The contract you are assigned to as the contracts administrator calls for the de

Question

The contract you are assigned to as the contracts administrator calls for the delivery of a product called "The Superwidget". The USG (the DoD and the Dept of State) buy thousands of these Superwidgets a year. Several companies manufacture them and competition for Superwidgets is fierce, based on technical innovation, price, and delivery criteria. The Superwidget is manufactured from components, software, and firmware from numerous companies. The final Superwidget usually sells for between $800 and $1200 per unit, based on some special features, warranty, and service. Your contract is a multi-year contract with a base period and several option years, and you are performing in Contract Year One at the moment. Also, there are about 8 to 10 other contracts with other companies for a competing and similar Superwidget. The Situation: You are a contracts administrator and you work for the prime contractor. Let's say your company (the prime contractor) buys a particular subwidget for $100/unit. This subwidget is a critical component of the prime's Superwidget. You have a multi-year subcontract with this subcontractor. You have just been informed in a monthly status meeting that deliveries of the subwidget will be late for the next 3 to 4 months. After your company completes an analysis, you determine that you do not have sufficient stock of subwidgets to cover the required deliveries to the USG. You will need to notify the USG that deliveries of the Superwidget will also be late. You check the prime contract: your company may be subjected to damages based on the value of the prime contract. You may also face a potential termination for default. You check the subcontract: The subcontractor's liability is based on values in the subcontract, that is, the price of a subwidget at about a $100/unit level. You also have the right to terminate the subcontractor for default. Management recognizes that it has the potential for a lot of problems in this situation, which it may not be able to correct for several more months (if you believe in and rely on the subcontractor). Your boss, the VP of Contracts, asks you to develop some business scenarios, focusing on the contractual and subcontractual issues that may arise. Required Elements: You are required to prepare a report identifying the issues Provide some ideas about resolving these issues and mitigating risks that the company may face in the near future. I understand the Government side of things, but need some help with the subcontract side.

Explanation / Answer

The issue has arisen here regarding the supply of subwidgets to the company the subcontractor is not able to provide the delivery at time. As per the contract with them, we have the right to terminate our contract with them because we a company that needs delivery on time because time play’s a major role here, at the technology based company. And as the competion is very high we cannot loose USG.

Delay of few months will cost a lot to the original super widget company. And they could terminate our contract.

Over here we must conduct a meeting with the USG and explain to them the scenario and the problems it carries. To deal with the problem we could offer them some solution, like we could offer them the service of a different supplier. As we are on the contract, we cannot demand higher price. But as we must have other suppliers because we already have contract with some other companies too with other suppliers.. So we could offer the USG that we will ask those suppliers to supply them the parts. But as we giving a very short term notice to the other suppliers, we might be offered the goods at a higher price( higher demand). But that loss will be quite less compared to the loss of losing the whole contract. And we could compensate the loss from the original supplier.

Also, to not face these problem again in the future, the company must make some changes in their contract, which will state that the supplier will have to inform them in 3 months prior for delay of supply or else the supplier will have to bear a certain percentage of loss that will be bared by the company.

Also the follow up with the suppliers must ill improved so that the delays could be identified before its late to take actions.

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