Plan template - Viking Investment PDF

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Summary

Class taught by Dr. Nazli Bhatia...

Description

NEGOTIATION PLAN TEMPLATE

Name: Taarini Gupta

Role: Pat Olafson – Viking Investments

Issue

Self

Other

Example

Position

Position

Priority Issue 1

Amount to be Paid 1

Issue 2

Loan Amount 2

Issue 3

Rent 3

Interests

Priority

Interests

Amount to be Received Since main cause for dispute is the 1 unauthorized use of expensive lumber for the condominiums consequently increasing the final amount to be paid to WoodCrafters, this would be the issue of top most priority

Using expensive lumber for the carpentry in the project led to a higher total amount to be received however, it was a breach of the contract thus, settling this would be of top priority

Loan Amount Sandy owes $200,000 to Viking 2 Investments Inc. which is required immediately in order to invest in a lakefront property before someone else makes an offer. However, Sandy is unaware that Viking Investments plans to stop renewing the loan as we are in need of that money

Sandy took a loan from Viking Investments Inc. five years ago to set up WoodCrafters and has been making timely repayments with interest but renewed the loan one year back under the terms that the principal amount plus accrued interest could be recalled within 30 days at any point in time thus, making them liable to repayment of the designated amount. They could make a case to renew the loan amount for yet another year

Rent Viking had leased a building to 3 Sandy, however he chose to terminate the contract for the lease and is yet to pay 2 months of rent and now owes $10,000

Sandy owes Viking Investments 2 month’s rent for the building they have been leasing and despite having chosen to terminate the lease they have an outstanding payment of $10,000 which they have already delayed, however they could use this to bargain with respect to the final amount to be received

NEGOTIATION PLAN TEMPLATE

Name: Taarini Gupta

Role: Pat Olafson – Viking Investments

as payment for the work Issue 4

Settlement Time 4

Due to the time-sensitive nature of the future investment plans it is imperative that Viking resolve this issue in time as they need the money owed to them urgently, for future investment plans that might become missed lucrative opportunities if the deals are not made quickly

Issue 5

Issue 6

BATNA

$860,000 – Paying Sandy the extra $160,000 instead of Bankruptcy – If we are unable to settle the issue of coming to terms with a final payment for the incurring a loss of $210,000 by having this issue dragged to court which would be an inconvenience in contract then, this issue would be dragged to terms of time, effort and money since lawyers would be court which would compel Sandy to declare involved and one would have to pay them according to bankruptcy their billable hours. (This would result in a net payment of $650,000 after subtracting the $210,000 for loan +rent)

Reservation Price

$710,000 – Based on the calculations for the money required for future investment plans is a total of $720,000. Based on the original contract payment of $70k, would leave us with a total of $730,000 for investment purposes. Thus, the maximum we could stretch given the current situation would be to make an additional payment of $10k without compromising our own financial growth and stability ($500,000 – This is the final amount that can be paid after subtracting the loan and rent amount)

$860,000 – Keeping in mind that if this issue went to court we would lose $210,00 plus pay the bank an additional $700,000 as part of the original contract, Sandy would assume that we would avoid wanting this issue to reach court thus, settling to pay an additional $160,000 (saving damage of $50,000) on top of the $700,000 originally agreed upon as this way they would break even as per the new invoice instead of incurring any loss.

Target

$700,000 – The original agreed upon price that Viking was to pay Sandy for his work. Paying this much meets our needs as it gives us enough capital for future investments plans. ($490,000 – This is the final amount after the $210,000 that Sandy owes us has been

$950,000 – This is the amount Sandy expects to get based on the invoice provided after making the changes in the lumber for the carpentry yielding them a total profit of $66,000 on this deal ($740,000 – This is the expected target price

NEGOTIATION PLAN TEMPLATE

Name: Taarini Gupta

Role: Pat Olafson – Viking Investments

deducted from the final payment to be made.)

for Sandy after subtracting the loan amount and rent for $210,000)

Sources of power

1. The two clauses in the contract stating that WoodCrafters shall be responsible for any cost overruns on labor and material. Viking is not obligated to make any reimbursements 2. The contract is final binding and no amendments can be made to the existing contract 3. No written contract to approve the changes

1. They are aware that if this issue were to go to court then them declaring bankruptcy would compromise us receiving the $210,000 for loan and rent

Vulnerabilities

1. Sandy declaring bankruptcy could lead the 1. No written document signing off on the court-appointed trustee to either recover change to use high-quality lumber for the $210,000 or seize any assets bought with that carpentry which was mandatory if any money, increasing the loss for us changes to the original contract were to be 2. Loss of $210,000 if the issue is not resolved made compromising our seed money for future 2. If they declare bankruptcy all their assets investment plans will be seized including the luxurious 3. Having taken a vacation during a critical period mansion Sandy currently lives in of the project, right before it’s completion

Strategy / Opening move / Other information (your strategy should include your first offer and plans of action given potential moves by the counterparty): 1. Opening move would be to acknowledge the existing relationship between the two parties, Sandy has been working on projects for Viking for the past 9 years and there has never been a problem before today, so it would be in both our best interests to reach a concordant agreement that mutually benefits both sides 2. After this it might be beneficial for Pat to try and understand some of the concerns Sandy has and what were the reasons behind him having gone ahead without written consent from him, and using costly lumber for the carpentry despite having received specific and detailed instructions regarding what was expected. (This is important to uncover as it seems that prior to this issue, the working relationship between the two parties was one of trust and mutual understanding, for a significant period of 9 years) This would also reveal the true motive behind the dispute in question and allowing Pat to make a reasonable decision without causing further conflict and ruining their working relationship

NEGOTIATION PLAN TEMPLATE

Name: Taarini Gupta

Role: Pat Olafson – Viking Investments

3. Post the discussion regarding why Sandy chose to deviate from the original plan, the issue regarding Sandy’s conversation with Fawn should be discussed. It seems that there was miscommunication between Sandy and Fawn as she was very upset and defensive when confronted about why she gave the apparent go ahead to use the expensive lumber when she was in fact instructed to hold off on authorizing any changes that would cost extra money as we had stringent budgetary concerns. She also claims to have been ‘threatened’ by Sandy and this required further clarification 4. After all aspects of the dispute, that took place in the absence of Pat have been discussed and clarified, the issue of the amount to be paid would be discussed 5. Since Sandy was in clear violation of their contract that explicitly states that any changes made without written consent would relieve Viking from making any reimbursements to them, they are now in a weaker bargaining position. On paper Viking is not obligated to pay them any more than $700,000, which was the amount to be paid as per the bid for the project by WoodCrafters 6. Sandy is aware that if he refuses to accept the $700,000 ($490,000 after subtracting the loan + rent) this issue would be dragged to court which would compel them to declare bankruptcy as per the rumors. This would result in Sandy losing all assets including his private home thus, it would be in his best interest to accept the initial amount. However, Sandy is also aware that if this issue does get dragged to court, then we would incur a loss of $210,000. This amount would be recovered by the assigned trustee of the bank hence, they could use this as a potential leverage to get us to pay a minimum of $860,000, which is the amount they would need to break even after using the new lumber. This way we lose $160,000 as opposed to $210,000 7. The counter-argument here would be to delineate the fact that first and foremost there has been a breach of contract as well as trust on Sandy’s part. Even if his intention was not to bait and switch for his own gain and assuming this deviation from the original plan was made with ‘good intentions’, it was still insensitive as well as unprofessional to an extent for Sandy to go ahead and make these costly changes without the proper authorization after having had clear instructions regarding what was expected from the job 8. Sandy might use the fact that Pat wasn’t around to oversee a critical project and went on vacation however, once again this can be countered by the fact that detailed instructions were already provided and it was not Sandy’s place to make a judgement call on wanting to use more expensive lumber without proper authorization. Also, apart from being on vacation it was also a business trip since, Pat was signing over the condominium project to Margret 9. Based on the progression of the negotiation another option could be to ‘threaten to sue’ Sandy, as he breached the contract. This could potentially harm us as suing someone is long process that involves additional costs like time, effort and lawyer’s fees which is added burden however, the way the threat is framed and the tone with which it is said, could force the opposition to concede 10. Since, this is an integrative negotiation where it is probably in the best interest of both sides to reach an agreement to avoid incurring a loss for both parties, one could try and make an offer to Sandy to waive the $10,000 on the rent as a concession for ‘old times sake’ and also due to having had a successful working relationship in the past.

NEGOTIATION PLAN TEMPLATE

Name: Taarini Gupta

Role: Pat Olafson – Viking Investments

11. Another way to reach a deal could be to offer to help Sandy sell his mansion for a good price by giving Pat’s example of successfully having sold his mansion and using that money for investment capital, also then offering to help Sandy find another house for a reasonable price 12. Lastly, another tactic could be to offer Sandy and his crew jobs in the next project that Viking undertakes...