Interest-Based Negotiating: Taking the High Road
Leverage and Power are NOT the Only Bases for Negotiations
by Phil Friedman, Marine Industry Consultant
Many businessmen and lawyers will tell you that the key element(s) of successful negotiating are “leverage” and “power.” According to them, success in achieving a negotiated agreement reduces to which party has the stronger hand.
The problem with that view is that coming out on top in a leverage- or power-based negotiation often results in a marina or boatyard operator “winning” the battle but losing the war. A browbeaten customer eventually drifts away, even if he or she does (grudgingly, in the instant) “pay the bill.”
Interest-Based Negotiating: The High Road
Although generally less well known and less frequently employed, “interest-based negotiating” can be especially useful to marina and boatyard operators who often need to deal with disputes over final billings, warranty claims, and other issues that straddle the line between accounts receivable and customer service.
Interest-based negotiating proceeds by delineating and seeking to understand the respective actual (or true) interests of the parties to a dispute. And it works to structure an agreement that serves, to as great a degree as possible and practical, the respective interests of all the parties. Here’s how it works.
Several years ago, I was approached by a yacht owner who was locked in a dispute with a boatyard over an expensive paint job. The yacht owner claimed the yard had botched the job. He said he had, to date, paid out 75% of the contracted total firm fixed price for the job, but that the results were sub-standard, and he was extremely disappointed and dissatisfied.
According to yacht owner, the boatyard had offered to redo the final spray coat, but they wanted him first to pay the balance of the bill. The owner explained he was reluctant to pay the balance because the yard had already redone the final spray coat once before, and he was not confident they had the skills necessary to do any better on what would be their third attempt. In which case, he would have paid them in full for an unsatisfactory job, and end up — as we sometimes say — SOL.
He said he had proposed to the yard that he take his yacht as is and forget the final payment. But the yard had refused, alleging that he was complaining about the job simply to develop leverage to renege on the contract and avoid paying the balance of the bill. The situation was at an impasse, and the yacht owner wanted my advice.
First off, I explained that he could likely regain possession of his yacht over the yard’s resistance under its mechanic’s lien, but that doing so would involve placing a bond with a Court of appropriate jurisdiction for the entire balance claimed by the yard to be due and payable ― pending eventual litigation to determine whether the yard had or had not done a reasonable and proper job.
I also pointed out that even if he could regain possession of his yacht under such circumstances, he would then still have to pay someone else to redo the final spray coat(s) that he currently said were unsatisfactory. All of which would result in tying up at least double the cash needed for payment of the current balance the yard claimed was due on their work.
Worse, if he failed to prevail in litigation to prove non-performance on the part of the boatyard involved, he would end up paying double for the remainder of the job, plus likely his and their lawyers’ fees. It was, to say the least, a real mess. However, it was also a perfect opportunity for interest-based negotiating. So, I agreed to talk to the boatyard, to see if I could get them to agree to allow me to mediate.
Building an Interest-Based Alternative Resolution
After talking to the boatyard — which agreed to the mediation — I determined from the yacht owner that the boatyard’s fixed price quote for the job was about 30% lower than the lowest competing pre-job bid. This meant that had the owner originally elected to go with one of the other quotes he had received, he would now be paying not only the approximately $35K he still owed on the current job, but at least another $40K on top of that ― for a total of $75K ― enough to pay for now taking the job from it’s current as-is state to a fully acceptable final completion.
When I talked to the boatyard, I pointed out that even if the yacht owner paid them the $35K balance due, they would almost surely use up 100% of that payment in re-sanding the yacht and re-spraying still another final coat. Consequently, irrespective of what had gone before, there was no profit left to be had in the job — only aggravation and grief.
I suggested they, therefore, release the yacht to her owner as-is, with a mutual release of all claims, provided only that the yacht owner contracted to have the job completed at another yard. I suggested this last provision because I knew that no boatyard wants to release a partially finished project to circulate as a floating advertisement of a job badly done even if, in fact, the job was cut short by an unreasonable customer.
I suggested further that, once the paint job was completed by the designated third-party boatyard, the first yard could absolve itself of any and all further responsibility — not only legally, but in terms of customer and public relations. This was clearly in the yard’s best interests. And finally, the boatyard currently holding the yacht would be in no worse shape if they let the yacht go as-is, and quit their claim for the balance due, than they would be if they received the final payment and performed the re-preparation and sprayed an additional final coat or two, as needed to satisfy the customer or a mutually-selected third-party inspector.
Closing the Circle
I then explained the realities and the dollar facts to the yacht’s owner. Had he originally gone with the next-to-lowest bid (instead of the lowest he had accepted), he would at the point in question owe $75K. The boatyard which had given him that second-lowest bid was prepared to re-prep and re-spray the final top coats for that exact amount and would accept warranty responsibility for the coating job. Therefore, it wasn’t going to cost him any more than it would have, had he not sought to cut pricing unreasonably, and had not gone with the lowest bid in the first place.
I pointed out to the owner that, since he was confident the boatyard with the second-lowest bid could do the job to his satisfaction, this was a way to get his boat out of hock and get the job completed at no additional cost beyond what he would have paid in the first place ― all while avoiding the expense, aggravation, and risk involved in a replevin action and eventual litigation over whether the first boatyard had done a reasonable job according to accepted industry standards. In other words, given the existing circumstances, the proposed resolution resulted in a win-win situation, and served the best interests of all parties involved in the dispute.
The yacht owner and the boatyard agreed, and all went as agreed. As for me, I was confirmed in my belief that interest-based negotiating can be a strong alternative to the more common leverage- and power-based approaches that would have drawn the parties into months of costly legal bickering and litigation, which none of the expenses would have gone toward solving the problem.
To my mind, the lesson is clear: Find a resolution that works to leave each party to a dispute as whole as possible in the current circumstances. And which, by the way, also leaves the way clear to potential doing business again at some future time.
― Phil Friedman
About the Author: Phil Friedman trained in interest-based negotiating and mediation with the Stitt Feld Handy Institute, Univ. of Windsor Law School. He is a marine industry consultant, project developer/manager, and marketing and small-business startup expert with the Port Royal Group in the greater Fort Lauderdale, FL area. He
With 30 some years in the marine industry, Phil has worked as a yacht designer, boatbuilder, marine business manager, yacht surveyor, consultant, yachting writer and editor, and industry educator. His current workload includes managing the start-up of two new yacht lines being built in China. Phil is always up for talking about new projects and can be contacted at 1.954.224.2145 or firstname.lastname@example.org