Viewpoint: Who has the authority to negotiate?

By Frederick Marks

Knowing who you are negotiating with and what their authority is can be as important as what you are negotiating. Authority limits differ from private company to private company. A title does not confer unlimited power to commit a private company to performance. "Salesman," "National Sales Manager," "Executive Sales Manager" are only titles given to show status in an organization or to impress potential clients. They may not be legally able to commit their company to an agreement to perform.

In a public body, such as those most of us work for, it's different. We have systems of delegated authority that are clearly defined. Power rests with a Chief Operating Officer or Board of Commissioners or those who the enabling legislation specifies. That authority is delegated down to Managers, Supervisors, and Procurement Professionals. We do our jobs, and get either authority to negotiate beforehand by requesting permission (prior approval) or disclosing and requesting permission to approve our actions after the fact (post approval). We are completely transparent in our actions. That may not be the case with a private company.

Remember the last time you bought a new car? You negotiated to the best of your ability with the salesman and, once you thought you were finished, they had to check with someone in the back of the showroom. Time passes, which is done by design to make you wait. The intent is that you are supposed to wonder whether they will agree. Someone comes out, shakes your hand, and either says they are losing money or you have a great deal (I hate the word "deal;" it reminds me of a TV show or buying fruit at a farmer's market). The guy from the back then tries to get you to change the agreement you made with the salesman. It's almost that way when negotiating with a private company. They may have to check back with a home office or with a superior. All your hard work and research may be negated by someone who was not a party to the negotiation. Either way, your negotiated agreement is in jeopardy.

And don't forget that whoever has the authority to negotiate should sign your contract. If it's a very important document, have a requirement for a corporate seal on the signature page. Don't accept someone's signature who has less authority. Send it back if you have to.

There are important legal concepts involved with this subject, and I strongly recommend that you get your law department or legal counsel to develop a presentation to your buyers on this. If that's not available to you, read up on the Law of Agency and the Master Servant Rule (also known as Respondeat Superior). They define who has authority, and what happens if authority is misused.

A good business practice is to bring up the question of authority directly to negotiate when you are making arrangements for the negotiating team to meet with the other party. I've always asked a direct question such as "Do you have the authority from your organization to commit your organization to performance after we conclude?" If there is hesitation, then go further. Generally a corporation's articles of incorporation will state who can commit to performance – an officer, a majority of officers, or other designees, but let your legal counsel make that decision. And it's acceptable to ask for it in writing, signed by an officer of the corporation. And if it's really important to you, have the corporate seal affixed to the letter. I did that on several occasions. I usually say that "my manager requires it for all important negotiations". Blaming your manager takes the burden off you for being hard-nosed. Besides, managers gets the big bucks, let them earn their pay.

Learn more about this, make it part of your staff training. Become the expert in your organization on this subject.

What do you think? Tell us in the comment box below.

Frederick Marks, CPPO, VCO, is a retired purchasing officer who has held positions as supervising buyer for the Port Authority of New York and New Jersey as well as director of material management for Northern Virginia Community College. Contact Marks at [email protected]