Project Management > DISCUSSION POST > PROJ 410 Week 7 DQ 1 Renegotiation and Termination - Graded An A (All)

PROJ 410 Week 7 DQ 1 Renegotiation and Termination - Graded An A

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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. There are other things that both the parties need to consider. As part of renegotiation and termination discussions, both parties would need to review the intellectual property provisions in the BPO contract to determine their ownership and use rights of certain key intellectual property e.g., software, methodologies, tools, documentation upon termination. Often at the center of renegotiation or termination discussions is a project that was not successfully implemented, not implemented on time, delayed, or canceled. The parties will need to review the BPO contract to determine each party's obligations with respect to the project and the impact on the BPO contract if the project was not implemented as designed or on schedule or was delayed or canceled. Has the vendor provided all deliverables in a timely manner? Has the vendor met all required milestones? Is there a termination right associated with the failure to provide deliverables or meet milestones (in addition to the right to terminate for material breaches)? Does the customer have the right to request liquidated damages? Are there any third parties that did not perform that have impacted project implementation? If so, which party bore the risk of third-party nonperformance? References: John K. Halvey and Barbara M. Melby. (2007). Business Process Outsourcing. Second Edition. John Wiley and Sons, Inc. On both sides, contract termination generally costs time, money and can result in ill-will by one or both parties. I would think both sides have a vested interest in making it work. They have both devoted much time and many resources in developing the contract and the relationship to this point. It is better for both sides to salvage what they can and renegotiate rather than scrap everything and start over. In a situation where a material breach has not taken place, there may be opportunities when the purpose of the contract is no longer applicable. In these cases, termination would be a mutual benefit. In the case that a material breach has taken place, renegotiation is the best option if the contractor has the ability to complete the scope. But, in the case that a contractor does not have the ability to complete the scope of the contract, then termination due to breach is the only option. In the end, the job has to get done. This study source was downloaded by 100000867552271 from CourseHero.com on 05-30-2023 14:15:31 GMT -05:00 From the buyers perspective it would mean basically starting over with negotiation process and possibly the whole outsourcing process depending what occurred. This will create cost issues for the project as well as delays in completion of the process. From vendors viewpoint it would mean loss of future revenue and it may also cause the vendor to have a total loss on the project with no vehicle to recoup the loss. If the contract is terminated then the buyer has lost the source for their business process. In this case they either have to rebuild the process internally, which may involve hiring, or re-hiring employees back from the vendor as well as relearning skills and even rebuilding infrastructure. this can be a significant expense. The other option is to find a new Vendor for the process which will entail all the issues that had to be worked out with the original vendor, plus working out how the process will be transitioned and the learning curve with the inevitable changes. The up front monetary costs in this can be significant, and the disruption to the organization as the transition goes through can be severe. From the seller's perspective, they lose the revenue that the buyer provided, and they may also lose in their reputation in the industry. Because of the difficulties in changing a BPO provider and the fact that it is often preferable to avoid that eventuality it may reflect badly on the seller. Also, depending on the terms involved there may be legal or financial penalties from a contract termination that will have to be dealt with. Terminating a contract does not come easy for both the buyer and the seller. Most well written contract includes an early termination clause, especially if the seller does not meet their performance goal. However, service contracts could be terminated by the seller as well if the buyer does not live up to the terms of the contract. Depending on the circumstances that led to the termination either of them could face a negative cost. This is as simple as a prenuptial agreement between a man and a woman or a breach of contract caused by the seller in most cases Indemnification could be one of the greatest effects in contract termination, which in most cases involve some kind of re-imbursement to pay for loss of compensation, damage or liability. Others include: Removal of deliverables from buyer’s premises. Employees of the seller losing their jobs. Confusion and distrust between everyone involve. Buyer’s cost in renegotiating a new contract. This study source was downloaded by 100000867552271 from CourseHero.com on 05-30-2023 14:15:31 GMT -05:00 When it comes to contract termination, there are consequences on both sides, buyer and seller. Both may have reasons for the premature closure of the contract and both have expectations when then contract is terminated. Some of the effects that may cause a buyer to prematurely terminate a contract would be unrealized cost savings or results that are under par. If the buyer sees some advantages to canceling the contract such as another vendor offering the same services for less, then the buyer might want to exercise termination. Also if the buyer is seeing sub-par results during periodic inspections then to avoid further setback they may want to settle the contract and award another vendor. 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! I deal with contract or agreements every day. I know that what the vendor signs and what we signed are binding. That is to include the service we provide, to the use of equipment of who owns what as well as who will fix any issues. Per our agreement we have to provide what we signed. Should there be any change need we have something called an amendment. There are several contract types that can be used to avoid some of these situations. If a unit price contract is used then the level units required would not need to be renegotiated because if volume increased or decreased the cost would adjust with it. You can also try and anticipate some of the things that may change over the life of the contract. These can be addressed in the agreement when or if they happen. Some contract pricing structures will reduce terminations because structures such as unit price or cost plus have the ability to adapt to a changing scope. Also if the price per material is too high then it can be renegotiated without retroing the costs already paid. For instance say you were paying $4 per item and you bought 300 items over the past year. Well this year you found a vendor that will charge you $3 per item. With the unit cost all you have to do is change the cost per future item bought and it will not effect anything else. The various types of Contract Structures offer different risk when examining renegotiations/terminations, mainly due to the associated costs of each type. But when specifications are clearly laid out in the beginning stages of the contracts developed, and the true intent of the services needed are written I believe that’s where most of the attention should be directed. 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. This study source was downloaded by 100000867552271 from CourseHero.com on 05-30-2023 14:15:31 GMT -05:00 Other than price/cost, why would one renegotiate a BPO contract? There can be several reasons for renegotiating a BPO contract and they are: - Change in Management - New management can have different set of objectives and might want to renegotiate in line with the new set of objectives - Inadequate service level - The service level may not be appropriate and adequate - Change in organizational structure - Acquisition, merger or divestiture - Change in scope or project definition - Contract Expiration - Delay or cancellation of roll-out of new environment - Desire to bring the services in House References: John K. Halvey and Barbara M. Melby. (2007). Business Process Outsourcing. Second Edition. John Wiley and Sons, Inc. Other than price/cost other reasons that might trigger renegotiation are: Natural disaster Customer feels vulnerable Vendor feels overburden Failure to meet deadlines Unskilled workers Increased or reduced volume New projects not reflected in current contract Desire to increase the length of the contract This study source was downloaded by 100000867552271 from CourseHero.com on 05-30-2023 14:15:31 GMT -05:00 Can you give examples of the absolute need for termination? I think absolute need for termination is when a subcontractor of vendor fail to meet the requirements. If they can't sign your terms and agreements and agree to our terms then there is a problem. Also, if you see that they can't get the material they are suppose to supply to the jobsite ontime, then you should terminated with them and go with someone else. I would think not meeting set deadlines and performance goals that are clearly defined in the scope would be 2 reasons for termination. If this lack of performance is caught early you can still hire new contractors and keep on track and budget. Sometimes contractors over estimate their own ability to accomplish tasks. I think that an absolute need for termination would be if the seller is not performing well, as others have stated. Also, if the buyer wanted to change the scope drastically one way or another the seller may want to terminate the contract. Another reason would be if the seller were to continuously raising their prices, the buyer may want to find someone that is less expensive. According to law, a contract is automatically void if the contract is in any way shape or form not followed through as agreed upon. In order to avoid any risk it is wise to use a legal professional review your contract once it is established, and reviewed once by the individual agreeing to the contract to assure the understanding of a binding contract and the ability to enforce it according to the law. It is a halthy way to establish a good and professional relationship. The outcome of a good and a understood contract is good work,,,,if there are flaws in a contract the relationship is hurt and law suits maybe the only way to resolve the differences. Examples are not getting paid in time, taking longer then what was agreed for the final product, failing to go through the scope etc.. In my opinion reasons/examples for the absolute need for termination are: - Contractor not meeting the scope of the contract or not meeting the deliverables - Contractor/vendor missing the deadline or timeline repeatedly and not taking corrective or remedial measure to correct that Even after repeated escalation and discussion, if the vendor/contractor is unable to meet the deliverables/milestones of the project, then the customer/client's management doesn't have any other option but to go for termination of the contract. It is not easy to break a contract or force a renegotiation no matter what the circumstance. I have several service contracts in my business where we lose money doing it. We are basically stuck with the contract for the duration unless the buyer will renegotiate. It is like buying a fitness membership and then deciding you would rather stay on your couch. You may be able to negotiate a settlement but it will still cost money to break the contract terminate it. Even non-performance can be difficult to use especially if there is not a clear violation. In most cases these things get settled in court if a settlement cannot be reached. A few examples that may spark an absolute termination of a contract are: If any federal laws have been broken by either party. This study source was downloaded by 100000867552271 from CourseHero.com on 05-30-2023 14:15:31 GMT -05:00 If privacy rules are violated. Government regulatory laws are broken. If confidential information are released. If key criteria of the contract are not done. Either party goes out of business or file bankruptcy. Death of the principal buyer or seller. 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)? ;-) If the vendor has made significant cash or capital investment in a project as part of the contract and the buyer walks away or terminates the contract then the vendor can be left with no way to re-coup the investment. If it is large enough this could cause irreparable harm to the vendor. I think in this case the vendor would take legal action to recover the costs, but depending on the situation the remedy may not be in time to protect the vendor. I think though that a vendor who willingly walked into a situation where the loss of the contract or its failure to be fulfilled would be fatal would either be taking a huge risk or just not very experienced or wise. I would like to think that a vendor I was working with had the resources to survive if something went wrong. It might mean that they do not have the resources to meet the contract terms unless everything does just right. If they cannot handle the failure of the contract, do they have the resources to truly meet the need? There is a risk of irreparable harm. If the vendor leveraged a great deal of money or assets against a specific contract and the contract was terminated, the vendor could find themselves in default of loans. This could be particularly damaging in manufacturing if the vendor is producing parts that are specific to a customer and they lose that customer without anything in the pipeline. This study source was downloaded by 100000867552271 from CourseHero.com on 05-30-2023 14:15:31 GMT -05:00 Yes, the contract can cause serious finiacial consequences for the customer, If the contract success is linked with some other major activity of the company and it impacts the financial revenue or the P&L. Then, it can have serious implication for the company. Also, the client can suffer the contractual claim or loss resulting from the mutual agreed terms in the contract. Termination can also lead to financial loss resulting from people attrition, equipment loss and material wastages. For the vendor, it could cause irreparable harm if they have committed sufficiently large amount of resources (people, capital) into the project and redeploying them would be a costly affair for the vendor. Vendor can also suffer contractual claim or damage out of the agreed terms and conditions. There could also be litigation cost involved in case of serious conflict emerging out of contract termination. Yes, it could definitely cause a serious financial consequences if the contract has no early termination clause to protect the vendor. Then this could cause the vendor to be responsible for paying the buyer a fee or even be responsible for training the next vendor that the buyer acquire to get them up to speed. contract termination if not followed with the legal fore of the contract could cause the vendor irreparable financial harm including closing down his business. This is why it is important that a contract manager or perhaps a close out manager should be involved both during a regular closeout and a termination because they may have some legal knowledge on the how, what, or when a contract termination is feasible. However, both buyer and vendor could be in financial trouble if the termination is not well followed. At this point neither the buyer nor vendor wants to be out of pocket. It could be a bitter court battle if it involves millions of dollars. This is why a provision in the contract must clearly state when, why and how a contract must be terminated. It may also help if the vendor has liability insurance. In your opinion which contract pricing structure better facilitates a contract renegotiation? I can see ways in which each kind can have room for renegotiation, but I would think personally that a unit-cost plus percentage would probably give the most room for some renegotiation. The vendor is going to push the percentage as high as they think they can realistically obtain and therefore may be willing to work downward on the percentage, particularly if they managed to find other areas to save money or reduce costs. At the same time the buyer may be willing to go up o the percentage a little especially if the percentage cost is not a significant fraction of the unit cost or overall project cost. I will say Time and Material with a pause, which I think is best, suited for renegotiation because both the seller and the buyer can control the cost. The buyer can reduce the cost by cutting down on the amount of work given to the vendor which will eventually reduce the amount of materials used. However, if the vendor procrastinates he can earn more money. Secondly, this type of contract is most flexible then the rest. It also has no defined value at the beginning of the contract. It is also very easy to see when things are going wrong because it is simple as pay as you go and access regularly. This type of project can stop for renegotiation at any time. It can also be changed into a fixed fee contract after the specs are identified. Flexibility is a good word in renegotiation and T&M is where you can find it. This study source was downloaded by 100000867552271 from CourseHero.com on 05-30-2023 14:15:31 GMT -05:00 [Show More]

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PROJ 410 Contracts And Procurement

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