A year after the BIG mining company had signed a 10 year long term contract with a foreign buyer to buy zinc in 10 annual instalments, the zinc market collapsed due to credit crisis. Instead of paying £6 a ton below world market price, the buyer now faced the prospect of paying £4 above.
The buyer faxed BIG to say it wished to renegotiate the contract. The final words of the fax read: “You cannot expect us as your new (and long term) partner to carry alone the now ruinous expense of these contract terms.”
BIG negotiators had a heated discussion about the situation.
What of the following statements would you suggest?
- A contract is a contract. It means precisely what its terms say. If the world price had risen we would not be crying, nor should they. What partnership are they talking about? We had a deal. We bargained. We won. End of story.
- A contract symbolises the underlying relationship. It is an honest statement of original intent. Where circumstances transform the mutual spirit of the contract, then terms must be renegotiated to preserve the relationship.
- A contract symbolises the underlying relationship. It is an honest statement of original intent. But such rigid terms are too brittle to withstand turbulent environments. Only tacit forms of mutuality have the flexibility to survive.
- A contract is a contract. It means precisely what its terms say. If the world price had risen we would not be crying, nor should they. We would however, consider a second contract whose terms would help offset their losses.
