Bargaining While it may feel in some ways like the proposal period, bargaining is much different for a number of key reasons. While the proposal period involves putting out vague notions of what the deal might look at, and proposals serve as a starting point for counter-offers and further consideration, this is simply not the case with the bargain process. A bargain is something that, when it is agreed to, becomes an actual deal that can be signed and relied upon by the two parties. With this in mind, the bargain process is critical because it ties sides to specific conditions and behaviors. While the proposal process is designed to allow parties to be vague about their own duties while being specific about the conditions that they wish to get out of their fellow negotiator, the bargain process lays out precisely what the first party is willing to do in order to secure the agreement of the second party.
In the bargain stage, the most important thing is to understand both one’s own BATNA and the BATNA of the other party. One’s own BATNA is critical because it tells a party just how far it can go and just how much it must bend. The BATNA is the best alternative to a negotiated agreement, which is another way of asking what a party can do if it is not able to finalize a deal, and if it is forced to walk away from a deal. In this case, is the sub-contractor has a solid BATNA, then the sub-contractor has the ability to hold steady at RM500,000 on its offer, and it can insist upon many of the other conditions that were worked out in the proposal stage. However, if the sub-contractor has a poor BATNA, then the sub-contractor may need to bend on these conditions, or at least eliminate some of these conditions in order to more effectively come to a deal. This will be necessary because the sub-contractor needs to make any deal more than it needs to make the best deal.
The important thing about the bargain stage is that it must have specificity. While the proposal stage is designed to give the other side an opportunity to propose ideas, and it is designed to give the sub-contractor a chance to see how the other side is going to respond, the bargain has to be specific. It has to be specific because it is, in effect, the means for an individual negotiator to let the other party know where the line in the sand is. This is not to say that the bargain is the final offer. There can be multiple bargains put forth, and bargains can go back and forth in some instances. But the bargain needs to be specific enough that when there is an acceptance, the terms are hammered out in such a way that they can be outlined in an agreement that will dictate the future relationship and responsibilities of the two sides. This means that for every condition that is required of the other side, the sub-contractor will outline a specific requirement or responsibility of his own. In this, the bargain is different from the proposal. It is different because a person is actually giving up something in the bargain in order to get the things that the person showed that he or she wanted in the proposal. To that end, a bargain put forth in this case might be:
Price of the contract
RM525,000 with taxes and fees to be paid by the main contractor.
In response, sub-contractor will commence work within 14 days.
Goods and services
Water, electrical and lighting supplies
Water, electricity and lighting supplies charges to be reduced by half if required for overtime or off working hours.
Sub-contractor will notify main contractor in the case that the work is going to require overtime.
Main contractor will provide additional storage space for debris and the like.
Sub-contractor will make reasonable efforts to facilitate the clean-up of debris.
Main contractor will allow a reasonable extension to sub-contractor if sub-contractor’s workers are not allowed to work on weekends and holidays.
Sub-contractor will at all times have a working crew during available working hours to ensure the successful and timely completion of the project.
Main contractor will provide protection of the building site, including protection of building materials left on-site by sub-contractor.
Sub-contractor and his agents have a duty to keep a safe and clean working site.
Main contractor will provide an inspection of the main surface to ensure proper completion of the work.
Sub-contractor agrees to provide a ten-year warranty, but will provide two additional years of on-site support.
Terms of payment
Main contractor will make down payment up front upon confirmation of job.
Sub-contractor agrees to complete work as requested upon receipt of down payment; existing balance will be paid at the conclusion of the job, upon confirmation of work completion.
The primary purpose of this particular part of the negotiation process is to outline the things that are most important, and to bend on those things that are not. This is the time in which the sub-contractor demonstrates his or her priorities. In some cases, a party may be most interested in the money involved in a deal. In other cases, a sub-contractor will be most interested in the working conditions or other protections offered by a main contractor. The bargain process is when decisions must be made on this, as most deals will be such that parties cannot have everything that they want.
Once this part of the process has been done, agreement is the next step, and though it is the last one, it is arguably the most important step in the negotiation process. While some believe that the negotiation has ended when the bargain has been agreed to, this is really not the case. The agreement phase, or truly, the signing of a contract, is a critical stage that has a number of purposes, and also a number of potential avenues where a sub-contractor can either benefit or be harmed, depending upon the deal itself and the context surrounding that deal.
The primary goal of the agreement step of the process is to have both parties carry out their part of the deal. Contracting itself is something that is designed for clarity, and designed to give people clear expectations on what they should be doing in regard to the other party. The reason this is necessary is easy to understand—going to court is expensive, and it often makes no sense for either party to run the risk of a lawsuit if something goes wrong in the contract. It is costly for both parties and time-consuming, as well. Sub-contractors especially are people who make money based upon their time and their skill. If they are having to go into court over and over, they do not have the time to make more money on the job. What this means, then, is that contracts should be written in such a way that the other party understands precisely what it has to do, and that there is no ambiguity that will allow the other party to get out of the deal.
The other purpose of the agreement portion of the negotiation process is to ensure that a party has no ability to get out of the contract when things turn bad. In some contracts, a party might get a better offer at some point in time, and it might make sense for them to leave the first contract behind. A good agreement will ensure that there is no wiggle room. Clarity is again key for this process, as ambiguity within the agreement is one of the ways in which it could potentially be avoided or excluded by the courts. Another way in which it might get avoided or excluded is if one concludes that the agreement is counter to public policy. The courts can, at times, exclude contracts or allow parties to avoid performance of contracts on the basis of bad public policy. With this in mind, it is critical that the agreement not only clearly reflect the agreement of the two parties, but also be within the bounds of good public policy so that it will not be excluded by the courts.
Lastly, the agreement process provides the opportunity for parties to draft clauses that are in their favour. While the proposal portion of the negotiation process might lay out the general framework of the potential deals, and the bargain process might make a more specific outline of the things that each side has to do, there is the process of drafting that must still take place. The bargain process will necessarily not include everything involved in the contract, so the agreement stage is the one in which a person can draft the contract in such a way that any disputes will be resolved in their favour. This is also the time in which a person has the unique ability to include clauses that were not important to the other party, and not important enough to include in the bargain, but are still important enough to be in the deal. The agreement stage requires technical savvy, and is the means of taking the bargain and putting it down into words that can later be useful.
A sub-contractor attempting to enter into a deal must go through many stages of the negotiation process. Each of these segments of the process is critical and serves a different purpose. The planning process is what gives a sub-contractor the information that it needs in order to make a cogent decision on what things to ask for. This process is also critical because it shows both parties to a deal their BATNA so that they can decide just how much they need to make a deal. Debating is a part of the process where the two sides come together to hash out the aspects of their deal. They can try to make convincing arguments to the other side about why one term is or is not important. This is the time in which a party can sway the other party in its positions. The proposal process is a preliminary process in which different conditions are put forward. This leads to the bargain process, where more specific conditions are put forward and are attached to obligations on either side. From there, the agreement must be finalized, and during this contracting process, a party can include both draft language and terms that make it more likely that any dispute will be resolved in favour of the person who is drafting the agreement.
- Bortolotti, F., 2013. Drafting and negotiating international commercial contracts: a practical guide. International Chamber of Commerce.
- Gulati, M. and Scott, R.E., 2012. The three and a half minute transaction: Boilerplate and the limits of contract design. University of Chicago Press.