The first and most common step in the settlement process is the negotiation proceedings. Negotiations for settlement purposes are generally voluntary and nonbinding. Negotiation efforts are nonbinding in that they do not guarantee settlement. Instead, negotiations bring the parties together to discuss the settlement options and avenues.

Participating in negotiations requires that parties agree to negotiate, prepare for such negotiations, conduct the actual negotiations, and ultimately conclude the settlement to the extent that the parties reach a settlement. Agreeing to negotiate requires both parties to come to the independent conclusion that they stand to gain more from agreeing to negotiate towards possible settlement. Since parties can settle most cases through negotiations, the operative consideration is not whether or not a party should negotiate, but rather when and how negotiations will be most conducive for settlement. The interested parties should discuss negotiation options at the outset of their case with their attorneys. However, before the parties can effectively agree to negotiation and settlement offers, they must fully ascertain their damages. For instance, the interested parties will often hold off on negotiations and settlement talks until they have fully discovered the extent of any medical damages. Additionally, in cases that require technical expertise, the parties will be able to negotiate more accurately if they have at least rough estimates of their respective claims or injuries.

Furthermore, dispute resolution agreements may require negotiation efforts before the parties proceed to litigation or other dispute resolution tactics. The parties involved in a legal dispute may enter into an agreement to negotiate the terms of the dispute during the course of the dispute. This agreement may not require the parties to reach an ultimate agreement, but it does obligate the parties to participate in negotiation efforts. If the parties engage in good faith efforts to reach a settlement, and are nonetheless unable to do so, the parties have still fully performed the agreement to negotiate. However, if a party does fail to participate in negotiations under a binding agreement, that party may be liable for the cost to the participating party for conducting negotiations.

Before beginning to discuss settlement with the other party, a party must know his/her ultimate goals for the pending matter. Although, the most effective negotiations generally take place face-to-face, some parties seem to be inclined to participate via webcam, phone or email in contemporary litigation matters. Through email negotiations, parties have the convenience of replying at their own convenience. However, there are also possible consequences that come from conducting negotiations online. For example, parties lose out on the possibility of making eye contact with their opponents and reading body language to determine their counteroffers. Additionally, parties may misconstrue statements, which will further aggravate negotiation and settlement efforts. In light of the intricacies that parties face in preparing and conducting negotiations, they can benefit greatly from seeking legal advice as they plan their pre-litigation settlement efforts.