Commodity Sales Contract Negotiation

Background

Negotiation of any contract should be based on an awareness of the other party. Is the other party a reliable commercial partner? Are they prompt in their payments or deliveries? Are they serious or just testing the market? It makes no sense to be fully open about contract terms until the negotiation has found a mutually agreed starting point. Likewise it makes no sense to offer the same terms to reliable trading partners and casual partners.

Goal

Make a sale based on contract terms that are acceptable to both parties and help both parties to stay profitable.

Method

A third party operating a “blind encryption matching” service finds the starting point of negotiation for any pair of buyer and seller. The third party never learns what that starting point actually is; in fact, the sale remains a private matter between buyer and seller. Neither the buyer nor the seller can learn the flexibility in the other’s position.

The method works like this:

Every participant gives the broker a list of other firms with whom they are willing to negotiate.

The broker asks each pair of parties for encrypted negotiation terms. These terms include lists of acceptable price ranges and acceptable delivery schedules. The broker cannot read the terms but the broker can compare them – that is what is meant by “blind matching”. The broker finds an overlap between the pairs of terms and computes a compromise point within the buyer’s range and the seller’s ranges. The broker returns the compromise point to both parties – it is still encrypted at this point – the buyer and seller can decode it.

The buyer and seller either accept the compromise point on the spot or go on to further negotiations.