR was a very big customer and expected to get the bulk discount for services. The DNR had wanted a 50% reduction from the regular rate; SS had offered 10%, and they had finally settled on a 25% rate reduction for this contract, in the interest of providing a break to taxpayers. Both Al and Rhonda were careful to obtain e-mailed or hard copy approval of the 25% rate reduction from their bosses, because neither had the authority to set unique rates unilaterally.

Sarah, representing DNR, brought the meeting to focus by reciting the issues that had been resolved, and asked SS if it had any final issues to resolve before declaring the final document completed. When SS replied that all was in proper order, Sarah dropped the bomb: She could not certify the agreement as okay from the State Attorney Office point of view unless and until SS agreed to a 33% rate reduction, not a 25%. Sarah didnÐŽ¦t offer much explanation for this abrupt change, only repeating that anything less than a 33% rate reduction was a deal breaker.

Al looked at Rhonda, and Rhonda shrugged her shoulders, indicating this change was news to her. Bob commented that this was highly inappropriate, because the substantive matters had been signed off by the negotiators, and this meeting was not to plow old ground but to verify that there were no legal pitfalls that the negotiators didnÐŽ¦t know about. Sarah repeated her 33% statement, and suggested that Al and Bob use the adjoining office to call their home office and get the okay for the change so that everyone could initial off on the agreement and send it to the respective CEOs for execution.

An Overview of Agency Law in Negotiation

There are three primary assurances that a negotiator should confirm relating to agency law in the negotiations setting. First, it is very important that the other party know that the negotiator is making this offer as an agent of some other party or organization that will actually pay for the products/services so the negotiator doesn't have to personally pay for the stuff. Second, it is important that the negotiator have proof that he or she has the authority to act as an agent, and to what extent and scope. Finally, it is significant that the acts of the agent or the acts of others can create vicarious liability for the organization that the agent represents.

Notice of Agency

This is usually understood to an extent, but there are two dimensions that are not frequently clarified: limits and scope.

When a corporate officer or executive sits down at the negotiation table with a supplier, customer, union, government regulator, or other stakeholder, that stakeholder understands that the officer or executive is representing the organization, not his or her personal bank account. What is not so clearly understood is the scope and limits of the representation. If the meeting is called to determine (negotiate) what the supplier will charge to service the Ohio offices, for example, then the implied scope is just thatÐŽXcost of providing services in Ohio. The scope might be further clarified as relating to an annual contract, or to services during a special time period, like the Super Bowl. Finally, the limit of negotiation is related to the negotiation itselfÐŽXhow much, how long, how approved. There may be dollar limits for the final contract, or some factor may limit the time that can be spent in negotiation, and, finally, there may be definite limits on who will finally approve and sign the agreement that is being negotiated (the one who can turn the negotiation into a contract).

There are many aspects of scope and limit that deserve discussion at the outset of negotiation, but two that should be discussed carefully involve what can and cannot be agreed to, and who will have to finally approve the agreement to make it official.

Discussion of the first itemÐŽXwhat can and cannot be agreed to by the negotiatorÐŽXserves to improve the efficiency of the negotiation process. For example, if the parties are present to negotiate what an engineering firm will do to develop a new process for a client, the engineering firmÐŽ¦s negotiator clearly needs to explain what canÐŽ¦t be negotiated. If the firm absolutely will not construct a pilot (also known as a prototype or first article test) at its own expense, it should just say so at the outset. Note that this is totally different from a situation in which the firm will do something, but has a price limit. If the firm is willing to pay up to $2 million for a prototype, itÐŽ¦s not a smart thing to tell that to the other party, because they now know how much to demand. The amount one is willing to pay for something is a matter of degree, not a ÐŽ§yes or noЎЁ situation. Disclose ÐŽ§yes or noЎЁ situations up front to get them off the table. DonÐŽ¦t use those items