9-801-096
REV. MAY 30, 2008

MICHAEL WHEELER

Riggs-Vericomp Negotiation (A)
Confidential Instructions for RIGGS ENGINEERING
In this exercise, you represent Riggs Engineering. Your company manufactures and services sophisticated recycling equipment for the computer industry. You are trying to close a deal with
Vericomp. It has expressed serious interest in acquiring one of your systems to reprocess solvents that it uses in cleaning the chips that it produces.
Up to this point, negotiations with Vericomp have been handled by one of your colleagues, who is now out of the country. You have full authority to reach agreement—or to end the negotiation with
Vericomp without a deal, if their representative insists on terms that are unattractive to your company. (As it happens, their representative is also new to this negotiation).
The appropriate technology has been jointly specified by a team of engineers from both companies, and thus is not open to negotiation. There are, however, a number of important unresolved issues including price, level of service, payment terms, and installation schedule. In the prior negotiation, the following proposal was on the table (though it was not formally accepted by either side):
Nominal price:
Service provision:
Payment schedule:
Delivery:

$5,000,000
Standard
Back-loaded installments
Six months from date of contract signing.

If Vericomp insisted, you would reluctantly agree to these terms, but they are only marginally acceptable. You hope to do substantially better. Here is how you should evaluate alternative packages. Nominal price This really depends on how much service you are obliged to provide, and when you will be paid. Nominal price thus does not tell you much about the net value of the deal.
Service provision Operation and maintenance of your equipment requires constant service by highly trained technicians. The proposal on the