Settlement offers as well as demands frequently carry a time limit: For example, “If not accepted, this offer will expire at 5:00 p.m. on Tuesday,” or “If we cannot resolve this matter to our client’s satisfaction within 10 business days, we will take all appropriate steps, including filing suit against your client.” Why do people, including myself, include these deadlines? Everyone knows we may be bluffing, because we would generally still prefer to settle on the same offered terms the day after, or even the month after, the offer expires. If the settlement demand or offer were not a more attractive alternative than a failure to reach agreement, we would not have made the demand or offer in the first place. Usually that option remains more attractive than the costs and risks of non-agreement even after the artificial deadline has expired.
Similarly, near the end of a mediation session, parties have the choice of accepting the other side’s last offer, or walking away without an agreement. Frequently, parties cavalierly threaten to walk away, even though it seems that they are jeopardizing the entire negotiation. They act recklessly because they count on being able to revive the negotiations at a later date. Sometimes parties merely need time to think about the last offer, and still expect to be able to take it the following week or month, even though the other side has told them that all bets are off after the mediation session ends.
Once a party makes a settlement offer, the offering party is rarely able to negotiate for a lesser amount. One reason is that parties’ risk calculations going forward still favor the original offer. Parties might leave a negotiation session without a deal, then go back to spending many thousands of dollars doing more discovery and filing more motions, but that work usually doesn’t change the value of the case. It is water under the bridge by the time the parties get to their next settlement opportunity. Perhaps more importantly, the opposing party will rarely be willing to settle for less than previously offered. So any offer that is made usually sets a floor for future negotiations. Backtracking is looked upon as bad faith. Parties should therefore not expect that they will be able to retract an offer that was made previously. That only happens on rare occasions, perhaps only when parties’ view of the value of the underlying case has substantially changed. Parties can always walk away from the table after an offer has been rejected, but they should not expect to be able to make a better deal than the one they told the other side they would be willing to take.
Setting a time limit on acceptance of an offer still serves some useful purposes, however. It lets the other side know that you are serious about negotiating now, but you might not be interested in negotiating later. Putting an expiration date on an offer also prevents a belated acceptance of an offer that a party might later regret having made.
(photo from freedigitalphotos)