negotiation briefing: effective negotiating to secure ... · this briefing outlines, in a...

Negotiation Briefing:Effective negotiating to secure better outcomes

2008

Negotiation Briefing 2:Layout 1 28/1/08 15:00

Funded by

The Finance HubCharities Aid Foundation St. Andrew’s House18-20 St. Andrew StreetLondon EC4A [email protected] (020) 7832 3016f (020) 7832 3001

Development Trusts AssociationNational Office33 Corsham StreetLondon N1 [email protected] 0845 458 8336f 0845 458 8337

acevo1 New Oxford StreetLondon WC1A [email protected] 0845 345 8481f 0845 345 8482

NB: Please note this briefing has been updated to include delegate feedback collected atthe regional seminars.


AbstractThe effectiveness of third sectororganisations in winning contracts forservices, developing partnerships, orengaging agencies, can be enhanced bystrengthening the negotiation skills ofpeople who work for them.

Many third sector organisations findthemselves in difficult negotiatingpositions. Some negotiating partners,such as local authorities or governmentdepartments, seem to hold all thenegotiating power, and leave little roomfor discussion.

Yet a few simple rules, applied to everynegotiation, can dramatically improve theresults you achieve. This briefing will helpyou to take a structured and methodicalapproach to negotiation, enable you tosecure better outcomes for yourorganisation and those it serves.

This briefing will be an excellent practicalguide for those who are new tonegotiating, as well as a good refresherfor the more experienced negotiator. Theprinciples outlined will be helpful fornegotiating with many differentstakeholders in different situations andthey are not set out to be prescriptive forany particular negotiating scenario.

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Introduction

Third sector leaders must now regardtheir funders as “customers” or “clients”,and accept the need to compete, andnegotiate, for their business.

Negotiation can seem daunting. A recentacevo survey has shown that third sectorleaders, especially those running smallerorganisations, experience variousdifficulties when negotiating with funders:

• Only one in twenty smallerorganisations, and one in five largerones, say that almost all theirnegotiations result in successfuloutcomes,

• CEOs of smaller organisations are farless likely to walk away fromnegotiations than those leading largerones (7% versus 22%),

• 45% of CEOs leading smallerorganisations said they foundnegotiation “uncomfortable”,compared with 18% in largerorganisations, and

• Almost half of smaller organisations(turnover under £1m) have no morethan 3 significant funders, placingthem in a weak bargaining position.

By taking a planned and structuredapproach to negotiation, you canovercome many of these challenges andachieve better results. For instance, youmay be able to build better relationshipswith your funders, and secure fundingthat covers your costs.

In any negotiation, it is critically importantto identify what influence you can wield inthe negotiation. So often, particularly as

third sector negotiators, we fail toacknowledge our own strengths innegotiating and the fact that we do nothave to accept unreservedly all theprovisions and offers set forth by theother party. Consider what value you addabove and beyond the contract and howthis might be advantageous to the otherparty. The Impact Briefing might be auseful guide on this, specifically pages 17-19.

You may also be in a position to influencethe buyer at the tender preparation stageby helping to shape the document andacting in a consultative role. Tenderdocuments are not always clear and youmay have questions about it as well asadvice at this early stage. You arestrongly encouraged to pursue this roleas relationships can be forged early in thenegotiating process and will put you inthe position of a ‘consultative negotiator’(see later note on consultative negotiating– page 7).

This briefing outlines, in a step-by-steptemplate, the four stages of a negotiationprocess:

1. Preparation2. Discussion3. Proposal4. Bargain and Close

The briefing explains how to undertakeeach stage, and so make sure thenegotiation achieves the best possibleresult.


Key points

1. Negotiation is a skill that can be learntand mastered.

2. Use the four steps outlined in thisbriefing for each negotiation process:Preparation, Discussion, Proposal, andClose. This will help you structure yournegotiations effectively and improveyour outcomes.

3. Think of your funders as ‘customers’ or‘clients’, and accept the need tocompete and negotiate for a businessrelationship with them.

4. Try to avoid relying solely on onefunder, and putting yourself in aposition where you cannot walk awayfrom a negotiation.

5. Take time to understand your ownorganisation from the funders’ eyes,so that you can emphasise yourstrengths and address any perceivedweaknesses.

6. Always know your entry and exitpoints on each specific variable whichyou are negotiating.

7. Identify those areas where you canwield influence or power.

8. Establish the point at which you willwalk away from the negotiation. Thisrequires you to identify your BATNA –best alternative to a negotiatedagreement.

9. Remember to take in VATimplicationswhen negotiating aboutprice. Refer to the VAT briefing forguidance.

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What is Negotiation?

Negotiation is the process through whichtwo or more parties seek to achieve anagreement for their mutual benefit. Thisusually means providing goods orservices, in exchange for money. Forinstance, a charity may agree to providesocial care services, receiving fundingfrom a local authority.

This exchange will usually be the subjectof a contract. In a competitive tenderingprocess, a contract is the main output.During the implementation of thecontract, further negotiations may take

place over any changes in the scope orscale of the goods and services it covers,or over any changes in the price.

There are times when it will not bepossible to negotiate. Sealed bid tendersand fixed fee contracts are examples.However, the principles of understandingwhat the organisation can afford toprovide for a given amount of funding,and perhaps more appropriately what itcannot afford to do, are still fundamentalto ensuring an achievable deal is struck.

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Negotiating in the third sector

Third sector organisations operate in anincreasingly competitive world. Animportant mission and charitable statusalone do not entitle an organisation tofunding.

Third sector leaders must regardorganisations providing funding as‘customers’ or ‘clients’, rather than‘funders’, and accept the need tocompete, and negotiate, for theirbusiness.

To compete effectively, organisationsmust understand their clients’ buying

methods (often called ‘procurementprocesses’), and the factors that shapethem.

When negotiating with statutory bodiesthis will involve considering the politicaland economic constraints and pressuresthey are under, as well as the financialconstraints. By learning about the clientand their environment, we will be betterplaced to enter successful negotiationswith them.


Consultative negotiation

Akin to consultative selling, consultativenegotiation establishes a positive andnon-adversarial negotiating position earlyon in the engagement. It puts you and theother party essentially on the same teamseeking to arrive at a win-win outcomeand working together to overcomebarriers and problems to each partyʼs

satisfaction. Not all negotiation can beconsultative, but it puts you in a verypositive position if it can be and is oftenan automatic outcome when you advise atthe tender preparation stage. Consultativenegotiation is particularly relevant whenyou are seeking to build partnerships andestablish consortia.

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1. Preparation

Preparation is the most important stage ofnegotiation. Before negotiating, all goodnegotiators identify their objectives, set theirpriorities, and assess the other side’sposition. They plan their strategy and tacticsto achieve the desired result.

The first phase of preparation involvesasking general questions about your ownorganisation, such as:

• Who (are we)?• What (do we do)?• Where?• When?• How?• Why?

It is useful to consider these questions inmore detail. The lists below are notdefinitive. They serve to illustrate some ofthe thought processes we must go throughbefore negotiating with a potential client.

Who?• What type of organisation do we run?• What is our value base?• What sets our organisation apart from

the competition?

As well as being important for your ownawareness, your anwers to these questionsmay shape the other party’s perceptions ofyour organisation and how they should dealwith you.

What?• What do we do?• What is our “Unique Sales Proposition”

(USP), which sets our service apart fromthe competition?

These questions help to explore what youcan offer the other party, and why theyshould be interested.

Where?• Where do we work?• Where can we work?

These questions prompt thought about yourcurrent geographical presence and reach.

When?• When were we formed?• When did we start doing what we do

now?

These questions draw attention to yourorganisation’s history and its track record ina specific field.

The four phases of negotiation

The four phases of a negotiation process are:

1. Preparation2. Discussion3. Proposal4. Bargain and Close


How?“How” questions involve reviewing therelationship between your organisationand those with whom you negotiate.

• How do we view ourselves?• How do local authorities view us?• How can we achieve our ultimate

objectives?

You should consider how yourrelationships depend on mutualperceptions, and how they can beharnessed to achieve your organisation’sobjectives.

Why?All too often, organisations that are sellinggoods or services ask:

• Why should we take work from them?• Why should we accept their terms &

conditions?

That might be all right if you have somuch work that you can afford to turnsome away. If that is not the case a betterquestion to ask is:

• Why should they buy from us?• Why should they pay the price we are

asking?

If you can answer these questions, youare beginning to provide the rationale fora procurement decision in your favour. Atthe same time, you are acknowledging acompetitive context in which you cannotexpect simply to be awarded funds.

Finally and most important is to ask thequestion whether you should be enteringthe negotiation in the first place. Is thisbusiness relevant to our aims andobjectives and does it fit withour strategic plan? The TenderingBriefing has some useful guidelines onthis on page 8.

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The negotiating position

Look at your negotiating position in threeways:1. what would be our ideal outcome?2. what are we prepared to accept?3. what would make us walk away from

the negotiation?

Set out your position in the form of atable, ascribing a relative priority to eachissue. Identify issues that are ‘essential’,‘highly desirable’ or ‘desirable’. We canthink of each issue as a “variable” in thenegotiation.

For each variable, identify your ‘entryposition’, then set your ‘exit point’, belowwhich you’ll walk away. This will allowyou to see at a glance your options in thenegotiation.

The example below sets out a negotiatingposition for a service provider. Thevariables are the price charged for theservice, its availability, and the start date.

Fig.1: Table of issues and negotiating positions1

Variables Importance Entry Exit Degrees offreedom

Price Essential £160k £130k £30k

Serviceavailabiity

Highlydesirable

150 days per year 180 days per year 30 days

Service start date

Desirable 120 days 90 days 30 days

1 Taken from Win-Win: Negotiation Strategy and Tactics for Third Sector Leaders, acevo, 2007

The table should include each‘negotiable’ under the contract asperceived by you or notified by the otherparty. However, you should keep an openmind on what is and what is notnegotiable.

Note that the table enables you to seepotential links between each of thenegotiables. Link variables so that youdon’t get dragged into negotiating eachpoint individually.

Visualise the variables as tied togetherwith string: if you pull at one point theother points move. So you might end upsaying, “We could start the service 90days from now, but we would need tocharge an extra £10k to cover theadditional costs.”


Examine the likely position of the otherparty, employing the same techniquesused to clarify your own position. Beginby thinking about their probable wish-listand priorities, which will form the basis ofthe questions asked at the DiscussionPhase.

You will find useful information in therelevant documents, such as theinvitation to tender. However, you will alsohave to make assumptions about theirposition.

Bear in mind that your job at thenegotiating table is to find the ‘overlap’ inentry and exit positions of the parties. Soyou should compare their likelynegotiating position with your own.Consider whether, and how, the two canbe reconciled.

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About them

In the discussion phase of a negotiation,you should seek to set up a goodrapport. You should therefore avoidarguments, direct counter offers anddirect contradictions. These can seemhostile or aggressive and damage thenegotiation at the sensitive early stages.

Clarifying the purposeEstablish early on that both parties agreeon the purpose of the meeting. Thisavoids discussions at cross purposes,which can lead to frustration on bothsides.

Gathering informationIn opening the negotiation, you shouldseek to confirm the position of the otherparty. A simple technique is to ask theother party what they want. You shouldalso be prepared to state your openingposition.

SummarisingSummarising is a vital tool in theDiscussion phase of negotiations. Itprovides an opportunity to reduce tensionby taking the negotiation back to a pointof agreement.

“So in summary, against the agreedagenda, we have settled and recordedoutcomes for points 1 & 3, notdiscussed point 4 and have thefollowing proposals on the table inrespect of point 3 …”

2. Discussion


3. The proposal

Having prepared your negotiating positionand confirmed or altered it as a result ofdiscussion, you are now set to move tothe Proposal phase.

In the Proposal phase it is important tounderstand:• What is a proposal?• When should you make a proposal?• How should you make a proposal? • How should you respond to a

proposal?

Let us consider each of those questionsin turn.

What is a proposal?A proposal is a tentative answer to thequestion:

“Which of their needs must I meet, inorder for them to meet mine?”

It suggests a solution that may solveproblems for both sides. It may beunconditional, but usually should haveconditions attached.

A complex negotiation will usually involvemultiple proposals from both sides, eachmeeting some of each side’srequirements.

When should you make a proposal?You should make a proposal when youare sure that you understand the otherparty’s position and all of the issues areon the table. You should not make aproposal unless you can provide anaccurate summary of what the other partywants.

How should you make a proposal? In general, all your proposals should beconditional.

A conditional proposal has two elements:the condition and the offer. It is good

practice to state the condition first, andfollow it with the offer. This helps toensure that all offers are conditional.

Thus the offer should be constructed“If…, then…,” for example:

“If we are able to cover our full costs,we can have the service up andrunning in 90 days.”

Unconditional ProposalsUnconditional proposals can be sub-divided into two categories: • The something for nothing demand,

and• The something for nothing offer.

The something for nothing demandWhen confronted by the something fornothing demand, your counter should beto use a conditional response.

To the demand,“I need a 10% discount on the price,”

You might respond,“If you agree to pay 10% of our price upfront, we can reduce the overall costby 2%.”

Note that the conditional response fallsshort of the unconditional demand. Theoriginal demand represents the otherparty’s entry position, which may be opento negotiation.

The something for nothing offerIf you are presented with a something fornothing offer, you should “thank andbank”. In other words, say thank you forthe offer and accept it, without makingany offer in response. Make sure yourecord this properly, so the offer does notdisappear.

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4. Bargain and close

By this time you have identified thenegotiables through Preparation andDiscussion, and heard and made one ormore Proposals. Now you have to Closethe deal.

This phase creates the most difficulty,especially in professional, work-relatednegotiations. Adults become inhibited bytheir other experiences and less willing totake risks, including the risk of theultimate indicator of rejection: a simple“No”.

A bargain is an exchange: each partyoffers something in order to obtainagreement. At this point in the negotiationyou are starting to look for the answer“Yes”, so you must take particular careover your questions, offers andproposals.

The bargain might cover all of the issuesthat are under negotiation, or if all otherissues have been resolved, just a singleissue. However, it is good practice tokeep all elements of the negotiation aliveuntil you are ready to close the deal. Ifyou fail to do so, you might find that avaluable negotiation ‘chip’ has alreadybeen banked by the other side, and nolonger features in the scenario.

Closing the negotiation is often the mostchallenging part of the engagement andrequires a certain persistence andassertiveness which not all of us possess.If you feel uncomfortable in this role orfeel your assertiveness skills need someimproving you are strongly advised toinvolve a team member with good closingskills in this final stage.

Here are seven low-pressure phrases tobring the negotiation to a close:

‘Do I have your approval to proceed’

‘ When would you like to start theproject/programme/service’

‘If we covered all the bases, can I haveyour agreement to drawup/sign thecontract?’

‘Finally, do you have any concerns/issuesthat I/we have not addressed?’

You might also consider using acompelling date by which the finaldecision must be made in order to moveall parties to a close. This might beassociated with budgets, fiscal planning,an industry event or the availability of akey resource.

Even if you can’t close on the final deal,try to close on something to keep thenegotiation alive. This heightenscommitment from the other party andincreases the other party’s motivation tomove forward. This is known as anintermediate close and could include;

• Meeting again• Further review and discussion of the

tender document• A service demonstration or visit to

your facilities• Using the product or service on a trial

basis• Arranging a meeting or consulting with

another decision-maker in yourorganisation or the other party’s

• Providing further information• A visit to a reference site

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Case study 1: The credit card scheme

By Jason Suckley, Head of Corporate Partnerships at Macmillan Cancer Support

This case study shows how thirdsector organisations are often in astronger negotiating position than theythink. Do not assume there is no roomfor negotiation, just because the otherside is very assertive.

We had a deal with a card provider toissue a Macmillan credit card. With 12months left on the contract they suddenlytold us that they had sold our contract toanother provider, and we had only twoweeks to sign a new five-year contract.We normally take three months to agree acontract like this.

Before we spoke to them we made a listof our needs, and a list of their needs,and then thought about how we couldtrade these. For example, if we havesomething of low value to us that theywant, we won't give it up easily. This iswhat I learnt in the private sector, and itneedn't be any different in the thirdsector.

From the start, we were clear that the twoweek deadline was their deadline, notours. Our main lever in the negotiationwas the threat not to sign the newcontract. That would have meant stayingwith them for another year and notmaking any money, but we had to bewilling to carry through on our threat,otherwise they might call our bluff.

On the whole we were reasonably wellprepared and knew our options. By beingassertive, we got what we wanted.

Coming from the commercial sector, Iwas surprised by the other side'sattitude, who thought that we would rollover because we are a charity. Apparentlyall other charities that were offered thesame deal as us accepted withoutquestion. Most charities are actually in astronger position than they think they are.

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Contact: Jason Suckley, Head of Corporate Partnerships atMacmillan Cancer Support [email protected]


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Case study 2: The building transfer

By John Every, Blacon Community Trust

This case study shows how a thirdsector organisation can make progresseven in a complex and bureaucraticnegotiation. It shows the importance ofgetting all the right people on sidebefore focusing on the specifics, andof sheer determination!

We were negotiating with our CountyCouncil for the transfer of a formerprimary school which was surplus to theCounty’s requirements. It was a largebuilding that needed considerableinvestment. It was an ideal opportunityfor us to integrate our activities into onebase with room for growth. There was noother obvious alternative use.

The negotiations went through variousstages. First we encountered realincomprehension, as we were dealingwith property people trained to docommercial deals. ‘Not-for-profit’ or‘collaborative negotiation’ were notconcepts they were used to dealing with.

There was a phase of complete confusionwith growing numbers of Councildepartments becoming involved as thebuilding had to be declared ‘surplus torequirements’ and opened up forcompetitive offers. At this point weorganised an emergency meeting with all22 Council staff involved. This was acrucial step which secured agreement inprinciple to go ahead. It also resulted inthe appointment of a lead person fromCounty to coordinate the transferprocess.

Finally we worked through a period ofbureaucracy to comply with the Council’sapproval and scrutiny requirements. Thedeal that we eventually struck was for 5years rent free against market rent of25,000 pa. Our preference was always toown the building – so watch this space!

Over the two and a half years that thistook, we learned the following:

• Recruit champions and advocatesearly in the process to help prepareyour case and assist in understandingthe County’s broader aspirations.

• Be prepared to make the businesscase from day one and have acomprehensive business plan drafted.This will improve your credibility.

• Discuss things with both junior andsenior staff to ensure that all decisionmakers and influencers are fullyonside.

• Deal with one effective spokesperson.

• Don’t negotiate specific terms until thelater stages - trying to drive a bargaintoo soon will tend to scupper the deal.

Contact: John Every, Blacon Community [email protected]


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Final wordThe authors hope you have enjoyedreading this briefing and we encourageyou to consider taking a practicalnegotiation training course as well asreading one or two of the books we haverecommended. You are also encouragedto read the other briefings provided byacevo on tendering, impact and VAT.

We want to emphasise that proficiency innegotiating is a path rather than adestination and the more you practice andgain experience the better you willbecome.

Please let us know how you do byemailing us at: [email protected] look forward to hearing about yournegotiating experiences.


About the author

Acevo is the Association of Chief Executives ofVoluntary Organisations, and it was founded in 1987.Acevo develops, connects and represents the sector’sleaders, for a modern and enterprising third sector.

Disclaimer

The information in this article is believed to be correctat the time of publication. It is general in nature and isnot intended to be exhaustive nor to provide legaladvice in relation to any particular situation, andshould not be acted or relied upon without takingspecific advice.

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Further reading

Win Win: acevo Guide to Negotiation,acevo (2007)

Six Habits of Merely Effective Negotiators,(Harvard Business Review, April 2001)

The Seven Habits of Highly EffectivePeople, Stephen Covey (Simon &Schuster, ISBN: 0684858398) -particularly Habits 4,5 & 6)

Conflicts, by Edward De Bono, PenguinBooks (1985) - ISBN: 0 14 02.2684 2

The Effective Negotiator - Gerald G MAtkinson - Quest Research Publications(1975) - ISBN: 0-903947 15 0

Getting to Yes - Roger Fisher & WilliamUry - Better Business Guides, Hutchison(1983) - ISBN: 0 09 164071 7

Managing Negotiations - Kennedy,Benson & McMillan J - Better BusinessGuides, Hutchison (1987) - ISBN: 0 09168891 4

The Negotiating Game - Karrass, ChesterL - Crowell (1970) - ISBN: 0 690 00359 5

The One Minute Sales Person - JohnsonS & Wilson L - Fontana (1986)

The Skills of Negotiating - Bill Scott -Gower Business Skills (1981) - ISBN: 07054 0554 1

Successful Negotiation - Robert BMaddux - Kogan Page BetterManagement Skills (1988) - ISBN: 185091 741 8

Negotiation: Skills and Strategies - AlanFowler - Institute of PersonnelManagement (1990) - ISBN: 0 85292 416

Everything is Negotiable - Gavin Kennedy- Better Business Guides, Hutchison(1982)

International Dimensions of OrganisationalBehavior - Nancy J Adler - PWS-Kent(1991) - ISBN: 0 534 92274 0

Win New Business – Susan Croft –Acorn/Thorogood

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St Andrew’s House18-20 St Andrew’s StreetLondon EC4A 3AYtel 020 7832 [email protected]

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