January 8, 2024

PARTNERSHIPS, ALLIANCES AND JOINT VENTURES

In this age of partnerships, alliances, and joint ventures, the need for skilled negotiators is more important than ever.

Partnership ventures can really complicate a relationship. They certainly require special negotiations.

There will be issues where both parties seriously disagree. There will be benefits and contributions that involve unknown or uncertain sharing requirements. Partnership ventures require assumptions — many of which will be wrong. There will always be an imbalance of power between the two parties in the sharing of benefits and contributions. The right formulas must be negotiated.

• What are acceptable labor, overhead costs, and profits?
• Can the supplier sell new designs, techniques, software, and components to a competitor?
• When one party runs into trouble what happens? Who picks up the work? Costs?
• What accounting system is used? Does each party have the right to audit the other?
• How are changes handled? Priced? Rejected or accepted?

What further complicates these types of negotiations is that the original negotiators who established the partnership venture often move on. Project managers, engineers, technical staff, sales people, and operational staff then have the responsibility to make the venture work. This requires hundreds of negotiations and re-negotiations over the life of the venture.

Things often go wrong, or do not provide the originally intended results. One of our clients just told us about a partnership they have with a foreign company to deliver software, computer and engineering services. The original agreement was based on a set of assumptions that would make the venture equally profitable for both companies, based upon a split of the work over the next five years. Not long into the project, our client realized that the work formula would not provide an equitable split of the profits. Using a sophisticated negotiating approach, they were able to successfully re-negotiate the agreement. The modified work allocations assure each party will get the originally intended share of the profits.

Those who are most outspoken against negotiating usually base their dislike on two assumptions: (1) each side should tell the other everything, and (2) both sides in a venture will instinctively be fair and reasonable. I think such assumptions are absolutely naive — particularly in partnerships.

There are a lot of people who will not tell you everything you want to know. In most business transactions there will be issues that will require difficult negotiations. People who say "put everything on the table"—even in a partnership—are simply being naive. There are two important traits of any good negotiator—tact and discretion. A negotiator must think: What should I say? How much should I say? When should I say it? And in partnering—which I compare to a good marriage—there are things I say, things I say partially, things I say later, and things that are never said because they would only cause tension.

In a partnership roles change. Participants become contract managers and a relationship managers rather than just buyers, sellers, designers or engineers.

And, there will always be issues involved in the breaking of the partnership. Once the marriage ends, there must be a divorce. What happens at termination? How are costs settled? Is there a non-compete clause to protect secrets and techniques? How about trademarks, copyrights, patents, tooling, warrantees, software, designs, drawings, data, customer lists?

Partnering is not the end of negotiations; it's just the beginning. Be prepared.