There can be little argument made against the assertion that the current state of the Construction Industry in South Africa (and globally) is a largely adversarial in nature.
Having worked, on site, for one the major employers in the mining industry I have found that once a dispute arises only three forms of dispute resolution are ever considered and/or utilised, these include:
My thoughts in respect of the above are:
Negotiation: the default dispute resolution used by all parties with varying degrees of success. My experience is mostly that the parties to the dispute are poor negotiations, plenty of value is left unclaimed and one if not both of the parties leave the dispute unsatisfied.
Adjudication: While this process was originally meant to be a rough and ready approach to dispute resolution with its main aim of providing some form of certainty while the works progressed we have seen adjudications becoming more and formalised, plagued by many of the disadvantages faced by formal arbitrations.
Arbitration – my views in respect of arbitration are crisply summarised by K.W. Chau in his article “Insight into resolving construction disputes by mediation/adjudication in Hong Kong” published in the Journal of Professional Issues in Engineering Education and Practice, ASCE, Vol. 133, No. 2, 2007, pp. 143-147:
As is customary in all construction contracts, there is often an arbitration provision (Hong Kong Government 1985). However, arbitration in construction disputes, which was promulgated to be an informal, fair, and swift form of justice, has become a mirror of high court proceedings, with both parties often represented by senior legal experts. These attorneys, who are trained to be adversarial and to use every tactic to win during the proceedings, are often employed to represent the parties. They consider the maintenance of the relationship between the two parties to be of secondary importance. While arbitration was initially not intended to be adversarial, in some cases, the modern arbitration process may emulate the litigation process, and lead to procrastination and cost escalation.
Against this background I am astonished at the reluctance of the industry to embrace mediation as a method of dispute resolution – that problem however is a topic for another day.
The issue I wish to tackle is how to best work with item number one on our list, namely negotiation.
As the most utilised tool for conflict resolution one would think it surprising to find that most individuals within the industry are exceptionally poor negotiators.
The most common mistake I come across when it comes to negotiations is that the parties to the negotiation fail to recognise that negotiation is primarily a process driven activity.
Having negotiated on behalf of various parties in the construction industry, be they employers, contractors, sub-contractors or large EPCM firms, I am rarely surprised by typical approach undertaken by the parties.
The narrative follows a remarkably predictable outline.
The parties convene, most commonly at the premises of the party that holds the most bargaining power, whereby they begin engage in polite and casual conversation in a somewhat haphazard attempt to build rapport.
It is at this juncture that the fate of the negotiation is all but sealed.
Once the informal and obligatory “chit-chat” has been exhausted one of the parties will jump straight into discussing the material terms of the contract or the most contentious aspects of the claim.
What then follows is an exchange of positions culminating in the “lets meet in the middle” concession.
Once this agreement has been reached the parties will conclude the negotiation and the meeting will be adjourned.
Essentially the parties follow a three-step process:
The problem with the above approach is that the agreements that are reached more often than not leave one or both of the parties dissatisfied with the outcome.
Dissatisfaction with the agreement is primarily as a result of:
The parties reaching what is often termed a “Win-Lose” more commonly a “Lose-Lose” agreement;
Substantial value remains unclaimed or the parties have wholesale failed to create any additional value;
Damage to the on-going relationship;
The above list is merely indicative of only a few examples of the many reasons parties may leave a negotiation unsatisfied.
What then can be done by the parties to ensure that they do not fall into the same trap during the next negotiation?
To answer this question parties need to appreciate that effective negotiations consist of essentially 5 different phases, namely:
- Bargaining/Problem solving;
It is only with a full understanding and appreciation of all 5 of the above stages that parties can hope to achieve the often elusive “Win-Win” outcome.
The 5 stages can be briefly summarised as follows:
Step 1: Preparation
- Identification of the underlying issues and interests;
- Gathering information;
- Assessing both parties BATNA (Best Alternative to a Negotiated Agreement)
- The development of goals, strategies and tactics;
Step 2: Opening
- Making the initial contact;
- Developing a common agenda;
- Determining priorities;
- Identifying common goals/interests;
- Managing expectations;
Step 3: Exploration
- Positions vs. Interests;
- Generating creative solutions;
Step 4: Bargaining
- Presenting offers;
- Making of concessions;
- Moving towards solutions;
- Summarising progress;
Step 5: Concluding
- Ensuring mutual understanding;
- Reaching a binding and mutually satisfactory agreement;
The above 5 phases ensure provide a systematic manner to approach a negotiation and provide a robust framework to ensure that parties such mutually acceptable agreements.
Provided the parties follow through on all 5 phases the negotiation will most likely result in what is often termed a “Win-Win” agreement whereby all parties leave the negotiation satisfied.
My intention is to cover all five of the above phases in a serious of articles on negotiations with a particular focus on the construction and engineering industry.