Become A Great Negotiator: Develop A Bargaining Range

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My 24 years of experience as a mediator suggest that most lawyers approach mediations without a negotiation plan. As a result, lawyers begin their negotiations with proposals that drive the other side away from the table; they spend inordinate amounts of time and energy developing subsequent proposals; and they worry constantly about whether they are “giving away the farm.”

So, how can lawyers develop the confidence they need to provide good advice to their clients and to settle the cases that need to be settled?

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The answer lies in learning a process of preparation that leads to a thorough understanding of their case, the development of a range to negotiate within and a plan of movement from start to finish.

Knowing your case for the purpose of developing a bargaining range begins with developing a coherent theory of damages. Early in the case, lawyers make sure that they have a theory of liability/defense supported by competent evidence. However, for purposes of developing a bargaining range for mediation, the lawyer and client need to understand damages, such as what a successful plaintiff will get if she or he wins the case.

It has been my experience that damages are the least understood and most underdeveloped part of litigated cases as they are negotiated in mediation. Sometimes the provable elements of damages haven’t been fully developed. Other times, the evidence supporting some element of damage is missing. Examples of these deficiencies are often found in discussions of future medical expenses and wage loss claims.

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Plaintiffs typically make the first proposals in mediation. If their first proposal is higher than their theory or evidence of damages will support, the defense will often depress the amount of its first proposal. Likewise, in a case of admitted liability, if the defense offers less than the damages that the plaintiff can document and quantify, the plaintiff will often depress its next proposal. It is my counsel that the plaintiff ’s first proposal should never be higher than the damages that the evidence will support.

The response I often hear to that counsel is, “But then we won’t have any room to move.” That certainly may be the feeling that negotiators have, but it doesn’t accurately reflect the reality of the situation. What is true is that the resulting negotiation range that is produced by a more realistic starting number is smaller than if the party had started much higher. So, the subsequent incremental movements that the plaintiff will make will have to be smaller. A realistic starting number will usually result in a series of smaller moves thereafter.

A plan for one’s negotiation begins with an opening number. It ends with one’s “bottom/top” number. Between the two, there are intervening proposals that represent incremental movement from one’s starting number to one’s final number. I’m going to save my discussion of planning one’s movement from start to finish for another column and end this one with a discussion of developing one’s ending or final number.

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From whence does one’s final number come? It comes from the same process that produced the starting number – from a careful analysis of the case and its possibilities and pitfalls.

One’s bottom/top line comes from some version of what statisticians call a weighted probability analysis. We lawyers sometimes use the term, decision tree analysis or litigation risk analysis (Marc Victor’s term), to describe it. Those processes are systematic assessments of the probabilities that a fact finder will decide for us or against us at various points within the case and assessments of the monetary impact those many decisions will have on the outcome of the case. The net result is a statistical analysis of the value of the case.

In my own work, I think of that analysis in terms of the answers to four questions: (1) what are you going to win if you win the case (damages); (2) what are your chances of winning (liability); (3) what does it cost you to win; and (4) can you collect on a judgment? The net result – multiplying the chance of winning by the provable damages, less the cost of getting those results – will give the careful litigator a good handle on the value of the case and provide an approximation of what one’s bottom/top line ought to be.

The resulting number is one that a plaintiff should not go below without compelling reasons. It is a fail-safe number that guides the negotiating team in decisions about what numbers are acceptable and what numbers are unacceptable to settle the case. Of course, careful negotiators will also correlate their statistical analysis with jury verdicts of similar cases in the venue where the negotiated case is pending. Those analyses will be helpful in establishing both the beginning numbers and the ending numbers of one’s bargaining range. Andy Little

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