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Sat 10 Oct 2009 04:00 AM

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Sinking the red with a dose of realism

Philip Adams explains why parties involved in a dispute must be realistic about both their strengths and weaknesses.

Philip Adams explains why parties involved in a dispute must be realistic about both their strengths and weaknesses.

My first experience of formal negotiation skills training described the process in terms of two colours - blue for agreement and red for disagreement. The start of the negotiations is predominantly red and the goal is to reduce the red and increase the blue. In other words the greater the level of agreement (blue) the more likely an overall settlement can be achieved.

If a dispute is to be resolved, concessions need to made and if a party is not prepared to be realistic about its weaknesses, then it will rarely reach a satisfactory outcome. A party may be tempted to negotiate from an artificially inflated position naively believing it will improve their recovery when the 50:50 split arrives. But in today's reasonably sophisticated dispute environment, there will probably be commercial professionals on both sides who are fully aware of the respective weaknesses.

It is crucial that parties view their relative strengths and weaknesses. What is essential is a genuinely impartial review bereft of any vested interest or deep set opinions including a good measure of realism and honesty.

For example, there may be several client culpable delays that have occurred on a project. But if the contractor is clearly culpable then this must be faced early. Even if the client or other party does not have a consultant at the onset of a dispute, an expert will be appointed at the start of the arbitration process, and it likely that such an expert will identify any contractor culpability during the course of the arbitration. Even in the unlikely situation that there is no expert opponent, the burden of proof lies with the claimant and if he fails to discharge that burden then he will probably fail.

A useful technique to use for this impartial review is the Batna Watna Mlatna analysis.

Batna - (Best alternative to a nego-tiated agreement).

Watna - (Worst alternative to a nego-tiated agreement).

Mlatna - (Most likely alternative to a negotiated agreement).

In preparing the analysis consider the money spent as well as known liabilities, and whether or not the other party is capable of meeting the terms of any award. Plus when preparing the Watna, a party shouldn't forget that they could be defeated on every issue.

If a realistic approach has been utilised and the analysis has been carefully developed during the negotiation process, the Batna-Watna analysis is useful in deciding how far down the dispute and/or arbitration road one should go.

Also it is important to remember that a Batna/Watna analysis will be influenced by many variants such as the use of corporate lawyers and the risk of insolvency.

Where insolvency is a genuine risk the analysis becomes less about strict contractual entitlement and more about the other party's actual funds/assets. The other party may view bankruptcy as a realistic option or they may be willing to consider an affordable settlement at a reasonable sum if they genuinely want to avoid it.

Disillusioned by the painfully slow negotiation process, they will probably reach a key decision point in the near future. Therefore such an exercise is essential if the contractor is to make an informed decision, especially considering that arbitration and can take anywhere between six months to two years.

In conclusion, to reduce the red and expand the blue not only must negotiating parties be able to successfully argue their strong points, but equally they must be realistic about their weaknesses.

Adams is a senior consultant at Systech in Dubai. He has provided commercial, contractual and dispute resolution advice on projects ranging from high specification offices, data centres and long distance fibre optic networks to major civil engineering projects, multi-storey offices and hotels. He is a member of the Royal Institution of Chartered Surveyors and a fellow at the Chartered Institute of Arbitration.

The opinions expressed in this column are of the author and not of the publisher.

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