Imagine having all the necessary contractual terms, legal papers, technical specifications and service requirements all nicely drawn up and signed by both parties, you the seller and your customer, the buyer.
Imagine having all the necessary contractual terms, legal papers, technical specifications and service requirements all nicely drawn up and signed by both parties, you the seller and your customer, the buyer. You have just signed a contract and started a new business relationship until suddenly a verbal altercation breaks out between your project team and your client, who is your customer’s representative.
Then you get a phone call from your client threatening to terminate the contract. You call your lawyer and ask for advice on the penalties and options to sue and you put your accountant to work on the losses that will be incurred. You are suddenly immersed into a huge mess involving much resentment between parties.
Does that sound familiar? It is for too many contract professionals. Contract failures are common, and they can lead to sour relationships. In fact, some large organizations litigate frequently by suing the counterparty. In spite of so much time and resources that we often devote to building a good contract and contracting process, unfortunate situations still happen that cause things to fall apart.
But does it have to be this way?
Within the last two decades, we’ve seen companies paying high sums of money and hiring training experts to teach latest technologies and process improvements to gain larger market shares, but unfortunately, they focus much less time on building and retaining human relationships.
That’s a problem -- failure to recognize that our skills in communication and conflict management are critically important before businesses transactions can succeed. Considering our global landscape and larger diversity that businesses are operating within, we know that differing perspectives and conflicts are increasing rapidly.1 And we see this accelerating faster during uncertain times such as the current Covid pandemic.
By contrast, companies that manage conflict well are likely to gain a higher competitive advantage over those that do not, and when handled well this challenge can turn into a competitive asset - an engine for rapid learning and innovation, as reported in the Harvard Negotiation Project.2
So, moving back to the altercation just described above, your client has threatened to terminate the contract and you must to find out your legal rights. In your situation, the buyer, a regional manufacturer of communication devices, was opening a new call facility (also known as a call center)3 to expand its operation and capture a larger market share.
The buyer has contracted with the seller who was one of the top call management services companies operating in the region to provide and manage the buyer's call center. The buyer had great expectations on the performance of the contract to boost revenue.
And that became yet another problem -- both parties had earlier failed to communicate their expectations clearly to each other even though both parties -- the buyer and the seller -- worked tirelessly setting up the call center and the Service Level Agreement (SLA) according to each of their stated specifications. Each party assumed that the other had understood its expectations as described in the contract. But, unfortunately, each party held a different assumption concerning the level of service (service level) in the agreement to be provided by the call representatives. As a result, both parties became highly contentious over how each of them defined the terms good and acceptable albeit the many matrices that were put together in the SLA to clarify meanings and applications of such terms.
The crux of the disagreement sparked when the seller suggested that a good policy would be to have call representatives answer all calls promptly within a certain turnaround time. But, the buyer insisted on having callers evaluate call representatives’ performance by using a star system to grade call representatives as “good” if they scored an average of 4 out of 5 stars for calls they were to receive or transmit.
Not only did these differences stir up a commotion, an issue over cost arose that surprised and angered the buyer who was told that a raised service level would require an additional million dollars. Greatly disappointed, the buyer had no intention of paying any additional dollars. And the buyer was left with considerable doubt about the seller’s capability to perform. That’s when the contention got hotter.
What would you do when the heat is turned up?
First thing -- when something goes awry -- allow emotions to settle before entering conversation. Remember, it is how and what you communicate that will improve or worsen the situation. That’s why some people chose to communicate via email allowing time for contemplation and editing before reflecting to the other party.
But the email approach alone does not always help in building up the relationship, because email is one dimensional - eye to computer screen only - and it lacks expression in the texts. Email omits the human element which can cause inaccurate interpretation of intended meaning. Some people chose to avoid a conversation altogether and go straight into legal recourse for the fear of being put at a disadvantage, but this becomes a loss to both parties.
A conversation is necessary and important if parties wish to further their relationship and the contracting process. However, don’t leave it by chance but use purposeful preparation. Before the conversation, go back to the beginning and think about your objective - what did you want to accomplish and still do? Then think about the same for the other party and identify the common ground between the two of you. That will help guide you in the direction to go in your conversation.
Speak like a mediator, not an autocrat
Make sure your conversation focuses on understanding the differences. Then you can jointly explore the issues and seek possible ways to move forward. When you start the conversation, describe the problem by citing only the facts rather than a scenario based upon who is right or wrong. People become less defensive and more willing to participate if you do that. The other party would also be more inclined to cooperate if he or she knows a value-adding role to play in managing the problem. It’s important that the other party realizes she is not seen as “the problem” itself, and no one is trying to minimize her or persuade her to change her view.
Avoid the blame game
It is important to identify accountability and correction to error, but when blame becomes the focus, it will hinder problem solving and affect the relationship.
In the conflict described above, the buyer believed the seller was lacking transparency in the contract and to some extent, was delinquent in its service level performance. So, the buyer demanded that the seller satisfy their expectation without additional cost.
The seller, on the other hand, believed the buyer was being unreasonable, because the contract had been agreed and so the seller would not do anything to change the agreement, because doing so would mean additional cost the firm had to bear - not to mention potential breach of contract.
Even though both parties believed they were right, neither one of their beliefs could have improved the situation unless the context of blame had been shifted to a context of contribution, as reflected in the Harvard Negotiation Project.2 In other words, if both parties could have realized what each had contributed to the problem, they could have shared what could be done differently to avoid the same problem from happening again. By recognizing the true origin of the issue, both parties could have moved forward quickly to mutual resolution.
What could they have done differently?
Obviously, the buyer should have clarified the need for a stronger service level performance. Instead the buyer assumed the service level was correct without verifying the details with the seller. And the seller might have agreed that the service level could be improved though it would mean paying additional cost to hire more senior staff to operate the call facility.
But doing this would be a challenge, because the buyer had informed the seller about their organization’s budget limitation, and to win the deal, the seller would have to make some adjustment to fit the buyer’s budget without compromising its service standard. If both parties understand each other’s perspective and contribution to the problem, it becomes easier for both to come together and brainstorm the possible options while maintaining respect for one another.
Listen carefully -- so important!
When a relationship became hostile, one or both parties may become defensive by being silent or in some cases speak loudly with emotion, being unwilling to engage and cooperate. Instead of responding with pushback, why not start the conversation by asking about the underlying source of the problem. Listen to the response, ask questions, and acknowledge the other party’s perception.
Listening helps the other party to listen to you as well and be receptive to what you have to say as you express your own thoughts. Listening does not mean you must agree with everything said but you simply acknowledge other perspectives, and when the other party feels understood, collaborating to resolve the issues becomes possible.
By actively listening, you discover when adverse feelings were first triggered, and by understanding the issues, you turn hostility into amicability. That is how you build rapport with each other. Certainly, we cannot always assume people will become receptive and be willing to share their thoughts. Sometimes it takes time for them to loosen up. When this happens, we do not have to apologize or change our stance, but to gently invite them to see the larger objective beyond their own feelings.
Manage conflict by taking easy steps first
Parties will not agree with each other on everything, so why not agree on those things that can be readily agreed, and incrementally build on them to include what was disagreed. This helps to gradually close the gap. At the end of the day -- even if not all the problems are resolved after all options have been explored -- you can still send a strong signal that the parties value the relationship that separates the disagreement from the importance of the relationship.
Establishing a good conversation that resolves a conflict takes effort - a willingness to learn and humility to make things better. When listening, you might need to listen not only to what was said but also what was behind the words. For instance, if the buyer requires a good service level performance to impress investors and enhance market value while staying within budget, the seller could perhaps help by suggesting a wider service offering to co-share resources at half the budget (a shared services offering). Such an initiative shows sincerity in helping the client meet the contracted objectives. Not only will the relationship be restored but it will grow higher to benefit both parties as strategic partners.
When blame is shifted to recognizing each party has a role to play, the attitude turns towards problem solving. The buyer may then decide on trade-offs that are less important in return for improvement to the service level; and the seller may suggest a longer contract tenure to spread the cost over the years and identify incentives to raise its service level.
END NOTES
- Class Action spending reaches 10-year high, by Daniel S.Wittenberg, 26 September 2019 https://www.americanbar.org/groups/litigation/publications/litigation-news/business-litigation/class-action-spending-reaches-10year-high/, and Survey suggests an increase in disputes likely as economic downturn looms, by Ben Rigby, 13 January 2020 https://iclg.com/cdr/litigation/10658-survey-suggests-an-increase-in-disputes-likely-as-economic-downturn-looms
- Harvard Negotiation Project https://en.wikipedia.org/wiki/Harvard_Negotiation_Project
- Call center: a centralized office where a large volume of telephone calls is received or transmitted.
REFERENCES
ABOUT THE AUTHOR
Yvonne Sophia Low has been a professional in strategic sourcing procurement and vendor partnerships for 15 years, during which she added significant value to various multinational corporations (MNCs) in transformative projects focusing on cost and contract optimization, excellence and effectiveness, processes and risk mitigation. Recently she dedicated her time to humanitarian initiatives by writing two books for the underprivileged community. She can be contacted via https://www.linkedin.com/in/yvonne-sophia-low.
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