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Perils of Complacency in Long-Term Negotiating Relationships

Phil Tammen
Perils Of Complacency In Long Term Negotiating Relationships

There are many circumstances in business where two seemingly independent entities are in practice mutually inter-dependant. Inter-dependence may arise in cases where there is supplier with a short client list, an entity acquiring most of its needs from a single supplier, a novel product only available from a single supplier, or a bespoke product for which there are very few applications. 

While it is tempting to say “so what?” or ignore this dimension of the relationship, in practice there are often operational implications and negotiations between the parties which may also be affected, especially if there are asymmetric views on the degree of inter-dependence... 

If we leave aside the issue of supply chain resilience, which has been well covered in previous Scotwork articles and by many other authors recently, there are some fascinating consequences for poorly executed negotiations between inter-dependent parties, and a real but suitably de-referenced example (not a current Scotwork client!) can illustrate the key issues. 

One of the most common (and acute) types of inter-dependence arises when a supplier effectively has a single dominant customer (>80% of gross revenue) and the customer has only a single supplier for the class of product, especially where the products are bespoke and durable assets. The complexities in this type of relationship are clear, both parties need the product to be a success with the end customer, and both parties are relying on the other remaining a viable concern over the asset life. 

In our example, the acquirer needed to refresh a contract for ongoing support and upgrade of very complex fielded assets, which would require a mixture of developmental upgrades in software and hardware as well as traditional repair and overhaul. Both parties seemingly committed early to preparing for the negotiations and were engaged in progressively framing expectations about the new contract, recognising it needed a substantial modernisation to meet the acquirers' contemporary contracting practices and that with the march of time there were support services in ICT security and cyber hardening that were also needed. The seller also needed to redress historical under-charging and a growth in informal expectations around service delivery. 

A series of preliminary exchanges between the parties were seemingly well supported at the working level, and a number of expectations were shared between the parties, who had a long-term relationship and significant familiarity upon which to base the engagements. A co-development activity helped establish the statement of work for the new contract, using a very contemporary collaborative contracting approach. You can only imagine the strategic shock between the parties' leaders when the resulting sole-source tender was markedly above the acquirers planned budget and the resulting negotiations quickly reverted into an undignified haggle on cost with scope being discarded in haste to have an agreement in place before the old one expired. Sadly, blunt threats of termination entered the negotiation from the acquirer, despite most of the representatives from each organisation recognising the infeasibility of that course of action for either party. Subsequently, the basis of trust between the parties was set back years. 

There are several key lessons to consider from the case, which are broadly applicable to the special case of inter-dependent parties (and some other scenarios too!), and they include: 

  • Understand your mutual inter-dependence but don't take it for granted as circumstances can change... 
  • Be realistic about the resulting limits on your power and freedom of action - value your trust with your counterpart, as that is probably the most important ingredient in dealing sustainably with each other. 
  • Ensure that you leave time to develop a quality agreement, no matter how familiar you are with your counterpart. 
  • Be clear and realistic about the cost of your needs, as feeding unpaid scope to a monopolised supplier might feel like a great power play but sending one of your key partners into insolvency isn’t actually in your interest. 
  • If you observe a growth in informal expectations supplementing your contracts, do not allow that trend to grow out of hand or be invisible to their leaders, raise the issue with your partners and get it equitably adjusted early on. 
  • Where you have the opportunity to shape parties in advance of the formal offer and exchange process leading to negotiations, make sure that your strategic messages on needs and limits are clearly communicated, and that you are distilling them effectively from your counterpart. 
  • When negotiations aren't proceeding to expectations, make sure your team ask questions, seek to understand partners perspectives and where possible keep making constructive proposals. 
  • Monitor your negotiation teams regularly, ensuring that they are reporting in a structured way to enable independent and objective oversight. 
  • Consider maintaining an open strategic line of communication above your negotiation activity, if you are truly inter-dependant then you need to protect the long-term relationship! 
  • If your own negotiation team leaders lack the understanding of the respectful and professional relationship necessary with your counterpart, be prepared to replace them with a team that can negotiate firmly and constructively in your long-term interest. 

While our parties did ultimately craft a deal, an interim extension of the old arrangement was needed and neither party was left with solutions to the issues they brought to the negotiations. Needless to say, the basis in trust to solve these and any operational problems that arose was very much diluted. Working with a professional negotiator from early on might have led to more effective strategic communications between the parties and led to the creation of greater value in the agreement for both parties. 

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