ADR: Insight into the bargaining phase
As part of AccountingWEB and BDO’s video mini-series on alternative dispute resolution (ADR), this article looks at the bargaining phase of mediation, highlighted in the most recent video on the ADR blog.
The bargaining phase is the point in the mediation day where possible solutions are discussed, with ideas being passed between the sides as to how this could be achieved.
During this time, the mediator’s is critical as they try to encourage both parties to make viable and sensible proposals between both parties.
Mediation techniques such as asking challenging or thought-provoking questions, i.e. ‘What does it mean if a settlement isn’t reached today?’ or asking either party to think of alternatives should they not reach a settlement, are typically used in the bargaining phase.
In addition, the mediator needs to give the taxpayer and the Revenue a ‘reality check’ of their position, to make sure the proposals they are making are realistic.
“It’s almost asking the clients to self-check what they’re about to put forward,” said BDO tax partner Paul Clarke.
Mediators will use techniques such as leaving the taxpayer in the room to mull over their offer or asking them whether they would consider the offer acceptable if they were in the Revenue’s shoes.
Also important at this stage of mediation is explaining to clients the implications of what the answers mean in “pounds and pence”, according to BDO tax director and Centre for Dispute Resolution (CEDR) accredited mediator Dawn Register.
“We might be talking about technical points and suggesting various settlement options but often the only thing a taxpayer wants to know is: what’s the bottom line for us?” she explained.
The bargaining phase of mediation commonly starts mid to late afternoon. Both taxpayers and the Revenue may be tiring at this stage, so mediators are tasked with keeping the momentum going.
The whole process and late stage at which the bargaining phase is reached focuses the mind of both the Revenue and taxpayer as they move from understanding the tax issues to getting a bigger picture of the case, and agreeing what kind of settlement can be reached.
Clarke added that mediators are there to help the parties re-evaluate their positions during the course of the long day in light of the new information gained.
For more information on the process, see:
- What is Alternative Dispute Resolution?
- Resolving tax disputes for professional advisers
- Tax Services for Professionals
“It takes a long time but this is a very valuable part of it,” he said. “The Revenue and taxpayers may both believe they are totally correct, but during the day they get a better feel for the case from the other party’s perspective, which may begin to move them away from their entrenched position," he said.
Register added that an important role for the client team is being very careful to include absolutely everything pertinent to the case, as this helps when suggesting settlements to HMRC.
“Make sure everything is covered otherwise you spend a massive amount of time on one day dealing with it for it then to get unpicked afterwards; something you do not want,” she said.
Settlements and agreements can be drafted on the day but on other occasions it needs to be drafted and agreed over the course of a week, the BDO tax investigators explained.
In cases where settlements aren’t reached, potential options include going back to correspondence or potentially heading to a tribunal. Should a mediation case also be heading for tribunal, both processes can run in parallel.
“One of the beauties of mediation is that it doesn’t compromise the client’s position,” Clarke explained.
“At the end of the facilitation day, if clients and advisers are not happy about where it’s got to, their position isn’t compromised.”
And mediation isn’t thought of as a compromise or “soft option” either, according to CEDR director Graham Massie.
“That is simply not true,” he said. "Both parties can strongly maintain their positions and benefit from a mediation process. It can also re-establish communication lines that have broken down and open new dialogue.”
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