Question

I’m contracting with an Australian manufacturer to supply me with $100,000 worth of new widgets. Unfortunately, after manufacturing began, the cost of one of the main materials increased dramatically, which made the present arrangement unprofitable. On what basis might they try to get out of the contract? Will they be successful? Explain. What should have been done contractually up front to address this issue?

Answer 1

Since, the price of one of the main materials increased dramatically after the manufacturing began, the Australian company might state the loss of the total expenditure as the main ground on the basis of which they may want to get out of the contract. It is the prerogative of the company if they would want to remain in a contract or not. However, if the grounds of exit of a contract are not easy, as the two parties must be on equal terms during the exit and if one of the parties cite their loss due to the exit, then the exit of the other party becomes difficult. The success of the Australian company depends on what terms and conditions were set up when the contract was signed. It is however, in disadvantage or in against of the Australian company, that they might now want to pull out of the contract if the price at which they were supplying the materials has now gone up.

                                            To address this issue, the upfront agreement between the two parties should have been specifically setup addressing all likely such concerns. The contract should contain the conditions where, if the contract is sealed, both the parties have to agree to the contract agreements until the agreement lasts. The parties cannot site the expenditure or lack of capital or in that matter any other issue to pull out of the contract. If they have any reservations with the execution of the contract, then both the parties of the contract must be in agreement to make any amendments or changes to the terms of the contract.