Risk Pie, Anybody? How To Negotiate While Reducing Risk

Negotiation – the very essence of the word often conjures up the thought of adversarial trade-offs, however, when negotiating a purchase/sale agreement parties should turn away from opposing positions. A good negotiation takes a more integrative approach, resulting in a deal that satisfies all parties.

The pitfalls of a distributive negotiation often appear when assessing risk, and negotiating the representations and warranties of an agreement.  Often, a vendor will simply seek to limit the number and scope of representations and warranties as much as possible, while a purchaser will seek to do the opposite.  This tactic will see parties negotiating against each other in a zero-sum game in which they compete for the smallest slice of a fixed "risk pie".  There are, however, some qualifications that vendors and purchasers can use to shrink the overall size of the pie – limiting risk for both sides simultaneously.