After the deal breaks down

By — on / Daily, International Negotiation

Adapted from “Redoing the Deal,” by Jeswald W. Salacuse (professor, Fletcher School of Law and Diplomacy, Tufts University), first published in the Negotiation newsletter, August 2005.

If you’re like many professionals in these uncertain times, you are probably spending as much time redoing old deals as you are negotiating new ones. Here are four suggestions on how to ensure a smooth renegotiation process, adapted from Jeswald Salacuse’s book The Global Negotiator: Making, Managing, and Mending Deals Around the World in the Twenty-First Century (Palgrave Macmillan, 2003).

1. Avoid hostility. It’s tempting to respond to a demand for renegotiations with hostile, belligerent, or moralistic objections. Such responses are rarely effective, however, as the other side typically will have determined already that its vital interests require changes to the deal. Only by dealing with those interests can the parties resolve their conflict.

2. Weigh your claim against the value of the relationship. Willingness to renegotiate a contract typically corresponds to the value one side attaches to a potential future relationship with the other side. If the relationship is worth more than your claim for breach of contract, you ordinarily will be willing to engage in renegotiation. If, on the other hand, you conclude that your claim is worth more than the benefits from a continuing relationship, you may insist on your contractual rights to the point of resorting to litigation.

You may not be able to evaluate accurately the worth of a claim or the value of a renegotiated contract without first engaging in discussions with the other side. Moreover, satisfaction of a claim through litigation is almost always a lengthy and expensive process, a further motivation for choosing to renegotiate.

3. Create value in the renegotiation. When your counterpart demands renegotiation, you may expect that any advantage he gains will guarantee a loss for you. An unwilling participant in a renegotiation is likely to be intransigent—to quibble over the smallest issues, to voice recriminations, and generally to block proposed changes. Naturally, such talks are unlikely to lead to joint gains. The challenge for both sides is to create an atmosphere in which problem solving can take place. Even if you feel forced into a corner, approach renegotiation as an opportunity to raise new issues that will benefit both sides.

4. Fully evaluate the costs of failure. In many cases, the alternative to a successful renegotiation is litigation. As you approach the renegotiation process, you and your counterpart must carefully assess the risks of later facing each other as defendant and plaintiff. Doing so will allow you to accurately evaluate the worth of various proposals. Notably, the side demanding renegotiation is likely to undervalue the risks and costs of litigation, while the party facing the demand probably will overvalue a lawsuit’s benefits. Therefore, it’s important for each side to ensure that the other has a realistic evaluation of alternatives to a successful renegotiation.

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