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How can a solution be justified involving a purchaser's decision to renegotiate a...

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yacel0762 | Valedictorian

Posted June 17, 2013 at 12:47 AM via web

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How can a solution be justified involving a purchaser's decision to renegotiate a business arrangement because of an economic downturn, despite the financial damage such an action would impose upon the vendors in question?

 

 

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kipling2448 | (Level 2) Educator Emeritus

Posted June 17, 2013 at 1:08 AM (Answer #2)

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Situations like the one described in the question are not unusual in the business world, although they can be costly for both parties and impose serious burdens on the subcontractor or vendor.  The question assumes that there is no provision in the purchase agreement penalizing the purchasing company for failure to follow through on the terms of the agreement.  Exercising such a contractual clause, if it existed, would poison relations between the two parties, but they are fairly standard clauses.

The purchasing agent can certainly resign his or her position, but that is unrealistic, especially in a tight job market.  Throwing oneself on one's metaphorical sword is a noble gesture, but helps no one in the end.  The vendor will still suffer anyway.

The proposed solution outlined in the question is actually both the most realistic and the most reasonable.  Renegotiating contracts or purchase orders because of a change in the economy is standard operating procedure in the business world.  Both parties enter into the agreement fully aware that circumstances beyond their control can affect their ability to execute the terms of the agreement.  That does not mean that there are not damages assessed against one of the parties should the case go to court, or that the relationship between the parties is not sufficiently poisoned as to preclude future business transactions.  It does mean, however, that the marketplace can be cruel, and savvy businessmen and women understand that.  

A vendor or subcontractor excessively dependent upon a single customer is already in peril.  There is always a possibility that that customer will decide to terminate the business relationship for any number of reasons, for example, to work with a competing vendor who offers a better price or faster delivery.  Many businesses fail, and personnel do not in general quit their jobs because they played a part in an unfortunate scenario such as laid out in the question.

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