LS0145: Case Study Company Accepting a Contract

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Case Study Company Accepting a Contract

A computer company was negotiating a very large order with a large size corporation. They had a very good track record with this client.
In this corporation, five different departments had pooled their requirements and budgets. A committee was formed which had representation from all the departments. The corporation wanted the equipment on a long lease and not outright purchase. Further, they wanted the entire hardware and software form one supplier. This meant that there should be bought – out items from many suppliers since no one supplier could meet all the requirements of supply from its range of products.
The corporation provided an exhaustive list of very difficult terms and conditions and pressurized the vendors to accept. The computer company who was finally awarded the contract had agreed to overall terms that were fine as far as their own products were concerned but had also accepted the same terms for the brought – out items. In this case, the bought – out items were to be imported through a letter of credit. The percentage of the bought – out items versus their own manufacture was also very high. One of the terms accepted was that the “system” would be accepted over a period of 10 days after all the hardware had been linked up and software loaded.
The computer company started facing trouble immediately on supply. There were over 100 computers over a distance connected with one another with software on it. For the acceptance tests, it had been agreed that the computer company would demonstrate as a pre-requisite the features they had claimed during technical discussions.
Now, as you are aware, if a Hero Honda motorcycle claims 80 km to a litre of petrol, it is under ideal test conditions and if a motorcycle from the showroom were to be tried for this test before being accepted, it would never pass the test. In corporation’s case, due to internal politics, the corporation persons from one department – who insisted on going exactly by the contract – did not sign acceptance since the “system” could not meet the ideal test conditions.
Further, in a classic case of, “for want of a horse – shoe, payment for the horse was held up”, the computer company tried to get the system accepted and payment released. The system was so large that at any point of time over a period of 10 days something small or the other always gave problems. But the corporation took the stand that as far as they were concerned the contracts clearly were concerned the contract clearly mentioned that the “system” had to be tested as a whole and not module by module.

Questions:
1. Comment on the terms and conditions placed by the corporation.
2. What factors influenced the computer company’s decision to accept the contract?
3. Was it a win – win agreement? Discuss?


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