What is a Zone of Possible Agreement (ZOPA)?
For any negotiation to be successful, the parties involved have to agree that there is some range of possible outcomes that all parties would accept. Finding that eventuality is the first stage of a negotiation, and then the parties can narrow it down and negotiate until they reach an agreeable compromise.
The agreeable range of compromise parties have to find in the first stage of their negotiation is called the Zone of Possible Agreement, or ZOPA. Understanding what a ZOPA is can help you improve your contract negotiation skills and reach agreeable compromises in a more organized and efficient manner. You could even include a ZOPA in contracts you generate as a way to open negotiations.
What is a Zone of Possible Agreement?
A Zone of Possible Agreement, or ZOPA, is the range in any negotiation in which two or more of the parties involved can find common ground. For the parties involved in any negotiation to agree, they must find the ZOPA and then agree to a conclusion that is somewhere within it.
ZOPA is also sometimes known as the “bargaining range” or the “bargaining zone.” Other terms related to the ZOPA include:
Positive bargaining zone
The positive bargaining zone is the area within the ZOPA where all parties in the negotiation are willing to agree. Once negotiating parties successfully find the positive bargaining zone, the rest of the negotiation will probably consist of narrowing it until they reach an acceptable compromise.
For example, in a contract negotiation where Party A is offering to pay $70,000 to $80,000 to purchase a service and Party B is offering the service for $77,000 to $85,000, a positive bargaining zone of $77,000 to 80,000 exists in the negotiation. The rest of the negotiation between the two parties will involve settling on what amount inside the positive bargaining zone Party A will eventually pay.
Negative bargaining zone
When the terms that both parties agree to at the start of a negotiation do not overlap, there is a negative bargaining zone. This is sometimes also known as the negative ZOPA.
In negotiations where a negative bargaining zone exists, the parties will not be able to reach an agreement until one or all are willing to adjust their view of acceptable outcomes. In these cases, the first stage of a negotiation involves attempting to compromise until a ZOPA is established.
For example, if Party A is willing to pay $75,000 to $80,000 for a service from Party B and Party B is willing to offer that service for $85,000 to $90,000, then there is a $5000 negative bargaining zone between the ranges the two parties find acceptable.
In this case, the first stage of negotiation would have to involve a compromise on the part of either Party A or Party B. As an opening negotiation compromise, Party A might agree to pay up to $83,000, for example, if Party B agrees to expand some element of the service provided in recompense.
When is a ZOPA useful?
Identifying a ZOPA in a negotiation is a great first step toward getting closer to an agreement, especially in a highly contentious negotiation.
If there is a large negative bargaining zone between the parties in a negotiation - ie: they have very different ideas of what would be equitable and what they’re willing to do - then scaling back the objective of your negotiation to just finding the ZOPA can help create grounds for discussion.
For this reason, bringing your range of possible agreements to the beginning of a negotiation can be a way to facilitate more efficient negotiating. This would signal to other parties in the negotiation that, should they not accept your initial offer, you are prepared to negotiate within pre-set terms. The other parties could then offer their ranges of possible agreements, and you could look for an overlap to determine the ZOPA.
What happens if a ZOPA can’t be established?
If a ZOPA can’t be established no matter what every party offers, then negotiations do not move forward. A deal is not reached, and every party defaults to their Best Alternative to Negotiated Agreement, or BATNA.
A BATNA is the course of action you take if your negotiation fails. Think of it as your fallback plan. As a general rule, no party in a negotiation should agree to a deal that is less favorable to them than their BATNA.
Like your range of possible agreements, you can include your BATNA in the materials you present at your initial negotiation, though you should keep in mind that, like your range of possible agreements, your BATNA could itself affect the tone and subject of the negotiation.
If your BATNA is something you know other negotiating parties strongly wish to avoid, for example, then it could work as leverage in your negotiation - or be perceived as a threat.
Where do I put a ZOPA?
A ZOPA does not have to be included in formal negotiation documents. Instead, most offers only consist of the price you want to pay and, optionally, your BATNA. If you do want to include your ZOPA, however, to expedite negotiation, you may do so when referencing the exchange you are willing to make.