Breaking Through Negotiation Stalemates

by Omid Ghamami

One of the biggest challenges procurement professionals face is breaking through stalemates.  Many times it comes down to the supplier’s sales personnel promising incredible outcomes and procurement not wanting to pay for such unlikely outcomes.

Ultimately, it comes down to the supplier’s promise vs procurement’s expectations, and the large divide between those positions.   There’s a secret weapon I want to introduce you to breakthrough such stalemates.

First let me tell you a negotiation story – it’s happening right now, in the National Football League (NFL).  You can learn a LOT by watching sports negotiations play out, and this one is no different.

NFL players are basically paid based on two things: their performance and their position on the team.  The worlds greatest kicker will always make less than a middle of the road starting quarterback. 

The reason is that the quarterback position makes more – much more – than the kicker position, and in fact much more than all other NFL positions. 

Now, there is a team in the NFL that has a unique player. He is like a Swiss army knife.  This player could play running back, wide receiver, tight end, and even quarterback!   His contract was coming up for renewal and very complicated negotiations ensued. 

The team already had a fulltime quarterback, and it wasn’t this player.   So they tried to negotiate his new contract based on salaries for those other positions which he played, about $40M. 

The salary they offered was competitive for the non-quarterback positions he played, but was completely uncompetitive if this player ended up being quarterback later. 

This player wanted to be paid like a quarterback – about $95M – but the team didn’t want to pay him as a quarterback if he was just going to play those lesser paying positions.  The hopeless divide between negotiating parties was $55M. 

The sides butted heads endlessly, and it seemed that they could never come to terms, and the player would become a free agent, free to sign with any other team – something that gives the player much more leverage in negotiations. 

All was lost in negotiations, until a unique proposal was put on the table:  a $40M contract with $55M in possible incentives if he became and stayed as the team’s quarterback.  They also gave him $22.5M in guaranteed payments, which gave him some further financial security. 

Both sides were thrilled with the deal!  The NFL team was not overexposed by paying $95M to someone who may never play quarterback, and the player was not overexposed by getting only $40M, even if he was playing the quarterback position.

They quickly struck what was a previously impossible deal and pulled the champagne corks in celebration. 

What is the secret sauce here?  It’s called a Contingency Contract, and that is your secret weapon to break through negotiation stalemates.

You need to identify exactly why the supplier wants the price they do, and have them tie it to specific and measurable performance outcomes. 

Then you do internal analysis to assess what it’s worth to your company if they actually hit those promised lofty levels of performance. 

You might be surprised to find out that your internal end users think it’s a great deal, and you might agree!  However, you also need to outline the opposite – what is it you think they are likely to deliver from a performance results perspective, and what are you willing to pay for that. 

From the above analysis, you have what you need for a contingency contract, and its an incredible tool in negotiations, because a scenario is created where both parties expect to win, and with either scenario, procurement has paid a fair price for the performance results received. 

Imagine I’m to lead a public seminar, and I am offered a fixed fee by the coordinators.   But what if 300 people show up instead of the 100 we think will?  Then they are getting too low of a price, but I can’t forecast registration and neither can they.  This negotiation can go in useless circles forever.

However, we could break the cycle of futility if we did a contingency contract, whereby the more that register, the more I get paid.  It reduces risk for both parties and both parties come out a winner. 

The sky is limitless once you get good at using contingency contracts.  The trick is to remember, you are probably negotiating with sales people, and their job is to promise the moon and the stars for a premium price. 

All you have to do is to bifurcate potential outcomes, and determine what you are willing to accept (in terms of performance results) and pay for each.  This becomes a powerful tool for you to break through stalemates in negotiations – while having the supplier feel like they got a great deal too!

Put this in your tool chest and make it a part of your standard negotiation operating model.     

Now go off and do something wonderful!

Omid G.

“THE Godfather of Negotiation Planning” ~ Intel Corp

P.S. almost 50% of the Fortune 100 have now invested in the CPSCM™ Certification – the only certification in the world where you can see the materials and hear your personal instructor’s voice throughout. If you want to learn the end to end basic of procurement and negotiations, there are lots of certifications out there and you should pursue them. If you want to do a deep dive on transforming your career and your procurement department, we are here for you. Taking costs out of the supply chain, achieving 18% savings on average before negotiations ever start, rearchitecting your negotiation strategies to be away from the table instead of at the table, writing contracts for performance results instead of goods & services, and securing procurement with a hard seat at the table. That’s what we do. Join the revolution. 

https://tinyurl.com/procurementcertification

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