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Procurement contract close-out is a heavy and important topic for firms that have procurements needs on a consistent or even a fleeting basis as the materials and products acquired through these procurements products are often needed to keep the flow of good sales going and/or keeping operations under control and running in optimal fashion. There are really only a few basic ways that an executed contract can end with the hoped for outcome, and probably the usual one as well, being that the contract is fulfilled at the satisfaction and agreement of both sides of the contractual ledger with consideration and exchanged being carried out across the board.
However, there are some pitfalls and other negative outcomes that can happen before, during and after a procurement contract is in force and indeed procurement contracts can end in a quite ugly fashion if one is not careful and/or does not exercise a proper amount of foresight. Even with this potential blowback, this does not mean that a remediation cannot be found as this is often done in an orderly fashion. This is especially true if the problem causing the contractual issue was not foreseen or predictable by either of the parties involved.
Lastly, there is the concept of operating in good faith and in a non-fraudulently manner as this is something that can certainly come up and if/when it does come up, it has a large bearing on how a contract is closed out and/or whether the contract is even valid in the first place. A similar but different example is if the contract is based on something that eventually becomes, in full or in part, illegal to execute and/or the contract is not fulfillable based on something that could not or at least was not foreseen on the part of one or both parties. This report will explore all of the above including what happens under normal conditions and what can happen when things go terribly wrong.
Chapter II -- Analysis & Summary
There are three basic outcomes that can arise when speaking of how a contract is wrapped up for otherwise satisfied in a legal manner. The usual, and no-doubt expected manner, is that the procurement of goods is done on-time, on-budget and in a complete manner (Banker, Kalvenes & Patterson, 2006). There are instances where this may not occur but this is not to say that adjustments to the contract itself and the steps called for therein cannot be adjusted to compensate. Plans do change sometimes and there are ways to deal with that.
However, for a contract to be fulfilled in the first place, it has to have all of the relevant information and the information must be accurate (Rob, 1986). There must be no fraudulent or otherwise inaccurate representations of the facts as they truly exist as this can invalidate the contract entirely making it completely void and unenforceable. The incorrect and/or misrepresented facts need not be posed intentionally for problems to exist in executing the contract. However, if there is bad faith and one of the parties presented or vouched for facts that they knew to be wrong, then that will almost always make the contract null and void.
However, for times when the "facts on the ground" change and there was little to no way to foresee it, the parties to the contract can come together and revise the terms of the deal or even void it if that makes the most sense to everyone involved and everyone agrees to it. For example, if a raw material included in a contract is cut off due to something like terrorism or war, then the contract can be reworked to use an alternate material or otherwise deal with the shortage. As long as all of the parties agree to the revision, then that is perfectly acceptable. However, it has to be noted that if the original procurement contract was in writing, and it should always be, then the revision would have to be in writing as well and it must be made clear in the revision that the contract amends or supersedes the original one and why that is the case. Missing little but important details can cause major headaches and issues if the matter devolves into a court case. Proper communication can solved or head off many to most issues (Taylor & Plambeck, 2007)
As noted earlier in the report, the conditions and events that lead to both parties wanting to just scrub the contract and not do it at all (or at least not go any further) is also an option that may rear its head and it's not all that hard to execute that so long as both parties are on board with doing that. However, there is also the possibility that one or both of the parties will breach the agreement. Ways in which contractual breaches can manifest themselves include either party not delivering what they promised, when the promised it and/or in the amount they promised.
For example, if a mining company agrees to deliver 100 tons of ore, but they only deliver 98 tons, that could lead to a breach. If they agreed to delivery by August 1st but they did not do so until August 15th, that would also be a likely breach. If they agreed to deliver ore of a certain purity and what they delivered was below that grade, then that could be a breach. If payment is due in a certain amount or by a certain date and either or both of those is violated, then that would be a breach as well.
If and when a breach occurs, the one of the remedies matches what is described above. The parties to the contract can meet up and amend the terms or deadlines if they so choose. For example, if the 98 tons of ore is delivered above rather than the 100 tons, then the price can be lowered by two percent to compensate. Similarly, if the ore is delivered late, the price can be discounted if both parties agree as this can be desirable as compared to a prolonged and/or expensive legal fracas. In short, the two parties to a contract can work together if things go sour or become different than what is expected or they can have an arbitrator or court hash it out and make a decision.
There are some housekeeping items that must be attended to even in the best of times as it relates to procurement contracts. This includes settlement of claims, grievances sand other issues as the project goes on and when things are being closed out. This can include damages to equipment, cost overruns, damaged to shipped goods and so forth. Also, it has to be verified that all of the terms and conditions of the contract were satisfied as stated in the original contract unless an amendment or other alteration was made before, during or after the contract's execution.
Finally, there are law and regulation provisions that must be attended to. There is also the concern of union contracts and bargaining. For a procurement contract to go off without a hitch, all of this must be attended to. There is also the specter of predatory pricing and other incendiary behavior that goes on every day (Sherrer, 1981). No-bid contracts and contracts that are clearly operating in ambivalence to the law or collective bargaining agreements are never acceptable.
An area of procurement contracts where dealing with the above and other pitfalls and regulations is common would be contracts that operate in whole or in part in the public sphere. A study of such contracts in Sweden found that there are some hazards in deal with public-related contracts including special requiremetns that are not typically present and/or…[continue]
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