# Counsel to Red Alder Health — Vireon Renewal

## 1. The quantified alternative (BATNA): three-year all-in cost

Same 3-year horizon, all unavoidable switching costs included (Rules 2–3).

| Component | Amount |
|---|---|
| Northline subscription, $3,600,000 × 3 years | $10,800,000 |
| Implementation (one-time) | $1,200,000 |
| Dual-run (one-time) | $400,000 |
| Migration + termination assistance (one-time) | $300,000 |
| Operational disruption (one-time, supplied by risk committee) | $250,000 |
| **Three-year all-in BATNA cost** | **$12,950,000** |

Switching-cost subtotal: **$2,150,000**. Amounts already paid under the expiring $4,000,000/year contract are sunk and are excluded (Rule 3).

**Sensitivity (disclose to management, do not negotiate off it):** if the $250,000 disruption estimate were excluded, the BATNA would be $12,700,000 ($4,233,333/year). Use $12,950,000 as the governing figure because it is the supplied risk-committee number.

## 2. Equivalent annual BATNA cost

$12,950,000 ÷ 3 = **$4,316,667 per year**.

Note what this means: Northline's headline price is $3,600,000/year, but the true annualized comparison price is $4,316,667/year — only 7.9% above what Red Alder pays Vireon today. Red Alder's real economic ceiling is *above* its current price, not below it.

## 3. Cost difference: Vireon's proposal vs. the BATNA

| | Vireon proposal | BATNA | Difference |
|---|---|---|---|
| 3-year total | $15,000,000 | $12,950,000 | **Vireon costs $2,050,000 more** |
| Annualized | $5,000,000 | $4,316,667 | **$683,333 more per year** |

Vireon's proposal exceeds the quantified alternative by $2,050,000 with **no supplied compensating value** — same service levels, no termination assistance. Under Rule 7 it cannot be accepted merely because switching is disruptive; the disruption is already priced inside the $12,950,000.

## 4. Reservation price for an otherwise-equivalent Vireon renewal

**Reservation price = $12,950,000 total / $4,316,667 per year.**

Because a renewal avoids all $2,150,000 of switching cost, Red Alder can rationally pay Vireon that entire buffer *above* Northline's headline price and be no worse off. At exactly $12,950,000 Red Alder is economically indifferent; sign only **strictly below** it.

**Equivalence caveat (Rule 5):** the $12,950,000 ceiling assumes the Vireon deal is otherwise equivalent. Vireon's current proposal is *not* — it expressly excludes termination assistance, which raises the cost of Red Alder's *next* alternative and is the single term that protects future leverage. Therefore: the closer Vireon's price comes to $12,950,000, the more of the nonprice package must be included; a price at or near the reservation price with no nonprice concessions should be treated as failing the equivalence test and declined. No dollar figure may be attached to that shortfall.

## 5. Objective first offer and target (supplied figures only)

| Position | Figure | Objective source |
|---|---|---|
| **Opening offer** | **$10,800,000 total ($3,600,000/yr)** | Northline's supplied 3-year subscription price. Rationale: a Vireon renewal incurs *none* of the $2,150,000 of switching cost, so Vireon should match the competing subscription rate, not be paid for disruption it does not cause. |
| **Target** | **$12,000,000 total ($4,000,000/yr)** | Current supplied price held flat for three years — a clean, defensible landing zone that saves $950,000 against the BATNA and $3,000,000 against Vireon's ask. |
| **Reservation price** | **$12,950,000 total ($4,316,667/yr)** | Quantified BATNA. |
| **Above reservation price** | Execute Northline | Rule 7 |

Anchoring to Northline's price and to Red Alder's own current price is permitted under Rule 4. Nothing in these positions rests on Vireon's cost, margin, floor, or likelihood of conceding.

## 6. Nonprice package to demand (identify, negotiate, do not price)

Include all five as deal terms, with the first four as conditions of any agreement priced within $1,000,000 of the reservation price:

1. **12-month termination-assistance obligation** — highest priority; it directly reduces the migration/termination component of the *next* cycle's BATNA and prevents Vireon from re-creating lock-in.
2. **Ban on use of Red Alder data for cross-customer model training** — treat as a near-red-line (health data); minimal price flexibility.
3. **Annual security-audit rights.**
4. **Stronger service credits** — a remedy, not compensation; pair with the unchanged SLAs Vireon proposes.
5. **One-year term option after year two** — converts a 3-year lock into a 2-year commitment with a re-competition point.

**Trade currency Red Alder actually holds:** Vireon has *asked* to renew the public case-study rights. Those rights are Red Alder's to grant. Do not concede them early and do not grant them for free. Sequence the trade explicitly: case-study renewal (and reference/logo rights) is available **only** in a package that includes items 1–4 at a price below the reservation price. Assign no dollar value to either side of that trade (Rule 5).

## 7. Leverage map

**Red Alder's actual, credible leverage**
- A **completed** competitive evaluation with a **priced, open** offer — leverage is quantified, not asserted: $12,950,000 all-in versus $15,000,000.
- A $2,050,000 documented gap it can point to line by line.
- Willingness and internal authority to absorb $2,150,000 of one-time cost — credible only if funded and pre-approved (see §8).
- **Case-study / reference rights that Vireon has affirmatively requested** (supplied). This is the only piece of Vireon-side value in the record.
- Concentration fact: Red Alder is ~6% of Vireon's subscription revenue (supplied). Use it as a stated fact about relationship materiality only — the record contains no evidence of what that 6% is worth to Vireon.

**Vireon's supplied leverage**
- **The switching-cost buffer.** Red Alder's own numbers show Vireon can price up to $4,316,667/year — a 7.9% increase — and still win. Vireon does not have to match $3,600,000.
- **The calendar.** Migration takes 90 days after signature; the contract expires on day 120. Northline's offer expires on day 30. Both constraints collapse to the same date.
- **No termination assistance in the proposal**, which deliberately increases exit friction.
- Incumbent operational knowledge and zero implementation/dual-run risk.

**Not leverage — because not supplied (Rule 4):** Vireon's margin, internal floor, sales quota, year-end pressure, or probability of replacing Red Alder's revenue. Do not argue from any of these.

## 8. Why management's $10,000,000 offer and procurement's day-100 plan both fail

**The $10,000,000 offer is not usable as framed.**
- Its sole stated basis is "Vireon must have at least 30 percent margin." No margin evidence is supplied; this is an invented counterparty economic and is prohibited (Rule 4). Once Vireon's team asks how the figure was derived, the answer discredits Red Alder's entire analysis — including the parts that are rigorous.
- It is also *below Northline's own three-year subscription price* of $10,800,000 and $2,950,000 below Red Alder's quantified BATNA. It is an offer Red Alder cannot justify by reference to any alternative it actually holds.
- The fix costs nothing: open at **$10,800,000**, which is only $800,000 higher, is fully sourced, and lets Red Alder open with "here is the competing contract" instead of "here is our guess about your P&L."

**Procurement's day-100 migration start destroys the leverage it is meant to create (Rule 6).**
- Signature on day 100 + 90 days of migration = cutover on **day 190**, i.e., **70 days after the contract expires**, with **no termination assistance** in Vireon's proposal to bridge the gap. That is a clinical-systems outage risk, not a negotiating position.
- Northline's offer expires on **day 30**. A threat made on day 30+ references an offer that no longer exists.
- Backward math: to complete migration by day 120, Northline must be signed by **day 30**. There is **zero slack**. Any plan that defers switching work past day 30 converts the BATNA into a bluff, and a bluff cannot support a $12,950,000 reservation price. If Vireon correctly reads the delay, Red Alder's real ceiling becomes Vireon's asking price.
- **Required instead:** all pre-signature switching work — Northline contract redlines to signature-ready, migration runbook, dual-run staffing, board/CFO approval of the $2,150,000 — must be completed inside the next 25 days, in parallel with negotiation. Ask Northline in writing this week to confirm the 90-day timeline and to hold or extend the offer; a written extension is the cheapest leverage available.

## 9. Negotiation sequence — next 30 days

**Days 0–3 — Make the alternative executable.**
Obtain written CFO/board approval of the $12,950,000 reservation price, the $2,150,000 switching spend, and walk-away authority. Ask Northline in writing to confirm the 90-day migration schedule and to extend or hold its offer beyond day 30. Do not tell Vireon the reservation price at any point.

**Days 3–5 — Open.**
Deliver a single written term sheet: **$10,800,000 / 3 years** plus all five nonprice terms. State three facts and no more: (a) a competitive evaluation is complete; (b) it is priced on an all-in basis that already includes implementation, dual-run, migration and disruption; (c) the switching budget is approved. State that Vireon's $15,000,000 is above the quantified alternative. Do not disclose the $12,950,000 figure or the component build-up.

**Days 5–15 — Trade, in order.**
Concede price movement only against nonprice movement. Sequence: termination assistance and the data-training ban first, then audit rights and service credits, then the year-two term option. Introduce case-study renewal only as the closing consideration for a compliant package. Run Northline redlines and migration planning in parallel every day of this window.

**Days 15–22 — Compress.**
Request Vireon's best and final in writing, with the target ($12,000,000 flat) named as the landing zone and the full nonprice package attached. Confirm Northline signature-readiness and the extension.

**Days 22–25 — Decide.**
Score Vireon's offer: total price against $12,950,000, and nonprice compliance against items 1–4. Accept only if the price is strictly below $12,950,000 **and** the equivalence conditions in §4 are met. If the offer lands between $12,000,000 and $12,950,000 with a full nonprice package, renew — the saving is real and the switching risk is avoided.

**Days 25–28 — If Vireon remains at or above $12,950,000, or refuses termination assistance and the data-training ban:**
Notify Vireon in writing that Red Alder will execute the alternative, and state the objective basis ($15,000,000 versus a $12,950,000 quantified all-in alternative). Give a firm 48-hour window for a final response — not because Vireon is presumed to concede, but because Northline must be signed by day 30.

**Days 28–30 — Execute.**
If nothing compliant arrives, **sign Northline** and start the 90-day migration to complete on day 120. Simultaneously issue non-renewal notice to Vireon, decline the case-study renewal, and demand transition cooperation. Do not slip this date: after day 30 the BATNA is gone, the $12,950,000 ceiling is unenforceable, and Red Alder is negotiating against a $15,000,000 proposal with nothing behind it.

**Standing instruction:** if Northline's offer lapses or its price or timeline changes, re-run §1–§4 before any further concession. The reservation price is only as valid as the alternative that generates it.