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Making the first offer in mediation: Myths and must-dos

by Matthew Rushton on 19 Dec 2012

making the offer in mediation

If you were able to do one thing during a mediation which set the tone for the entire proceedings, largely in your favour, would you do it? That ‘thing’ is the first offer – loathed by parties who don’t understand how to use it to their advantage, but loved by the growing number that do.

There’s no great mystery at work; just simple human behavioural patterns. According to Northwestern University professor Adam Galinksy, how we perceive an offer’s value is highly influenced by any relevant numbers – or anchors – that enter the negotiation environment.

 First offers, as luck would have it, boast a stronger anchoring effect than any subsequent number proposed during a mediation. “Even when people know that a particular anchor should not influence their judgments, they are often incapable of resisting its influence,” says Galinksy. “As a result, they insufficiently adjust their valuations away from the anchor.”

One would have thought, then, that parties in mediation would be jostling to be first to the plate. Whilst the claimant often makes the first move, there is nothing to stop a proactive defendant from taking the mettle – particularly given some plaintiffs’ view that any departure from the figure in their statement of claim would be a bid against themselves.

So why has this approach yet to fully take off, despite the data which show its overwhelming success when used? Canadian mediator Allan Stitt says parties avoid making the first offer due to long-entrenched beliefs that: (i) the number may be too high, which the other side will immediately accept, (ii) the number may be too low, which the other side will find insulting and immediately reject, or (iii) they will lose the opportunity to assess the other side’s offer.

The second point frequently remains the deal breaker for both in-house and external counsel, and not without reason. They know, or have been told, that any initial offer must fall into the so-called reasonable zone of settlement. Misjudge that zone with a lowball figure and any goodwill between the parties may evaporate.

Enter the mediator, whose role is to ensure that the first number – whichever side it comes from – doesn’t halt the process in its tracks. That this initial step almost always runs smoothly is down to a skilled mediator tailoring their approach to the facts and parties. Crucially, it provides a safety net for the offeror to propose a figure which maximises his position without altogether alienating the other side.

The tactical benefits of making the first offer are clear. You, rather than the other side, take control of the negotiations. You set the proceeding’s parameters by defining, rather than reacting to, the range of appropriate settlement. And, most importantly, you demonstrate a confidence that will affect the rest of the negotiation process.

Given that a first offer is rarely accepted outright, the latter remains critical. Submit a sensible, mediator-approved number and you stand a good chance of starting off – and staying – on the front foot. Because just as it’s nigh on impossible to row back from a bad bargaining position, start strong and you’ll finish closer to your magic number than the other side will to theirs.

There’s an added bonus: you avoid what one of London’s top construction mediators calls “the doom-laden experience” of being the recipient of the first offer. That sentiment highlights both how far traditional thinking has shifted and why it is advisable to take a proactive role in the resolution of what is, after all, your dispute.

Indeed, no longer is it considered a power play to let the offeror sweat over the decimal points while you kick back and relax. Because, whether you realise it or not, they are already dictating the way you think. And if that’s the case you might as well hand over the money.

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Topics: Mediation

Matthew Rushton

Written by Matthew Rushton