By: Jim O’Brien
Company, having undertaken the effort of putting a master purchase agreement in place with a detailed specification and statement of work, was quite pleased with itself, having established this relationship with a key supplier. Purchase orders were issued, received by the supplier, and processed. All was good … until it wasn’t.
The supplier contacted Company and advised that due to “extenuating circumstances,” it would no longer be accepting purchase orders, forcing Company into a costly, stress laden scramble to replace supply for its in-process product.
This issue comes up with suppliers of goods and services due to a variety of “extenuating circumstances” including increased costs from its suppliers, sale of its supply to a competitor or for a higher price, and allocation of the resource to another project or customer. Purchasers of goods and services should always consider the advisability of a supplier having the contractual right to reject a purchase order when all conditions (lead time, minimum quantities, and price) are met by the purchaser.
For critical suppliers, it is paramount that the reliability of the supply be increased by eliminating (or at least minimizing) the contractual circumstances where a supplier can choose to reject a purchase order and including a remedy that adequately addresses the damage to be sustained by the purchaser due to failure of the supplier.