{"id":1800,"date":"2018-05-09T15:05:31","date_gmt":"2018-05-09T15:05:31","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/?p=1800"},"modified":"2023-04-23T13:56:10","modified_gmt":"2023-04-23T17:56:10","slug":"renegotiation-credibility","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/nlpa\/blog\/renegotiation-credibility\/","title":{"rendered":"Renegotiation and Credibility"},"content":{"rendered":"

In the procurement world, renegotiating or breaking an agreement can have significant consequences, including lost credibility and strained supplier relationships. However, there are times when staying in a bad deal can be equally damaging.<\/p>\n

The big news in the negotiation world this week is that\u00a0US President Donald Trump has withdrawn the US from the\u00a0Joint Comprehensive Plan of Action. \u00a0The JCPOA, often referred to as the \u201cIran nuclear deal,\u201d was a multi-nation agreement with Iran designed to prevent Iran from developing nuclear weapons. \u00a0Though the withdrawal decision might be a final decision, President Trump left the door open to negotiating a new deal, predicting\u00a0that Iran\u2019s leaders will be compelled to pursue making one, and going on to say \u201cWhen they do, I am ready, willing, and able [to work out a new deal].\u201d<\/p>\n

One of the criticisms of President Trump\u2019s decision is that the US\u2019 credibility will be harmed. \u00a0It\u2019s never my intent to be political and I am not sharing an opinion on whether or not the decision is a good one or a bad one. \u00a0But, in procurement, renegotiating or breaking an agreement and dealing with the consequence of lost credibility is a legitimate concern. \u00a0So, we\u2019ll take the opportunity to discuss that.<\/p>\n

In covering President Trump\u2019s decision, USA Today\u2019s editorial board opines that \u201cAmerica\u2019s credibility on the world stage suffered a severe blow\u201d and that it signals that \u201cthe United States\u2019 word lasts only as long as its next presidential election.\u201d \u00a0Further, the editorial board draws a comparison to a buy\/sell contract, writing, \u201cIt\u2019s as though you bought a car, decided after the fact that you didn\u2019t like the color or the gas mileage, tore up the sales agreement, and walked away from the remaining payments. Would anyone trust selling you another vehicle?\u201d<\/p>\n

It\u2019s actually a legitimate procurement question.<\/p>\n

Look, there are undeniable consequences to pulling out of an agreement. \u00a0In a procurement agreement, the supplier will not trust you and may refuse to ever do business with you. \u00a0Other suppliers may feel the same way if you develop a reputation. \u00a0If your organization renegotiates with suppliers every time a new CPO is appointed and new CPO\u2019s are appointed every two to three years, your organization won\u2019t be trusted.<\/p>\n

A lack of trust can keep suppliers from offering your organization their best terms. \u00a0They may feel like they have to withhold some value to ensure their own profitability in the event the agreement falls apart.<\/p>\n

That being said, an organization should not stay in a bad deal. \u00a0An organization should weigh the consequences of continuing the agreement versus the cost of lost credibility. \u00a0If the consequences of continuing are worse than the cost of lost credibility, then it may be worth the risk to get out of a bad agreement.<\/p>\n

Of course, in procurement transactions, there could be legal and financial consequences as well, not just lost credibility. \u00a0So, those have to be factored in.<\/p>\n

The bottom line is that it is very risky to pull out of an agreement. \u00a0Sometimes, it\u2019s actually worth the risk. \u00a0Sometimes, it\u2019s not. \u00a0Be sure to look at all of the costs, consequences, and benefits and decide appropriately before withdrawing from any agreement.<\/p>\n

Recommended Reading<\/b><\/p>\n