Negotiation Blog

Negotiating Demands for Unjustified Compensation

By Thomas Wood

As many issues typically arise during execution of an agreement as arise during contract negotiations. Some require contract modifications, while others require a change in performance expectations. I worked with a manufacturing client recently on its dispute with a valued customer. The challenge was how to resolve the compliance issues without damaging the relationship. 

PROBLEM:

My manufacturing client (Sandra) couldn’t get an important customer (Joe) to pay his bill. Joe insisted that a special order of a low volume, high cost part was delivered a week late. This caused Joe to miss his delivery deadline with his big customer. Joe is being slapped with a penalty fee from his customer and wants a 50% discount.

After probing Sandra, I learn that a delivery deadline was not in the contract. There was a verbal commitment to get the part there as soon as possible, but no promised date. Sandra wants to keep Joe happy, but since she didn’t violate the contract, she won’t discount the price.

Try this:

Before asking an irate customer to be reasonable, Sandra should invite him to problem-solve a win-win solution. A particularly effective way is to listen, draw him out, respond and summarize. For example:

  • Joe: "You were late, which made us late and now we are slapped with a penalty; it is your fault and I am not going to pay your bill."
  • Sandra: "You are getting flack from your customer and the reason is you were delayed because our product was delivered to you later than expected."

It is challenging to actively listen when you feel attacked, so practice before you make the call.

DON'T:

Be careful not to make counter-accusations. It is counter-productive. "It is not my fault; you ordered the product last minute and we delivered as soon as we could, which is what we told you when you placed the order."

NEXT STEPS:

Suggest that you do some research together on what went wrong, what the current obligations and understandings are, and whether they need to be revised. For example, Sandra might say: "I would be happy to consider compensation once we agree on the facts. Would you be willing to take out the contract, see what we agreed to and then decide what needs to be done? Let’s also review the order and communication process that occurred for this part and see if they need to be changed."

Once you have agreed on the facts and process improvements, choose an offer.

CHOICE ONE: Create good will with a concession other than a price discount. Sandra might say, "Given the facts we have uncovered, I’m not inclined to discount this particular order. But I am sorry and want to help. For example, I could eliminate the late payment penalty."

CHOICE TWO: Offer a trade in exchange for a concession. Sandra could say, "You are an important customer to me and I’d like to help you out, so what I could do is give you a 4% discount on this order, if you pay it within 3 days."

CHOICE THREE: Use legitimacy (facts, such as previous agreements, industry standards, competing offers, cost plus). Sandra could propose, "Let’s both see how we have handled this in the past. I will look into how we have dealt with similar situations with other important customers and you look at what you have agreed to with your customers in this sort of a situation. What do you offer your clients if you were not contractually late on delivery, but yet were later then they expected?"

KEY to negotiating a resolution

The key is to turn the conversation into a problem-solving negotiated agreement.

  • Make trades you are comfortable with, but get concessions in return.
  • Let the facts be the bad guy. It will keep your negotiation from turning into an argument.
  • Jointly determine deadlines, but probe arbitrary deadlines you are given
  • Come to an agreement on how to keep this from happening in the future.
  • Remain calm and sympathetic.

If you do this, your relationship with your customer will be stronger than ever. Remember…. Be firm but fair!

Negotiating Tip

Listen! It's the easiest and most valuable concession you can offer in any negotiation. You always get goodwill and information in exchange.


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Negotiation Blog

Can you shift your negotiating counterpart from hardball to collaborator?

By Marianne Eby

Getting your negotiating counterpart to turn collaborative is no easy task. One strategy is to diplomatically confront the behavioral problem by offering your hardball counterpart a chance to save face and proceed on a more collaborative path.

Last month I received a Need Help Now call from a former workshop participant (let’s call him John) who was struggling with an extremely difficult negotiating counterpart (let’s call him Jessie) from an important customer. John reported some success to me today.

Jessie constantly made demands and focused on penalties for late deliveries, but John felt sure that if Jessie would just discuss the situation more openly, they could solve the problems they were having with delivery expectations and compliance. John felt attacked from the start of any conversation with Jessie, and although he promised himself he wouldn’t do so, ultimately he would respond in kind, thus escalating the tension between them.

We discussed several strategies to turn Jessie into a more collaborative negotiator, at least in his conversations with John.

When the next delivery problem occurred, John tried the first strategy -- to model collaborative behavior. Rather than respond directly to Jessie’s accusations and demands, he posed possible solutions and suggested alternatives. He was persistent, but seemed to hit a brick wall. As we had planned, though, he ended the conversation in a friendly tone and promised to look into the situation and call back tomorrow.

When John called Jessie the next day, he tried the second strategy -- he confronted the behavioral problem rather than move straight to the delivery issues on the table. He told Jessie that he was really glad to have this chance to talk with him again, because he realized now why their conversations might have been so tense, and that he hoped he could do his part for them to find a better approach. He told Jessie that he read some recent press about his employer, and saw that there had been a lot of layoffs recently. He could understand if there was a lot of pressure on Jessie to deliver results, and he wanted to find some solutions so that the problem with late deliveries would end. He asked Jessie if he would work with him to make their conversations more productive.

John reports that he and Jessie started talking about the layoffs, and Jessie’s worries that he could be next. What followed was their most productive conversation about how to solve the delivery timelines. By the end of the conversation, Jessie actually apologized if he was difficult to deal with, and thanked John for working the problems out with him.

Negotiating Tip

We feel smarter when talking. But studies show that people who listen more are usually considered to be smarter than people who talk a lot.


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