Thursday, February 3, 2011

Negotiation “Anchors”

In many books on negotiation the authors discuss “anchors”, which simply means a point at which the negotiation of that issue or point starts from. For example when price is the only thing being negotiated there is always discussion about who should make the first offer as the offer serves as an anchor. For example, if the Buyer makes the first offer and it's too high, that serves as a form of anchor, making it difficult to negotiate something lower. If the Supplier makes the first offer, that serves also as an anchor as it make it difficult for them to increase it.

In contracts the providing the Supplier with your agreement where you ask them to prepare their bid or proposal against those terms and to state all assumptions or exceptions is also creating an anchor. By providing it, it makes it difficult for the Buyer to ask for something better in the negotiation than what you included unless the circumstances have changed.  In responding, it also creates an anchor for the Supplier.  As their price quoted has been based upon the documents and their assumptions and exceptions, any time they want to give you less, you use that to either reject it (if it wasn’t brought up in the assumptions or exceptions) or you can use it demand a lower price simply because they want you to provide either less value, or have you assume more risk or cost in the relationship.

Anchors are fine in concept, but most negotiations aren’t about only one issue. I have a simple rule that I follow in contract negotiations. That rule is  “nothing is agreed until everything is agreed”.  This is to protect against perceived anchors so if something comes up during the negotiation that would require a change or re-setting an anchor, that’s what will be done.  Negotiation is all about getting value and for you to give up something of value you should be getting something of value in return. Since negotiation of contract terms are almost all about cost and risk, the simple fact is every time a Supplier wants to transfer the cost or risk to you, you should be either telling them no or be telling them how much their price will need to be reduced for you to agree and what additional terms or changes to the contract terms will be required for your agreement.  

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