Question

what are the potential consequences of paying so far below the market? could this result in costs that cannot be easily see in the budget.?

Answer 1

There are lots of consequences of paying far below the market rate which includes:

• Poor quality of product or service - The vendor may agree to supply as per standard but default in meeting the requirement or specification as intended
• Un-reliability of service - The vendor at times are willing to provide services at lower than market rate just to gain market and have association with a brand, whereas post agreement they start de-faulting which impacts the entire business
• The vendor may be involved in unethical practices like paying wages lower than norm etc. which if gets highlighted impacts the purchasing company also as their brand name is highlighted

So, all these results into heavy monetary loss to the company which cannot be seen in the budget. Example: If a vendor is not able to supply timely and there is urgent requirement, it may have to purchase from market at much higher rate which is never accounted in the budget.