Litigation Strategy Settlement Negotiation

The Negotiation Numbers Game

When you are looking to settle a case or work out a deal before a case is even filed, money is usually the predominant component of the settlement package. This means that during settlement negotiations you will have to play the numbers game as you bargain about money.

To negotiate with numbers in a principled way, you first need to be clear about three things:

  1. Your client’s “reservation point,” i.e., “bottom line” or the price at which it is better to litigate than settle;
  2. Your client’s “target point,” i.e., optimistic goal for a settlement outcome; and
  3. Your “opening offer or demand,” i.e., position with which your side will begin the bargaining process.

Having a clear idea of the reservation point helps to assess how offers and counteroffers made during the negotiation compare against the reservation point and will ensure that you don’t accidentally exceed it. Make sure your reservation point is fixed; relaxing the reservation point to reach a settlement that appears close may be tempting—particularly if it is late at night or you have invested a lot of time and effort into the process—but think twice before you do it.

The target point is where you expect to end up; don’t think of it as a fantasy or ideal outcome from which you will inevitably deviate. When making concessions, for instance, plan them so that you can reach a settlement at or above the target point. Don’t treat the reservation point as your target point, although it may well be that an agreement is possible only at or close to the reservation point. The higher your expectations and goals for settlement, the more you are likely to obtain. You won’t get what you don’t ask for.

The opening offer or demand should be even more optimistic than your target point because settlement negotiations usually involve a process of give-and-take, in which each side makes concessions upward or downward from the opening offer or demand to a mutually acceptable figure. Always calculate your opening offer or demand with plenty of room for several rounds of concessions.

If you want to play the negotiation numbers game well, you’ve got to learn the rules and follow them! For more on negotiation and case settlement strategies, check out chapter 46 of California Civil Procedure Before Trial (4th ed Cal CEB 2004).

© The Regents of the University of California, 2010. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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