In contract management, negotiation usually means talking calmly, openly, transparently, and constructively with the other party about the issues raised to see whether it is possible to reach an understanding of how those issues can be resolved. 

You should aim for a fair and equitable outcome for all parties.

It is the process where parties to a dispute attempt to settle that dispute on their own, that is, without the assistance or intervention of anyone else. 

Nevertheless, parties may be represented by professional negotiators or negotiate themselves.

Because no third party is involved, no agreement or decision is reached unless the parties reach it themselves.

You must also keep proper records of all negotiations during the contract’s life, including whether the negotiation successfully resolved the issue. 

Proper records will allow you to determine if the same issue keeps arising, if the supplier is performing per the agreements they made with you, and if your entity is honoring commitments made to the supplier.

Importantly, any agreement you reach with the supplier must be consistent with the terms and conditions of the contract, with any proposal to change these arrangements identified and managed as a contract variation – we look at this in the next Unit.

Mediation is a process whereby parties are assisted in their negotiations by a neutral third party (the mediator) to identify the issues in dispute, generate options, consider alternatives, and attempt to reach an agreement that will meet the underlying needs and interests of both or all parties.

Mediators do not decide who is right or wrong or the best outcome. 

A key advantage of mediation is that the parties have significant control over the result. 

Decision-making power stays in the parties’ hands and is not passed on to a judge or arbitrator. 

Instead, a mediator helps bring the parties together by establishing a framework for the negotiation within which all parties agree to participate.

As well as having no determinative power, mediators do not usually offer substantive advice. 

Instead, they control the process of the mediation, that is, the steps and stages of the meeting, and the parties themselves reach any agreement that is made.

When parties cannot resolve a dispute through negotiation or mediation, many statutory or judicial bodies use conciliation conferences to settle matters before their tribunal or court. 

Conciliators are usually recognized experts in the field of the dispute. They are empowered to suggest or give advice on the probable outcome if the matter were to proceed to court and likely settlement terms.

Independent conciliators (expert appraisers) can also be nominated and mutually agreed to by the parties, without the intervention of the courts. 

Although, like mediators, conciliators have no determinative powers, it is not uncommon for the third-party conciliator to be very persuasive and to strongly recommend certain outcomes that they believe are suitable.

Like expert appraisal and conciliation, arbitration is a process in which the parties to a dispute present the facts of their case to a neutral third party. 

In this case, though, the arbitrator will make a determination; in other words, they will judge the claim.

Therefore, arbitration is very close to judicial determination, and parties adopt an adversarial (‘A’ vs ‘B’) stance.

The main differences between arbitration and litigation are that most arbitration proceedings and decisions are private, and the arbitrator is a third-party expert specifically chosen by the parties. 

Arbitral decisions (also known as awards) may also be registered at a court to give them the effect of a court order for enforcement.

Although litigation is often threatened and even begun in contractual disputes, most cases are not settled by the court; in fact, approximately 95% of civil cases started in court are settled out of court prior to trial. 

Very often, the methods of settling cases before trial may involve negotiation, mediation or conciliation, expert appraisal, or a combination of these.

In the litigation process, parties submit their dispute to the relevant court, and either a magistrate or a judge decides the outcome of the dispute on their behalf. 

It is often a very time-consuming and costly process, and for many people, the process is confusing even with the assistance of lawyers.

The judicial officer (the magistrate or the judge) acts as an impartial umpire throughout the proceedings and ultimately makes a decision based on the facts and evidence placed before them. 

Their decision forms an order of the court and is enforceable if any of the parties breaches that order.

This dispute-resolution process is the one with the least amount of party control and the greatest determinative power of the third-party neutral – in this case, the judge or magistrate.

As such, it is the least desirable process and should be viewed as a last resort, especially when you consider that relevant project work inevitably stops for litigation to run its course.