With rising pressure to reduce supply costs occurring throughout numerous organizations, many supply chain managers are using a troublesome tactic to address their unprofitable or problematic procurement contracts – threatening to breach or not pay under such contracts. Supply chain managers using this tactic hope that their significant leverage and bargaining power over suppliers can force a renegotiation of unfavorable provisions to their benefit. However, not only is such tactic unwise from a supplier-buyer relationship vantage, but it also could trigger some unfortunate remedies. Under Sections 2-609 and 2-610 of the Uniform Commercial Code in the State of Delaware (the “U.C.C.”), a supplier is entitled to recover damages or suspend performance, among other things, if a buyer repudiates or threats to breach a contract – even if the breach is cured or the threat is retracted. As such, buyers should refrain from using this tactic, because the consequences could be detrimental to the organization and/or supply chain. If a supply chain manager desires to use this tactic, legal counsel should be consulted immediately.

This entry was posted on Friday, May 15th, 2009 at 12:07 pm and is filed under Agreements, Contracts, Procurement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.