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Negotiation and Mediation are
the least costly ways to reach an agreement. Here's
how to make them work.
Negotiation is usually the
first level at which dispute resolution is attempted.
The parties to the dispute retain the greatest
control and incur the least expense. Moving from
negotiation to mediation to arbitration or litigation
results in a reduction of control along with an
increase in costs at each step.
Resolution by negotiation retains
the highest level of control because it is the
parties themselves who determine the terms of
the agreement. They decide how the matter will
be resolved, not some third party. This is the
most common and most cost-effective method of
dispute resolution.
Exchanging letters with position
statements is not negotiating. Exchanges of letters
responsive to reasonable requests for information
and explanation, however, can set the stage for
a successful negotiation. Most disputes escalate
into arbitration or litigation when the exchange
of letters ceases to be a dialogue about the issues.
These types of letters only complicate matters
so they ignore the issues raised in the letter
to which they are responding and make new accusations
of wrongdoing. Even if there are new issues that
need to be raised in a reply, responding to the
specifics keeps things on track for resolution.
Once positions are staked out,
real negotiation should begin. Although styles
of negotiation vary widely and are unique to each
individual, here are some general guidelines that
may be useful in approaching a negotiation:
1. Define areas of agreement.
Recognize the issues where there is agreement.
This sets a tone for the negotiation -- the purpose
is to get a resolution. It also has the benefit
of limiting the issues that can be brought up
as negotiations progress.
2. Listen to the other side.
Parties in a dispute always have their own agendas.
There are certain things they have a burning desire
to get off their chest. Similarly, there may be
things you want to get off your chest. Both sides
need to be afforded this opportunity. It has the
effect of giving a party the feeling that they
have had their "day in court." It will also bleed
off some of the emotions that are often part of
a dispute. Remember, they won't listen to you
if you won't listen to them.
3. Negotiation is the art of
compromise. Be prepared to compromise. Be
prepared to back off positions that are taken
only for the purpose of gaining leverage. It is
hard to be viewed as negotiating in good faith
if one refuses to pay money that is acknowledged
as due. Holding $25,000 because of a $5,000 dispute
to create leverage will come back to haunt you
if you cannot resolve the problem.
4. Fix the damages. If you
can't agree on whom should pay, try to agree on
how much would be paid if anyone pays at all.
This has the benefit of eliminating the claim
creep. Claims such as back charges or change orders
have a habit of growing larger and larger as time
goes by. If there is a ceiling on the money involved,
it will often reduce its importance in the overall
scheme of things.
5. Have a plan. Focus on
achieving a reasonable financial goal and preserving
your relationship with your opponent. Factor in
the value of your time. You cannot grow a business
while you are busy fighting with other people.
Factor in the cost of having others, such as lawyers,
resolve it for you. Have a settlement range in
mind, but be prepared to react to what you learn
in the negotiation. Realize that you may have
heard only the favorable parts of the story.
Mediation is another form of negotiation.
Here, a neutral third party is brought in to facilitate
the negotiations. Florida has been a pioneer in
the use of this method of dispute resolution.
The process is now required in virtually all lawsuits
before a court will even consider a trial. With
mediation, as opposed to negotiation, costs now
start to rise and control begins to fall. The
mediator has to be paid and some measure of control
is now in his or her hands.
The critical element in the success
of a mediation is the skill of the mediator. He
or she must be objective, truthful and command
respect. Credibility is required because the mediator
is likely to suggest that one or both parties
are wrong and that one needs to pay something
to the other. Knowledge of construction is a must.
Mediation usually begins
with the parties agreeing on a mediator and setting
a schedule for the mediation. Attorneys, accountants,
claims consultants and others may participate
in the process to the extent they can help clarify
issues and resolve controversies. Often mediation
statements are exchanged or provided directly
to the mediator. These are designed to familiarize
the mediator with the nature of the dispute. The
mediation itself usually starts with opening statements,
where the parties set out their views of the dispute.
This is important because the decision maker may
be hearing the unfiltered version of the other
party's claim for the first time.
Generally, everything that takes
place at the mediation is confidential and privileged.
The mediator cannot be compelled to testify about
anything taking place. This allows the parties
to be candid about their positions without fear
that the information will be used against them
in a subsequent arbitration or mediation.
The parties still retain significant
control since the mediator cannot impose a settlement.
Any settlement must be agreed to by both parties.
It allows a great deal more flexibility and creativity
than is available in arbitration or litigation.
The parties, for example, can agree to a solution,
enabling one of the parties to do the work themselves
at a lower cost. By contrast, in arbitration or
litigation, the only alternative is an award of
money damages.
This article first appeared in
the Contractor's Advantage, March/April 1997 issue,
published by Knight Images, Inc. for Scotty's
Contractors School
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