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How to Negotiate with Contingency Clauses

People can’t always agree on what will happen in the future. But they can agree to do something if something happens in the future. Use this to negotiate better across barriers in belief.

 
By
Stever Robbins,
May 16, 2017
Episode #455

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Agreements are challenging—particularly when they involve the future, and we might all disagree about what that future entails. You might think you’re going to ship your product on time, free of defects, and revolutionize the market. Your customer might think you’re going to deliver a hobbled-together prototype six months late. Of course, you’re right. But just in case … if you’re going to make plans and agreements for the future, you need to take into account a future where everyone thinks something a bit different is going to happen. You need tools for uncertainty! And we have these tools! They’re called contingency clauses.

Bet on external conditions—things you can’t control

When you’re setting up an agreement, consider using contingency clauses. A contingency clause is a bet you make about events that will unfold in the future. Contingency clauses keep both you and the other person accountable for your decisions, opinions, and actions. They also give you a way to value the future differently, so you each walk away with a deal that you believe is a good one given what you believe about the future. Of course, one—or maybe both—of you will be proven to be wrong, but you’ll be happy right up until the moment that your flying car engine cuts out at 30,000 feet. And that’s what’s important, right?

One of your friends has been dying to eat at Poke Bowl Express, the Japanese ramen restaurant that opened last week. They say that the ramen makes your dreams come true. While it might be fun to have last night’s dream about Warren Buffett, Kim Kardashian, and Newt Gingrich come true, it might also usher in the apocalypse. Plus, you think the line will be way too long, and it will be at least an hour’s wait. But your friend disagrees and insists that after a week, the line must have died down Your friend craves dream-infused ramen, so they won’t go anywhere else. You both sit inside and literally stew in frustration.

Fortunately, a contingency clause comes to the rescue! Your friends wants to eat at Poke Bowl Express. You tell them that you don’t mind eating there if the line is short. You decide up front that if the line is longer than ten people, you’ll go to Mary’s Olde-Fashioned Pancake House instead. The contingency you’re betting on is the length of the line.

Contingency clauses keep everyone honest. They’re useful for creating near win-win situations, especially for complicated decisions. Since you agree on the contingency before the actual event happens, it can be a nice, clean way to ensure everyone comes out happy. When everyone involved helps design the contingency, they’re more likely to agree to it whatever comes to pass. 

Use contingency clauses in business

How do you hold a gigantic multinational corporation accountable? Use them when you need to hold a company or higher-up accountable for their actions. They’re building a new casino near a friend of mine’s town. He thinks it will attract a lot of crime. He says he’s even seen Lex Luthor, the Penguin, and Harley Quinn having lunch at the corner deli. The developers say “Posh!” They think it’s all in his head. If both parties really have different beliefs, they can use a contingency clause to strike a deal. The developers get the go-ahead to build the casino, but they’ll have to hire the Avengers League of America as a private security detail if the crime-per-capita rate increases in the area by a certain, agreed upon, amount. 

Of course, no one actually knows if there will be an uptick in crime. Residents have a hunch it will, and the casino developers have a hunch it won’t (and a good crisis communications team, just in case). The contingency clause lets both parties create a bet that they believe will be in their favor.

In this case, they can’t control the future. But you can also use contingency clauses to bet on things you can control.

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