How to Reduce Contention in Dispute Negotiation

Interview by Tim Cummins, International Association of Contract and Commercial management

In this exclusive interview with IACCM, Dr. Ulrich Hagel, Senior Expert in Dispute Resolution at Bombardier Transportation, shares his thoughts on why the frequency of claims and disputes is increasing and offers some hints and tips on ways to reduce the contention in dispute negotiation..

In our recent study of the most negotiated terms, we discovered that the frequency of significant claims and disputes has risen. In fact, it's about 20% year-on-year. What are your thoughts on why that might have happened?

U Hagel: This is not easy to answer. I'm personally not aware of any root cause analysis that has been done on that subject, but in my personal view several reasons contribute to the increase in claims. Number one, the increase in contractual complexity; secondly, our economic crisis, and thirdly, increasing poor quality of contract drafting.

Let me explain the three categories in a little bit more detail. What do I mean by the increase in contractual complexity? Let me give you an example out of our business here. We are working in the transportation area. We are delivering trains. In the past, we had simple sales contracts where we just sold our trains. In the meantime, we are in very complex contractual networking contracts for PPP projects, which include the delivery of trains, the operation later on, the maintenance, and around that, a lot of financing, concession agreements, and so on. The complexity and the number of stakeholders and interests is increasingly dramatically. This is one of the root causes for the rise of claims.

The second one; the economic crisis. Our buyers expect to get the same for a lower price in a shorter time. On the seller's side, however, the competition increases which, at the end of the day, in the side for the order intake, leads to an increase in risks that are taken by the sellers. That is also causing additional claims.

The last, very interesting point is the increasingly poor quality of contract drafting. We are coming from a scope, description, and a manual to perform, in the past, now to a kind of lawyer's document prepared for litigation. No wonder that the people who should perform under the contract don't understand the wording anymore and thus fail to deliver in accordance with the contract. That results in a claim for non-performance ending up in court. The lawyers would say, at the end of the day, now that we are in litigation it is good that we had the judge in mind when we were drafting the contract. Whereas the businessman says it was a mistake to draft the contract for the judge, as that is now the reason for being in court.

A component of this links into the second point I wanted to raise with you. In your work at Bombardier, you are, of course, dealing with many countries. I suspect you're seeing some significant variations, driven by different business culture and other cultural aspects that affect, not only that quality of contracting issue you've mentioned, but I was also interested to what extent you see a very different attitude, as you cross cultures, towards the whole approach to claims.

U Hagel: I know that there are a couple of books and articles around on cultural differences with respect to negotiation claim approach and the like. I'm not an expert, even though I'm working globally, and I've been involved in claims and claim management all over the world, from South America, South Africa, to Asia and, especially, all parts of Europe. But in my opinion, there are not so many differences between the different cultures. To me, the whole issue of cultural differences is overstated. Claims follow the same patterns all over the world. It needs a good preparation, facts and evidence; all that is as important as understanding the distribution of power. That is driving the claims all over the world in almost the same way. For sure, there are slight differences in personal behaviour and all that kind of stuff. That is pretty clear. But the claim approach is much the same.

Finally, if we may touch briefly on one of the areas. In your experience, does the settlement of claims always have to be contentious or are there ways or tips you have in terms of how you can avoid contention?

U Hagel: First of all, you're absolutely right. Indeed, claim negotiations are often seen as a kind of bargaining competition between the involved parties which, by itself, is nothing bad. The problem is that the parties focus on their positions and measure the negotiation success against such positions, instead of looking into their interests and measuring the results against such interests. The parties would be surprised what they leave on the table by doing that; focusing the positions instead of the interests. So, as a quick tip, I would recommend identifying your interests; define the alternatives the settlement agreement and to measure the settlement options against your interests. That is the first point.

The second point: negotiations often remind me of Monty Python's argument. This is an argument. No, it isn't. Yes, it is. No, it isn't. My second quick tip would be to avoid a long-lasting negotiation ping-pong and involve neutrals as soon as the negotiations start to get into argumentation loops so you can break out of your loop and really focus on the solutions. The third party or evaluation is a real turbo charger to the settlement negotiations there.

Ulrich will be speaking at the upcoming 10th Annual IACCM Europe Forum, taking place 23 – 25 April 2013, Hotel Palace Berlin, Berlin, Germany. For more information, visit www.iaccmforumeurope.com, email enquire@iqpc.co.uk or call +44 (0)20 7036 1300 for more details.

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