PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION HARBORCO DRRC Version* General Information and Confidential Instructions for the Negotiator for Other Ports (from the Association of Eastern Seaboard Ports) A newly formed national consortium, Harborco, is interested in building and operating a deepwater port off the coast of Seaborne. The consortium's members are drawn from a variety of enterprises, most of which are diversified among a number of commercial activities. Harborco is prepared to participate in the financing, construction, and operation of the port. It has already engaged in some preliminary planning and design work, but cannot proceed without a license issued by the Federal Licensing Agency (FLA). THE PROJECT The deepwater port proposed by Harborco would be the first of its kind on the East Coast. It would be located in Seaborne at the estuary of the Banksedge River. Like the European seaport, Rotterdam, it would accommodate a new generation of large cargo ships and supertankers -- ships believed to be especially cost-effective in transporting raw materials and goods. The deepwater port would be based on an artificial island of roughly nine square miles created with fill from the dredging of the access channel. The island would be connected to the shore by a network of highways, railroads, and pipelines. On-shore, an Air-Sea-Cargo Center (ASCC) would be developed, along with major connections to existing highways, railroads, and pipeline networks. Substantial infrastructure would be needed to accommodate an intermodal freight terminal of this sort. Most of the industrial plant and ancillary facilities would be located on the island. While components of the port could be operational as early as five years after construction begins, the port's full development might not be completed until 20 years later. The projected cost of the port is roughly $4 billion (in current dollars). THE PARTIES Harborco is excited about the prospect of a deepwater port on the East Coast. It believes such a port could generate substantial profits within ten years after operations begin. (Harborco bases its projections on an independent study by Transport Associates, Inc., which concluded that such a port could be economically viable under several possible scenarios.) In addition, Harborco believes the local, regional, and national economies could benefit from a port that would dramatically reduce the transport costs of imports and exports. Several other parties, however, have an interest in the deepwater port and Harborco's application for a license.Page 2 of 9 HARBORCO - General Information HARBORCO - General Information will come a variety of industries seeking access to the port. These industries will either lease or purchase land on the The Environmental League: This coalition of environmental interest groups is generally opposed to any artificial island and on-shore, and will eventually generate the bulk of the revenues associated with the new port. "development" of coastal areas, especially development which threatens the fragile ecosystems, adds to air and water pollution, increases waste disposal problems, and increases health and safety risks. The League is worried that Harborco has initially requested the freedom to develop any industry mix it chooses. This means that it could choose Harborco's proposed port would seriously damage the environment of Seaborne and destroy the basic Banksedge to develop (or encourage) any type of industry or plant, including oil refineries, steel mills, or a resource recovery River ecology. plant. The environmentalists, however, have argued that strict limits should be placed on the industry mix allowed in the area; they are asking that only relatively "clean" industries such as high-tech production plants be allowed Local Federation of Labor Unions (The Unions): The Unions are generally pleased that new development is being considered for Seaborne. They anticipate the creation of hundreds of new jobs in both the short-run and long-run. It As a result of this controversy, three options have surfaced in the discussions between Harborco and the will argue strongly, however, that these jobs should be reserved for union members. (This local federation is environmentalists. affiliated with the National Federation of Labor Unions.) Option Al: Primarily dirty--no industry would be excluded, but the mix would probably be dominated by oil Other Ports in the Region: The four other ports in the region are not pleased with Harborco's proposal. They refineries, petrochemical plants, steel production plants, and a resource recovery plant. expect to lose a substantial amount of business to the new port if it is constructed. They are extremely skeptical of Harborco's claim that all regional ports will share in the economic benefits generated by the new port. Option A2: Clean/Dirty--would exclude the "most dirty" industries, but would allow a limited number of moderately dirty plants (including food processing plants). Federal Department of Coastal Resources (DCR): This agency created during the Reagan Administration has a dual mandate: (1) to help realize the economic potential of the nation's coastal resources and (2) to preserve the Option A3: All clean--would be limited to only "clean" industries such as high-tech production industries; environmental integrity of the nation's coastal areas. The DCR would like to see a deepwater port established 'dirty" plants would be excluded. somewhere on the East Coast, and has the resources and authority to subsidize such a port if it chooses. Air pollution, water pollution, and waste disposal would vary with the industry mix selected. But regardless of the Governor Sherwood (of Seaborne): Governor Sherwood is in her second gubernatorial term and is eager to 'industry mix," all industries would conform to existing federal and state pollution regulations. promote development in her state. She is sensitive, however, to the needs of organized labor, a powerful political constituency, and is therefore anxious to see that unions share in the benefits of the port. Issue B: Ecological Impact The dredging of the access channel, the creation of the island, and general construction activity could seriously disrupt existing "ecologically delicate" areas both on and offshore. The damage would include the alteration of THE LICENSING PROCESS nesting habitats, a reduction in natural tidal flushing, the destruction of wetlands, serious land erosion, adverse impacts on existing fisheries, and substantial subsurface geologic impacts (caused by drilling and dredging). Harborco submitted an application just one month ago for FLA review. While aware of other parties' interest in its proposal, Harborco expected little difficulty in the licensing phase of this project. Harborco admits that the new deepwater port would create some damage to the ecological setting, but also claims hat such damage would be within the limits defined by federal and state regulations. Environmentalists, however, The FLA, however, has recently been criticized by several members of Congress for failing to consider the "broader counter that the damage would be excessive, and that Harborco has no right to disrupt the area. public interest" in its previous licensing determinations. Consequently, the FLA is now very sensitive to the level of political support surrounding each application it reviews. In light of these arguments, three outcomes are possible: In this case, the FLA will not approve Harborco's application unless it is clear that there is substantial support for the Option B1: Some harm to ecology: This would involve unremedied disruption to the ecology. Fish and animal project. It has therefore decided that it will approve Harborco's proposal ONLY IF Harborco can muster the support nesting habitats would be altered (or effectively destroyed), valuable wetlands would disappear, water of at least four other parties. (The FLA would prefer to see all five parties support a Harborco application, but it will temperatures and currents would change, and certain types of aquatic flora and fauna would be destroyed. All grant a license even if only four lend their support). this would take place within Federal and State impact mitigation guidelines Two parties, however, can exercise some veto power. Harborco can veto any proposal in this negotiation (since no Option B2: Maintain or repair ecological balance: This would involve special precautions to divert other party is capable of initiating the development). In addition, the Federal DCR can veto any project that requires construction and dredging activity (where possible) from the most ecologically delicate or important areas. It a federal loan or loan guarantee. would also include the relocation or recreation of habitats destroyed by unavoidable dredging and construction. Option B3: Improve the ecological setting: Like the previous option, this would include special efforts to THE ISSUES bypass delicate areas during construction and dredging. But it would also include a variety of other efforts to improve the local environment. Environmentalists propose on-going fishery management and wildlife Preliminary discussions have taken place between Harborco and representatives of the five key parties. As a result of protection, the creation of new and larger protected wetland areas, an active anti-erosion program, and the these conversations, Harborco has identified five issues that seem to be of concern to all or some of the parties. A construction and operation of a small waste treatment facility to treat effluents flowing into the estuary fr general description of the issues is provided below; more detailed information is provided in each party's confidential Banksedge River. instructions. Issue C: Employment Rules Issue A: Industry Mix Construction and operation of the deepwater port is expected to generate hundreds of new jobs in the commu The deepwater port itself is only part of the development Harborco has planned. With the construction of the port both the short-run and the long-run. These jobs can be distributed among potential employees in one of three wPage 4 of 9 HARBORCO - General Information HARBORCO - General Information THE NEGOTIATION Option C1: Unlimited union preference: Jobs would be reserved for local union workers, where appropriate. This would enable local union members to claim as large a share of the new jobs as possible. Harborco has already submitted a license application to the FLA that proposes the following: Option C2: Union Quota of 2:1: Limited preference could be given to union members where ratio of union to a primarily dirty industry mix (Option Al) non-union workers would not fall below 2 to 1. some harm to the ecology (but within federally and state prescribed limits) (Option BI) no special preference for union workers (Option C4) Option C3: Union Quota of 1:1: The ratio of union to non-union workers would not be less than 1 to 1. a $3 billion loan from the DCR (Option D1) no compensation payments to other ports (Option E5) Option C4: No union preference (unrestricted hires): Harborco would be free to hire whomever it chooses. In this scenario, most workers would probably be non-union workers, enabling Harborco to maintain its hiring Harborco is free to submit changes to its proposal at any time during the licensing review process, but it is anxious to flexibility and to reduce its expected wage costs. In addition, new workers might be drawn from outside have its application approved as is. Seaborne In an attempt to muster support for its current proposal, Harborco has invited all the key parties to a meeting. Its Issue D: Federal Loan stated objective for the meeting is to seek a "negotiated agreement" among all parties to ensure unanimous support The newly created federal Department of Coastal Resources (DCR) has a mandate to promote economic use of for its proposal. (Of course, Harborco needs the support of only four other parties in order to secure a license.) coastal areas while preserving the environmental integrity of these areas. It can provide a substantial loan (or guarantee private borrowing) to help cover the construction and operating cost of the port over the next 20 years. MECHANICS OF THE NEGOTIATION All five parties have agreed to attend the meeting, and are seated at the negotiating table. The FLA representative Harborco estimates that the total cost of developing the port will be roughly $4 billion, and has requested $3 billion opens the meeting and explains the procedures that the negotiating session will follow. Each party has seen a copy of in guaranteed loans. The DCR, however, has suggested that there are certain aspects of port design that it must insist Harborco's current FLA application n before it will contribute to the port. Four options appear possible: The discussions may progress in any direction, but Harborco will be searching for a proposal that will win enough Option D1: A $3 billion loan (at 10% interest) over the next 20 years. votes for FLA approval. Anyone can suggest alternate proposals, but Harborco's concurrence is needed for any proposal to be adopted. Option D2: A $2 billion loan (at 10% interest) over the next 20 years. Three Formal Voting Rounds are scheduled for the meeting. The first will take place 15 minutes after the meeting Option D3: A $1 billion loan (at 10% interest) over the 20-year period. begins, the second after 40 minutes of discussion, and the third after 1 1/4 hours of the discussion. Additional straw votes may be taken at any point during the meeting and are not binding, but at least three voting rounds must take Option D4: No federal loan. place. (There is of course one exception: if a project receives sufficient votes for FLA approval early in the meeting, the parties may choose to forgo subsequent voting rounds. Issue E: Compensation to Other Ports in the Region Harborco believes the new port will generate significant economic growth both in and outside the state. It contends The FLA representative will administer the three scheduled voting rounds. If Harborco cannot decide on a revised that the entire regional economy will be improved by the port, and that the other four major ports on the Eastern project to propose at the time of a formally scheduled vote, the participants must vote on the original Harborco Seaboard will benefit from this growth. proposal. Although a party other than Harborco may suggest a proposal for a straw vote, only Harborco may suggest proposals for a formal round of voting. The other ports, however, expect to suffer substantial loss of traffic once the new port begins operation. They have estimated the present discounted value of their losses to be roughly $600 million, representing losses for ten years Voting is done by secret ballot. Once a proposal is passed (i.e., receives supporting votes from at least five of the six after the new port begins operation. They think Harborco should compensate them for these losses. In light of this parties), it is binding and parties cannot renege on their promise of support for this proposal. The parties are free, conflict, five possible options are up for consideration. however, to explore "improvements" in the agreement that either benefit the supporting parties or entice the non- supporting party to vote for the agreement. But if proposed improvements are not unanimously supported by the Option El: Harborco pays $600 million (or 100% compensation) in current dollars to the other ports. parties to the original agreement, the original agreement stands. Option E2: Harborco pays $450 million (or 75% compensation). Negotiations must stop at the end of the meeting. If no agreement is reached (i.e., if no proposal receives at least five votes), the FLA will reject Harborco's application for a license. Option E3: Harborco pays $300 million (or 50% compensation). Option E4: Harborco pays $150 million (or 25% compensation). Option E5: Harborco makes no compensation to the other ports. Though the ports would be free to spend this money as they wished, they could use these funds to make changes in their design that would enable them to serve more effectively as feeder ports for the new deepwater port.PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL HARBORCO - Confidential Instructions for the Negotiator for Other Ports AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION Compensation to Us. This is by far the most important of the negotiable issues. Our largest port will lose roughly 25% of its business once the new port begins operation. The smaller ports, which are more specialized, will lose HARBORCO 10%. We would need a total of $600 million (in current dollars) to compensate us for our anticipated losses. We have therefore assigned this issue the following points: DRRC Version* * $600 million (100% compensation for our losses) 60 points $450 million (75% compensation 1 11 45 points * $300 million (50% compensation) 30 points Confidential Instructions for the Negotiator for Other Ports * $150 million (25% compensation) 15 points (from the Association of Eastern Seaboard Ports) * No compensation 0 points We are very dubious about the benefits Harborco claims we will realize from this new deepwater port. In fact, our Of course, you should worry about this issue and those that follow only if agreement seems inevitable. (Note: If an analysts suggest that we will suffer substantial losses over the first ten years of the new port's operation. In particular, agreement worth more than 31 points does seem inevitable, you should vote in favor to insure that agreed the largest of our ports will suffer a 25% decline in gross revenue while the three smaller ports will each lose about compensation will be paid.) 10% of their gross revenue. Our total loss will thus be close to $600 million (in current dollars). Federal Loan. We would like to see little or no federal financing in this project. The less money DCR contributes to We are not, in principle, completely opposed to the idea of a deepwater port on the East Coast. But we do not this project, the less likely it is that the project will succeed. (In fact, Harborco probably cannot afford to go ahead believe any such project should be allowed to undermine existing port operations. with the port unless there is at least some federal money involved. We are therefore sending you to this meeting for two reasons. First, we hope that your participation may help derail In addition, we are currently in the process of applying for federal loans to finance renovations in our own building the negotiations and prevent Harborco from securing enough support for its FLA application. If, however, Harborco and operations. (The DCR has, to date, contributed very little money to our ports.) The less money DCR spends on is able to muster enough support for its own proposal, we hope you can increase the costs facing the new port (thus this project, the more it will have to spend on other ports like our own. You should therefore argue that DCR would minimizing its competitive advantage) and win some compensation for us in the process. be better off allocating its funds across several projects rather than concentrating its resources on Harborco's one risky venture. Scoring. In order to help you plan your negotiating strategy, we have constructed a special "scoring" scheme to illustrate which negotiable outcomes are of greatest and least importance to us. Under this scheme, our most We have assigned the following points to this issue: preferred outcome (no agreement at all) is worth 150 points. If however, an agreement seems imminent, you still have an opportunity to score up to 100 points by negotiating certain aspects of the port's design * No loan 18 points * $1 billion 13 points The use of "points" may seem artificial and awkward to you. But for the purposes of this negotiation, it enables us to * $2 billion 8 points combine our several interests -- protecting our current business, preserving opportunities for growth, securing federal * $3 billion 0 points funds for our own projects -- into a single "currency." This, in turn, allows us to compare the potential gains and losses associated with different issues Employment Rules. We are not big fans of organized labor, but we do think that any new port should face the same labor costs we face. (Our ports are completely unionized.) If Harborco succeeds in keeping organized labor out of In addition, the "points" allow us to compare the benefits (or costs) of the negotiated agreement to our alternatives. its port, it will face significantly lower labor costs than we face. Furthermore, in the absence of unions, the new port In this case, it would be worthwhile for us to support Harborco's proposal only if it yields at least 31 points to us. may be able to install a wide range of labor-saving technologies (including large-scale containerization). This would Any proposal yielding fewer than 31 points would not be worth our support. (We would rather try to sue for allow the new port to realize even lower production costs, making it even harder for us to retain our own business (or compensation later.) compete for new business). Your task is to try to earn as many points as possible in this negotiation. This is not being greedy -- it simply means We are therefore in the awkward position of favoring union preference on this project. We would rather not publicly that we want to further our legitimate interests as far as possible. We would like to see Harborco's bid for a license champion the cause of organized labor because our arguments may be turned against us later in our own labor fail, but if an agreement seems unavoidable, we would support any project worth at least 31 points. (Some negotiations. But we want to prevent Harborco from realizing any unfair competitive advantage. compensation is better than none.) But 31 points is the bare minimum we can accept. We certainly hope you will do much better. We have therefore assigned the following points to this issue: * unlimited union preference 12 points union quota of 2:1 8 points union quota of 1:1 points *no union preference 0 points You may note that the difference is greatest between no union preference and the union quota of 1:1. This is because we feel that once the unions are allowed on site, Harborco will have a difficult time introducing large-scale labor- saving technologies. In addition, it will only be a matter of time before the bulk of Harborco's work force is unionizedHARBORCO - Confidential Instructions for the Negotiator for Other Ports HARBORCO - Confidential Instructions for the Negotiator for Other Ports Industry Mix. This is a difficult issue for us to weigh because we have to rely on very uncertain projections. We would like to see Harborco's freedom to develop industries constrained as much as possible. The more restricted the Confidential Score Sheet for OTHER PORTS industry mix, the less competitive Harborco will be. Issue/Option Total Points 1st vote 2nd vote 3rd vote On the other hand, we should be wary of advocating these kinds of restrictions, because we may wish to expand our A: Industry Mix (10) own operations in the future. 1. primarily dirty 0 Given our conflicting interests here, and the fact that compensation is a more important and immediate concern, we 2. clean/dirty 4 have assigned the following points to this issue: 3. all clean 10 * all clean 10 points B: Ecological Impact (0) * clean/dirty 4 points primarily dirty points 1. harm 2. maintain & repair The point spread reflects the fact that we would like to prevent Harborco from developing food processing plants, 3. improve which could compete with our own. C: Employment Rules/Distribution Ecological Impact. This last issue is of very minor concern to us, relative to the other issues up for discussion 1. unlimited union preference Though we would like to see Harborco face additional costs associated with improving the ecology, we do not care enough to assign points to this issue. 2. union quota 2: 3. union quota 1: Nevertheless, you should probably treat this issue with caution, for we do not want to antagonize potential allies. 4. no union preference Perhaps we can use this issue strategically, since the other parties may not realize that this issue is not important to us D: Federal Loan (18) 1. $3 billion 2. $2 billion 20 W OO C A one-page scoring sheet has been attached which summarizes the points assigned to each issue. This information is 3. $1 billion CONFIDENTIAL!! Do not show your scoring sheet to anyone. You may, however, discuss information from your 4. no federal loan scoring sheet with whomever you wish. E: Compensation to Other Ports (60) Good luck. We're confident that you will either succeed in derailing an agreement or negotiate an extremely valuable 1. Harborco pays $600 million 60 agreement for us. 2. Harborco pays $450 million 45 3. Harborco pays $300 million 30 4. Harborco pays $150 million 5. Harborco pays no compensation A through E TOTAL (100) MINIMUM NEEDED FOR AGREEMENT = 31. Remember: If negotiations fail and no port is built, you earn 150 points. * If negotiations succeed and a port is built, you can earn anywhere between 31 and 100 points, provided you vote in favor. If you vote against a final proposal worth more than 31 points, your points for the* outcome will be discounted by .8 for uncertainty. If a bad port is built (worth less than 31 points) -- over your objections -- you can still earn 31 point withholding your support and challenging the port in court.PLANNING DOCUMENTTEMPLATE Name: Negotiation: [Explain in detail] Role: Explain in detail\" (11- Please provide theiled analysis in below format. calculation of BATNA Reservation Point Target/Goal Sources of Power Weaknesses Q2- Strategy 1' Opening Move I Other information (you should also create contingencies and plans of action given potential moves by your coanterpart)