PROJ Contract and Procurement_Week7_Renegotiation and Termination_ Discussion Questions 1 complete answer
Renegotiation and Termination
More often than not, it is more desirable to renegotiate a contract than to terminate one. What do you think may be some of the effects of a contract termination from the buyer’s perspective? What about from the seller’s perspective?
Termination of a BPO contract will cause each of the parties to incur additional costs. The question to ask would be if the additional cost outweigh the risk or cost of not terminating and How much are the costs and can they be mitigated. Examples of such costs may include additional fees to the vendor for providing termination services, such as maintaining parallel environments and training of customer employees.
On both sides, contract termination generally costs time, money and can result in ill-will by one or both parties.
Do you think that the contract structure selected for the contract can help reduce or
avoid the need for renegotiations or terminations? Support your answers – elaborate!
Often times if the contract or management agreement doesn’t include all the necessary requirements to administer the BPO services, it is inevitable for terms to be renegotiated. Renegotiations are common if there are changes with the scope, cost, or timing that is listed in the present contract. At the same time, no one can predict unforeseen changes and if should something happen to change the schedule or budget. The structure of the contract is not necessary helping reduce any renegotiations. Detailed scope, performance measurements and terms/conditions are the main parts of the contract that can help avoid renegotiations. If both parties have a full understanding what is required, how it is measured, and what happens if they are not meet, then everyone should feel that there are not too many issues that can allow a contract to go bad.
Other than price/cost, why would one renegotiate a BPO contract?
Can you give examples of the absolute need for termination?
As outlined in our text, some of the reasons why a customer would seek termination of a contract are: Acquisition, merger or divesture, failure to roll-out of new environment, poor customer or vendor relations, among many other reasons.
Another big reason why a customer would want to terminate a contract is when the customer wants to renegotiate, and uses this as a way to force the vendor to renegotiate. The customer might argue that the pricing is excessive, which can either be true or not, since the customer perceives so. Let’s say that the customer is not achieving the forecasted levels of profits, thereby he/she sees the BPO contract’s termination as a way to cut down on expenses. H/she does not want to terminate the contract due to its repercussions, but he/she knows that the vendor will try to reach an agreement in order to keep the contract.
Could contract termination cause serious financial consequences? Could it go all the way to the extreme whereby a contract termination could have irreparable harm for a vendor? What are your thoughts as we go all the way (so to speak)? 😉
In your opinion which contract pricing structure better facilitates a contract renegotiation?