How to and How Not to Make Concessions in PSC Negotiations

Robert T. Yokl, President, SVAH Solutions

Being First to Make Concessions May Not Be a Bad Thing

Making concessions, or an exchange of money for things of value to us or our healthcare organization, is an integral part of successful purchased service contract (PSC) negotiations. However, there is a right way and wrong way to do so.

Relationships Management

Negotiations can sometimes test relationships, but shouldn’t break them. Therefore, your goal for your PSC negotiations is for each party to come away with what they believe is important to them. However, it might not be everything they asked for or desired. The secret to negotiating your purchased services agreements is to uncover what that thing is and then try to find a way to provide it within the framework of your own goals and objectives. It’s never the same on each purchased service contract.

Making the First Concession

Making the first concession in your negotiations may not be a bad thing, like offering a 3% price increase to your contractor on a renewal contract, if you believe that your contract partner will make a concession you want down the road. Unfortunately, many times your concession is often unappreciated and unreciprocated. Here are four tactics that were devised by Deepak Malhotra, Eli Goldston Professor of Business Administration at Harvard Business School, to prevent this from occurring:

  • Label Your Concessions: Your concessions will be more powerful if you label them as a concession and emphasize the benefit to the other side. For instance, you might say, “Jim, this will be a challenge for me but I’m willing to concede paying your invoice within 15 days of its receipt. I know this will improve your cash flow.” Lastly, don’t give up on your demands too fast, or the other side will consider your concessions not serious. Instead, make your concession slowly. In our example above, you might start with a 20-day payment concession vs. your current 30-day payment schedule, then go to 15 days if you believe you can get a concession from the  other side in the future.
  • Demand and Define Reciprocity: “To increase the likelihood that you get something in return for your concession, try to explicitly but diplomatically demand reciprocity.” You might say, “A 15-day payment isn’t easy for us, but I have received a commitment from my CFO to make this concession for one year. Might you see a way to give us a 2%/15-day discount?”
  • Make Contingent Concessions: “When trust is low or when you’re engaged in a one-shot negotiation, consider making a contingent concession,” such as, “Jim, if you could give me a 2%/15-day discount I’m sure I can convince my CFO to approve our new 15-day payment terms for one year.” Note: Over-reliance on this contingent concession can interfere with building trust.
  • Make Concessions in Installments: It has been documented by Stanford University Professor Amos Tvershly and Princeton University professor Daniel Kahneman that we like to get bad news all at once, and good news in installments. With this said, it is much better to offer our concessions incrementally. For instance, don’t offer an additional 5% discount all at once. You need to start with two smaller concessions, such as, 2% followed by 3%, then followed by 5%. The chances are good that your offer will be accepted before you get to 5% and you would have saved money on the deal.

The lesson to be learned here is that the parties to your negotiations expect the give and take of negotiations. If you give in too soon or refuse to reciprocate, both parties are hurt by this behavior. Use these four tactics to make the best of your concessions.

Art and Science

Negotiation is an art and science that needs to be studied, learned, and practiced for you to become proficient. The first step is to understand that negotiation isn’t about beating the other person in the negotiation, but to find out what they really want and give it to them in small bits which, believe it or not, will make them happy.