Essay Instructions: The business subject for this research paper is: contracts/purchasing and negotiation. I would like to request a research paper in the form of a (pre-negotiation memorandum). The topic is focused on planning a strategy to negotiation an agreement between a city council and a mining company. The paper will represent the mining company''s side. The paper should SPECIFICALLY ADDRESS: the issues, negotiation objectives (minimum, maximum and target), relative buyer/supplier strengths and weaknesses and negotiation priorities and potential tradeoffs which results in a strategic plan. We must identify our position and the other party''s positions -- this will help identify any zone of overlap or gap. Including additional topics such as any arguments we anticipate from the other negotiator with your counterarguments will prove helpful as well as any possible tactics you plan on using. The reseach should look for focus on shares interests and work its way to positions of parties and follow integrative approach (win/win). On the other hand, the research should disucss other substituties or (best alternative to a negotiated agreement "BATNA") and be prepared to "walk away" if the negotiations are not going anywhere. The pre-negotiation memorandum should be in APA format.
Below please find (1) background ifnromation about the negotiation situation and (2) the research sources that I have collected which should be used in writing.
(1) BACKGROUND INFORMATION
The Twin Lakes Mining Company is located in Tamarack, Minnesota, in the northern part of the state. It was established there in 1961. The town of Tamarack has a year-round population of approximately 12,000. Although there is a growing revenue that accrues to the town as a result of heavy summer tourism (summer homes, fishing, etc.) and several cottage industries, Tamarack is basically a one-industry town. Twenty-five hundred people, 60 percent of whom live within town limits, work for the Twin Lakes Mining Company; 33 percent of the town''s real estate tax base of about $5 million consists of Twin Lakes Mining Company property and operations. Both in terms of direct tax revenue and indirect contributions to the economic stability of the local population, Tamarack is strongly dependent on the continued success of the Twin Lakes Mining Company.
The Twin Lakes Mining Company is an open-pit, iron ore mine. Open-pit mining consists of stripping the topsoil from the ore deposit with the use of power shovels. Train rails are then laid, and most of the ore is loaded into railroad cars for transportation to a central collecting point for rail or water shipment. As mining operations progress, rails are relaid or roads constructed to haul ore by truck. the ore is transported to a "benefication plant" located on the outskirts of Tamarack. Benefication of ore involves crushing, washing, concentration, blending, and agglomerating the ore. In the early days of ore production, such treatment was unnecessary; however, benefication is necessary today for several reasons. First, transportation costs of rejected material (gangue) are minimized. The crude ore may lose as much as one-third of its weight in grading, and, in addition, impurities are removed at a much lower cost than if removed during smelting. Second, ores of various physical and chemical properties can be purified and blended during this process. Finally, fine ore materials, which previously may have been rejected as a result of smelting problems, can now be briquetted and pelletized to increase their value. After the ore proceeds through this process of cleaning and agglomerating into larger lumps or pellets, it is shipped by railroad car to steel mills throughout the Midwest. Rejected material are returned to "consumed" parts of the mine and the land restored.
TwinLakes''benefication plant is located approximately five miles outside of Tamarack. As a result of the expansion of the residential areas of the town, summer home development, and various TwinLakes operations, the plant has become a major problem for local citizens. For years, the Tamarack Town Council has been pressing the company to clean up the more problematic operations.
While most of these discussions have been amicable, TwinLakes has done little or nothing to remedy the major concerns. Now, as a result of more stringent environmental laws and regulations, TwinLakes has come under pressure from both the state of Minnesota and the federal government for environmental cleanup. Both the state and the federal Environmental Protection Agency have informed TwinLakes that the company is in major violation of water- and air-pollution quality standards, and that immediate action must be taken. TwinLakes'' estimates indicate that total compliance with the cleanup regulations will cost the company over $36 million. Because TwinLakes is now mining reasonably low-grade ore and because foreign competition in the steel market has significantly eroded the demand for ore, environmental compliance may seriously influence the profitability of the company. Many local citizens, as individuals and through the local chapter of the United Mineworkers Union, are putting significant pressure on the Town Council to help the Twin Lakes Company in its environmental cleanup operations.
The imposition of the environmental controls onTwinLakes, and the resulting pressure from all segments of the community has lead to renewed discussions between company officials and the Town Council.
The TwinLakes plant requires large amounts of water to wash the crushed ore. In addition, much of the highest quality ore is reduced to an almost powderlike texture after washing, and is being lost in the washing operation. As a result, the company has built a series of settlement recovery ponds alongside Beaver Brook near the plant. Water that has been used for washing ore is allowed to stand in these ponds; they are periodically drained and the ore recovered. Nevertheless, granules of iron ore and other impurities continue to wash downstream from the plant. The environmental agents have insisted that the effluent from the plant and the ponds be cleaned up. Estimates for the cost of a filtration plant are $20 million. TwinLakes claims that it cannot afford to build the plant with its own revenue. Since Tamarack has periodically talked about Beaver Brook as a secondary water source for the town (and residential development makes this a more pressing concern in two to three years), the TwinLakes officials hope that they might interest Tamarack in a joint venture.
The entire process of mining, transporting, and crushing ore generates large amounts of dust. This has significantly increased the levels of particulates in the air. In addition, during the dry summer months, the operation of many large trucks along dirt roads intensifies the problem considerably. TwinLakes believes that it can control a great deal of the dust generated immediately around the plant at a cost of approximately $8 million. The most significant debate with the town has been over a series of roads around the outskirts of town. Approximately half of the roads are town owned; the rest have been specifically constructed for the transportation of ore and material. Estimates for paving all the roads are $4.8 million, with a yearly maintenance cost of $600,000; periodic oil spraying of the roads, to keep down the dust, would run approximately $800,000 annually, but an agreement to do this as a short-term measure may not satisfy the environmental agencies.
The land for the mine itself is outside of town limits. However, the plant lies within township boundaries, and current taxes on the town land are $800,000 annually. The company has always felt that this taxation rate is excessive. In addition, several of the railroad spurs used to move ore into the plant, and out of the major railway line, cross town land. The town has continued to charge a flat rate of $400,000 annually for right-of-way use. It has occasionally offered the land for sale to the company at rates varying from $2.2 million to $2.4 million. Again, the company has felt that this rate is excessive.
TwinLakes would agree to keep the mine open if a satisfactory agreement on the current situation could be resolved.
FUNDS AVAILABLE
Twin Lakes Mining Company - $16 million + $2.6 million annually
Tamarack City Council - none (every dollar spent must be collected by increasing taxes)
COST OF CLEAN UP
Capital Costs Without With
Bond Bond
Filtration Plant $20 million -
Plant Improvements $8 million $8 million
Paving Roads $4.8 million $4.8 million
Annual Costs
Bond Interest none $2 million/yr
Road Maintenance $600,000/yr $600,000/yr
THE BOND
Bond Sinking Fund - One payment of $1,848,740
Principal: - is due once, 25 years from now
- may be managed by depositing capital in an interest bearing account that compounds for 25 years
Interest: - payable yearly
Case Example
Principal: - $20 million due in 25 years
- $1,848,740 deposited into a 10% interest bearing fund, compounded for 25 years will cover the principal
Interest: $2 million per year
ADDITIONAL INFORMATION REGARDING THE MEMORANDUM
TWIN LAKES MINING
ROLE INFORMATION FOR TWIN LAKES MINING COMPANY FOR WEB TYCHO SECTIONS
WE represent members of the top-management group of Twin Lakes Mining Company. Twin Lakes has several mines in northern Minnesota and Canada; the Tamarack operation is second in both productivity and contribution to corporate profit. Among you at the table are the Vice President for Operations of the company, the Plant Manager, several corporate staff members and legal counsel. Only the plant manager lives in Tamarack; the remainder are from corporate headquarters in Duluth, Minnesota.
The problems of air and water pollution described in the section ?Background Information? have existed for a long time. Officials of the company have met with the City Council several times to discuss these problems. Although you agree with the community concerns, you frankly think that the City has overstated the problems in order to get you to pay for public improvements. You have agreed to remedy several of the most obvious concerns, but have not had to incur major costs up to this point. Now that the state and federal agencies have mandated a cleanup, things have changed considerably. You will have to make some major improvements in order to keep the plant operating.
You are committed to keep the plant open if possible, but not at all costs. You do not want to spend large sums to maintain this operation. Some of your newer mining operations have revealed rich deposits, but will require large investments to gain access; if the Tamarack project costs too much, you would rather close the mine and invest in other operations. As a result top management in Duluth has set a limit of $16 million capital cost (not including bond issues) and $2.6 million yearly as a ceiling that you will pay on improvements. Naturally, you would like to settle as cheaply as possible; any settlement over the limit will require approval from Duluth. Shutting down the mine will not necessarily excuse you from the environmental clean up. The cost of the cleanup would be considerably lower than $36 million, however.
Within this overall guideline, your positions are as follows:
Water Quality. The Tamarack City Council has maintained that growth in the community will require a second water source in several years, and that Beaver Brook is the logical choice. Hence, construction of a filtration plant on Beaver Brook would clean up the water from the settlement point and provide drinking water to the City.
The Council has been in touch with the civil engineering department of the nearby university. They have been told that recent technology in water filtration can completely purify the water. In addition, university scientists have been experimenting with several techniques for recovering the fine iron particles and other minerals from the water that now go over the spillway. Additional revenue from the sale of this recovered iron could amount to $32,000-$40,000 annually.
The City has a very small tax base and cannot possibly afford to build the filtration plant on its own (see Exhibit 1, City of Tamarack Statement of Revenues and Expenditures). It has been suggested, however, that the City might float a 25-year bond issue to cover the cost of improvements, with payment of interest and repayment of principal to be made by the company. The proposal would need approval at the annual meeting of the City?s citizens (i.e., its ?electors?), which the City Council is not sure of getting. If the electors did approve, the state would require a guarantee of the repayment of the bond issue. The City and the company could then negotiate the details of company payments to the City to cover the City''s debt service outlays. Such payments would then become legitimate deductions against the company?s ?bottom line.? The Twin Lakes Company has already suggested that it reimburse the City in the amount of 50% of the interest payments on any bonds issued. Given the current interest rates, all payments on such bonds would be approximately $2 million (not including repayment of the principal).
You wouldn?t mind floating a corporate bond to cover the expense of the filtration plant, but head office will not approve any corporate bonds at this time because of the overall financial situation of the company.
Air Quality. You have already agreed to make approximately $8 million worth of investments to reduce from the plant. (This amount counts against the $16 million cap mentioned earlier.) Your plant investments, however, do not solve the air quality problems in the City. The major on-going problem with the city concerns the dust created by company trucks traveling to and from the plant outside the City. It has been stated that the paving of all the roads will cost $4.8 million. Approximately half of these are company-owned roads, and since you use them for large trucks and other heavy equipment, your preference is to use techniques to reduce the dust (oil spraying, water spraying, coarse gravel) instead of paving. Estimates on the City roads are $2.4 million for paving and $300,000 for maintenance (repair, plowing, and so on). The City would like you to pay all of this: since they are public roads, and used more and more by vacationers in the summer, you insist that this is impossible. Privately, you think you should spend up to $1.6 million in paving, and contribute $160,000 to annual maintenance, but the less that you can spend, the better off you will be.
Tax Abatement on Company Land. You have been consistently arguing with the City on the tax rate for company-owned land, and feel that their rates are ridiculous. You believe that the basic problem is that the rate on the company land is very similar to rates on private residential land, when in fact you argue that it should be considerably less. You would like to see the following:
a. A reduction of annual taxes from $800,000 to $400,000 on all company-owned land.
b. A reduction of the right-of-way assessments from $400,000 to $200,000.
c. Suspension of tax revenues for several years while major improvements are being made to the roads and the water plant.
It is dramatically clear that you should not continue to pay these taxes and at the same time incur the major cleanup costs as proposed.
Review this information with your teammates and prepare a prenegotiation memorandum for negotiation with the City Council.
Exhibit 1
City of Tamarack
Statement of Revenues and Expenditures
Revenues
Taxes $5,531,319
Special Assessments 400,000
Licenses & permits 146,467
Intergovernmental transfer 8,126,610
Charges for services 1,288,739
Fines & forfeits 96,769
Gifts & contributions 219,877
Miscellaneous 385,398
Total Revenues $16,195,179
Expenditures
Current
General government $1,389,397
Public safety 4,222,085
Public works 1,978,044
Culture & recreation 2,564,460
Economic development 192,374
Transportation 151,152
Miscellaneous 1,541,853
Energy program 3,420
Capital outlay 2,485,115
Debt service
Principal retirement 1,287,848
Interest 366,332
Fiscal charges 2,495
Other- debt issue costs 8,638
Other- debt discount 1,966
Total Expenditures $16,195,179
Excess of Revenues Over
(Under) Expenditures 0
Information from City of Tamarack
The City has a very small tax base, even though property taxes form a substantial part of the City''s general revenues. The only ways to increase revenue from this source would be to expand the tax base by annexation (infeasible both politically and operationally), to raise the tax rate (also politically infeasible), or to increase property valuations through reappraisal (not due for another seven or eight years.
Bonded indebtedness becomes the obligation of the City, with repayment revenue to be raised by special assessments against all properties benefiting from the improvements. The passage of such bond measures, though, is subject to approval at the annual open meeting of City citizens (called, in that setting, the City''s ?electors?). Such meetings are often poorly attended, and passage of a bond referendum by the electors is by no means guaranteed. Finally, the City lacks sufficient fund reserves to lend itself money via inter-fund transfers (e.g., using water/sewer ?profits? to pay for non-water/sewer improvements and repaying the water/sewer fund as assessments are paid off). In addition, the City is required by state law to operate with a balanced annual budget--deficit funding is strictly forbidden.
(2) RESEARCH SOURCES:
1. CONTRACT PRICING REFERENCE GUIDES - VOL 5 - FEDERAL CONTRACT NEGOTIATION TECHNIQUES. http://www.acq.osd.mil/dp/cpf/pgv1_0/pgv5/pgv5cl.html
2. Wertheim, E. : Negotiations and Resolving Conflicts: An Overview. http://www.iiasa.ac.at/Research/DAS/interneg/training/conflict_overview.html.
3. Pruitt, E: Strategic Choice in Negotiation.
http://www.colorado.edu/conflict/peace/treatment/prui7539.html.
4. Gottlieb, M and Healy, W: 12 Principles of Negotiation
http:// www.comproj.com/twelve.htm
5. Dispute Resolution - Law 679, J. Rueben Clark Law School, 1998. Negotiation And Mediation (Getting to Yes).
http://www.law2.byu.edu/Pullins/yes.htm
6. Issues in Ethics - V.2, N.1 - Winter 1989 - Ethics in Organization.
http://www.scu.edu/ethics/publications/iie/v2n1/homepage.html.
7. McNamara, C: Complete Guide to Ethics Management: An Ethics Toolkit for Managers.
http://www.mapnp.org/library/ethics/ethxgde.htm
8. Kersten, G: Support for Group Decisions and Negotiations.
http://iiasa.ac.at/Research/DAS/interneg/research/misc/intro_gdn.html.
