• Year 1; Rapid to pay cost for equipment and not services ($68,000) • Year 2; Scott to provide 2nd generation “Print Rite”, Rapid to pay original contract amount for year plus at minimum, $12,000 at the end of year (equivalent to $1,000/month) for software application with the following contingency: 1. In case, Rapid increases print volumes by 25% - end of year software charge is calculated at $2,000/month, or $24,000 for the year (Scott’s original price for this version of the software solution) 2. In case, Rapid increases print volumes by 33% - end of year software charge is calculated at $2,500/month, or $30,000 for the year 3. In case, Rapid increases print volumes by > 50% - end of year software charge is calculated at $3,000/month, or $36,000 for the year • Scott to provide additional training on software, and general business management principles to Rapid • Rapid to assist Scott with user interface and software product marketing/development specific to printing industry • Scott will not offer the new software (further developed through the above mentioned marketing/development initiatives) to Rapid’s competitors • Year 3 – Year 5: Revisit contract terms
Preparation – Scott:
Target Point: Get Year 1 paid; find opportunity to increase contract total beyond original amount of $500,000. BATNA: Litigation
Target Point: $5,150,000
Reservation Point: Total current sunk costs: $2,592,192
Analysis – Scott:
Scott felt that in no way did it violate the terms of the contract. Scott had not been paid for the first year of the contract. However, it became clear early in the mediation that Rapid was not in a good financial state. So, winning a legal battle could ultimately end up being a loss for Scott if Rapid filed for bankruptcy. Both sides agreed that there was a miscommunication regarding the deliverables on the software between the lower level managers. Rapid admitted that the $5,000,000 lawsuit was an attention grabber, because they felt Scott was not being responsive. Rapid offered a partial ownership to Scott, but Scott felt that the printing industry was not familiar territory, and it wasn’t keen on picking up Rapid’s current dead weight. Scott tried to appeal to Rapid’s interests by suggesting that this arrangement would not work in the long run as Rapid would have more autonomy if they stayed with their current ownership model. This set the stage for a potential contingency deal based on targeted growth (printing volume) of Rapid that would benefit both companies. Even though the original claim against Scott had to do with the omitting of the Print Rite software, both companies agreed this application was clumsy and not user-friendly. Scott informed Rapid that an updated version of the software was close to being launched. This software solution would normally be priced at $2,000/month lease. Scott suggested a contingency, whereby they would be guaranteed payment by Rapid in the amount of $1,000/month (or $12,000 to be paid at the end of year 2) with an increase in payment based on the Scott targeted printing volumes as a result of using the new software on the already supplied hardware terminals. (See above settlement for details on increasing price relative to Rapid’s performance.) This shared interest provided an incentive for both companies to work together to get the most out of Rapid’s novel business idea. Since the software was close to launch, Rapid would be able to help tailor the product to printing industry and would be able to help with marketing. Scott would in turn provide the necessary support and management expertise to the project. Scott would essentially be part of the oversight committee for the project. Analysis - Brown:
Brown had much to lose in this negotiation: his business. If he had to pay Scott for this contract without it being able to generate any...