Teaching Contract Negotiation: Using the Mutual Gains Approach

By Lara SanPietroon / Teaching Negotiation

How do you use the mutual gains approach in contract negotiations?

In contract negotiations, parties can often resort to positional bargaining instead of using the mutual gains approach. Teaching students to generate creative options in contract negotiations can help them avoid positional bargaining and achieve more beneficial and sustainable agreements. The Teaching Negotiation Resource Center (TNRC) has a variety of negotiation simulations designed to teach students to use the mutual gains approach in contract negotiations.

GE International Contract – Featured Contract Negotiation Simulation 

The GE International Contract simulation is a two-party, one hour, potentially integrative negotiation between representatives of a large corporation and a consulting firm over very different expectations of the cost of services. Several years ago, GE International purchased a networked computer system to serve all of its operating departments. Unfortunately, the computer system has become utterly ineffective. GE International’s Senior Manager of Information Management Operations has been charged with finding an expert to divide and reprogram the computer system, rewrite the manuals, and maximize the value of the existing high-quality hardware and software. The Senior Manager has located a computer consulting company that seems to be far better equipped than any of the alternative companies to handle this project. The consulting company, in turn, is eager for the publicity of working with a world-renowned company like GE International. At the last minute, the Senior Manager and the computer consultant realize that they have been exploring this contract without knowing that the other party had an enormously different idea regarding the appropriate price for the project. The parties are meeting one last time to see if there is a way to salvage the deal. Major lessons of this simulation include:

  • Comparing principled negotiation to positional bargaining.
  • What are the advantages and disadvantages of revealing one’s BATNA? How do the parties’ BATNAs — and their disclosure or nondisclosure of them — affect the negotiation?
  • What can the parties do to facilitate option generation in the negotiation?
  • What are some criteria for determining a fair price? Are the parties’ initial expectations regarding the price relevant to what the price should be? Do the parties’ BATNAs have any bearing on what the price should be?

To learn more about this exercise, preview a GE International Contract Teacher’s Package.

Flagship Airways – Featured Contract Negotiation Simulation

Flagship Airways is a six-person, two hour, negotiation between three representatives of an industrial manufacturer and three representatives of its primary client over restructuring of an existing purchase agreement. Three years ago Flagship Airways signed a ten-year, $1 billion contract with Eureka Aircraft Engines. Since then, things have changed for both Flagship and Eureka. Flagship’s revenues have steadily decreased and they are now reluctant to put forth $1 billion to expand. Meanwhile, Eureka’s development of its “revolutionary” engine has not proved as efficient as Eureka had hoped. Today, at Flagship’s request, the two companies are meeting to discuss how to restructure the agreement. This is not an unprecedented procedure. The two companies have met in the past to restructure deals when circumstances have changed significantly for either party. In their negotiation, there is a great deal of data to be managed by both parties. There is also a longstanding relationship between the two lead negotiators for each side. Each must decide how to secure the best deal for his/her respective company, while maintaining their relationship. Each must also build trust within his/her team to make sure that the terms agreed upon are acceptable to all. Major lessons of this simulation include:

  • To insure relationships that promote quality within the organization, both long-term and short-term interests must be balanced very thoroughly.
  • This exercise demonstrates the dependency of successful internal negotiations on successful external negotiations. Thorough preparation is absolutely critical in this negotiation.
  • Don’t jeopardize long-term relationships by pushing too hard for short-term gains.
  • Effective cross-cultural negotiation depends upon making sure what you are saying is what is being heard and that you are hearing what is said. Clear communication is critical.

To learn more about this exercise, preview a Flagship Airways Teacher’s Package.

Ad Sales, Inc. – Featured Contract Negotiation Simulation 

Ad Sales, Inc. is a six-party, four hour, multi-issue contract negotiation between management and union members of a publishing firm. Ad Sales, Inc., a firm that sells advertising space in business publications, has a new management team that will negotiate its first contract with the union representing its employees. Tension has been building, and both sides have been maneuvering for strategic advantage. Some issues to be addressed are salary, vacation time, pensions, sub-contracting, compensation, and work assignments. Major lessons of this exercise include:

  • Interval team conflicts must be ironed out before union-management negotiation can proceed smoothly.
  • This exercise encourages parties to trade across issues and within issues. Participants must decide what their BATNA’s are and the differences in values of issues will determine the amount of trading.
  • This exercise allows the participants to explore the influence of threats and promises on the behavior of other parties. These must be handled carefully.
  • The problems of power imbalance, typical of employee relations, are highlighted.

To learn more about this exercise, preview an Ad Sales, Inc. Teacher’s Package.

Check out the TNRC’s full library of contract negotiation exercises here.

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The Teaching Negotiation Resource Center offers a wide range of effective teaching materials, including

TNRC negotiation exercises and teaching materials are designed for educational purposes. They are used in college classroom settings or corporate training settings; used by mediators and facilitators seeking to introduce their clients to a process or issue; and used by individuals who want to enhance their negotiation skills and knowledge.

Negotiation exercises and role-play simulations introduce participants to new negotiation and dispute resolution tools, techniques and strategies. Our videos, books, case studies, and periodicals are also a helpful way of introducing students to key concepts while addressing the theory and practice of negotiation.

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