5 Willing to Accept the Contract? Bethlehem Steel Corp. at 1999 Bethlehem Steel Corp generally annual contract in industry a four-year contract proposed by GM, with price 3% to 5% lower than before what factors for what factors for Bethlehem Steel Corp. to consider?
6 Willing to Accept the Contract? factors to consider overcapacity in steel production keen competition from the emerging markets, Russia, Brazil, Korea, etc. financial strength from the stable source of income to upgrade technology better quality cold-rolled steel JIT service from local company bargain chip from lower price to negotiation with labor union
7 When Outsourcing Goes Awry Richard Pesisch (1995) When Outsourcing Goes Awry, Harvard Business Review, May-June, 24-26.
8 Case Context organizations Regional Medical Center (RMC) Physicians Development Services (PDS) characters Mr. Grant Newman, CEO of Regional Medical Center (RMC) Dr. Barry Doane cofounder of PDS, a former reputable employee of RMC attracted business to PDS Dr. George Jacques, the chief of the 5 anesthesiologists from PDS
9 Case Context Regional Medical Center a hospital with surgical and obstetric services large turn around of anesthesia group desire of surgeons and obstetricians: a stable group of anesthesiologists costly lifetime-care malpractice lawsuits business of RMC downturn, reduction of in-patient days due to losing a large contract competition in market
10 Case Context Physicians Development Services (PDS) a subcontractor providing contracted anesthesia services to more than 15 medical facilities a reputation for providing high-quality doctors management lacking business skills, and company undercapitalized rumors: losing several big accounts, possibly bankruptcy
11 Case Context relationship between RMC and PDS contracted anesthesia services to RMC by PDS starting 18 months ago responsibility of PDS on the anesthesiologists: everything the management, recruiting, staffing, credentialing, and scheduling of the anesthesia group, as well as its financial management anesthesiologists employed by PDS
12 Case Context the rights and obligations of RMC rights: to reject choices of PDS, at the expenses of PDS obligations: penalty cost of $120,000 on RMC for each PDS contractor turned by RMC into its employee law sue by PDS to RMC if RMC interfering in any resolvable dispute between PDS and its employees
13 Case Context relationship between PDS and its employees smooth first year, trouble started the second year in three months, several times, late and bounced paychecks from PDS failure to renew contracts for 3 months for Jacques's group late and then bounced paychecks this month a fruitless conversation between Jacques and Doane
14 Case Context reasons for the failure of renewal of contract failure of PDS to pay the $300K year end bonus suspicion of the group on PDS for falsifying the financial statement to cheat $I50K bonus this year refusal by PDS to provide the group the financial statement for no contract renewal theoretically not even providing the salary
15 Case Context demands of Jacques to Newman help from RMC break the contract with PDS hired the anesthesia group either as contractors or employees otherwise the group leaving next week, with no surgical services in RMC meeting the anesthesia group in 45 minutes Jacques in contact with local news media
16 Case Context situation faced by Newman walk out of anesthesiologists losing reputation of RMC closing of surgical and obstetric services no right to interfere PDS still holding the contract issues between PDS and its employees any interfere affecting future negotiation with similar service providers
17 When Outsourcing Goes Awry When Outsourcing Goes Awry What should Newman do now? What kind of tasks can be outsourced? What should the relationship with a critical supplier be? What mistakes were committed by Newman? Should there be any changes in the clauses of the contract? Were there any problems in RMC in the first place?
19 Elements of a Purchase Contract introduction of the contracting parties definitions scope of agreement purchase orders supply and delivery specifications, quality, and health, safety, and environment
20 Elements of a Purchase Contract payment liability force majeure effective date and termination intellectual property assignment and contracting technology improvements
21 Elements of a Purchase Contract most favored customer confidentiality statistics key performance indicators and compensation notices severability
22 Elements of a Purchase Contract third-party rights free trade areas minority- or women-owned business enterprises general governing law signatures appendices (schedules)
23 Information in Purchase Contracts items bought, and their costs shipment method and schedule of items installation of items warranties remedies and penalties, for quality, damages, tardiness standard terms and conditions
24 Information in Purchase Contracts dispute resolution mechanisms choice of laws and place for a choice of laws and place for arbitration currency language force majeure
25 How to Write a Contract modified from earlier agreements started with a general form and/or sample contracts advised from corporate counsel
26 Samples of Purchase Agreement Airbus A350 Purchase Agreement – AVSA SARL, US Airways Inc, America West Airlines Inc. and US Airways Group Inc. (SEP 27, 2005) Airbus A350 Purchase Agreement – AVSA SARL, US Airways Inc, America West Airlines Inc. and US Airways Group Inc. Airbus A350 Purchase Agreement – AVSA SARL, US Airways Inc, America West Airlines Inc. and US Airways Group Inc. Semiconductor Purchase Agreement - Motorola Inc. and Freescale Semiconductor Inc. (2004) Semiconductor Purchase Agreement - Motorola Inc. and Freescale Semiconductor Inc. Semiconductor Purchase Agreement - Motorola Inc. and Freescale Semiconductor Inc. Manufacturing and Purchase Agreement - Flash Electronics Inc. and 3PARdata Inc. (Sep 5, 2003) Manufacturing and Purchase Agreement - Flash Electronics Inc. and 3PARdata Inc.