Page 207 - DMGT519_Conflict Management and Negotiation Skills

Unit 9: Distributive Bargaining

the logical solution was to sell the home and divide the proceeds into equal thirds. One of the Notes
three, however, asked her siblings if she could buy their two-thirds interests in the house so she
could live in it. Because the other two had no similar desire and liked the idea of a family
member keeping the house, they responded positively to the proposal. Exactly how should they
negotiate a “fair” sale price might be considered a common distributive bargaining situation,
except the parties were not adversaries and had a continuing relationship (relational norm).
They agreed to hire a trusted real estate agent to inspect the house and suggest a market price.
Then they signed a written contract, which of course contained the market price. All three
believed they had negotiated in a fair and responsible manner for all concerned. However, at
the request of the one who was buying the house, the other two agreed to wait until she sold her
existing home before closing the deal on their parents’ home. They thought this a reasonable
request, since she could not easily afford two house payments. Unfortunately none of the three
foresaw what then happened. The daughter listed her home well above its market value and it
took 18 months to sell. During the first few months, she moved into their parents’ home. The
contract had not included any specified maximum period of time to closing, or who would pay
the utilities and taxes until the closing, or if any “rent” should be paid by the daughter during
what became 18 long months of escalating tension among the three siblings. By the time the
daughter did sell her house, these issues caused bitter feelings among the three. The two other
children believed they had lost at least $12,000 each due to the length of the process. If, in
addition to price, a contingency contract had been negotiated, the three siblings might easily
have avoided a great deal of anguish. For example, the contract on the house could have included
a standard clause requiring closing at the agreed-to price within 90 days, and a contingency
clause could specify that if the daughter did not sell her house within 90 days she would owe a
specified amount of rent, plus utilities and taxes to be paid at the closing. The clause might also
specify a maximum period of two years for the closing, after which the house would be put on
the market.
Contingency contracts can be valuable in many negotiation situations if any future event will
likely alter the outcome of the negotiated deal. In a noted Harvard Business Review article,
researchers Max H. Bazerman and James J. Gillespie cite several possible benefits of using a
contingency contract, as follows:
 The parties can counter negotiation biases by including future scenarios predicted by each
party (such as mortgage rates in 12 months), and then letting future events decide which
was correct.

 An impasse can be avoided by allowing the outcome of a future event to determine a
critical portion of the agreement. For example, Bazerman and Gillespie recall when
negotiations between a television production company and an independent station broke
down over different expectations of the ratings of the show in question, with each ratings
point worth about $1 million. A contingency contract could have specified that a $1 million
license fee per ratings point, as determined by the Nielsen ratings on a specified future
date, would be paid per the terms of the contract.
 It can motivate parties to perform at higher levels. For example, in the estate house
dispute just discussed, a contingency contract may have motivated the daughter to sell her
own house at a lower price or spend more time and effort fixing it up before she put it on
the market—to avoid paying rent and other expenses after the 90-day period.
 The potential risk involved can be shared by the parties, rather than specifying an outcome
at the present, when uncertainty about future events may make them uneasy about their
level of risk. Retailers, for example, often share the potential risk of unsold products
through contingency contracts with vendors by agreeing to rebates on unsold inventory.

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