Q: I am the CEO of a rapidly growing manufacturing company. We specialize in machining small component parts for a wide variety of industries. One of our first customers is a well-known medical device manufacturer. At our founding, we were desperate for cash flow, so we agreed to produce a specific part for the medical device manufacturer, at a specific price, for a period of ten years. The medical device manufacturer also imposed comprehensive Terms and Conditions on our arrangement. For the past 5 years, the medical device manufacturer has issued purchase orders on a quarterly basis. The quantity ordered fluctuates. We are now being offered more lucrative contracts with other companies. But we are constrained, because the medical device manufacturer’s orders occupy a disproportionate amount of our manufacturing capacity. In addition, the price we agreed to five years ago is no longer economical. We have tried to negotiate with the medical device manufacturer to no avail, and it keeps placing orders that we feel obligated to fulfill. Do we have any options?
A: Yes. The starting point is the precise language of the contract. You should consult with an attorney to comprehensively analyze your specific arrangement with the medical device manufacturer and understand the potential consequences of different courses of action. Depending on the contract language, there may be several legal theories available to you. Here is one example. A contract for the sale of goods is generally not effective without a quantity term. If a quantity is not set, a contract is not formed unless or until the medical device manufacturer issues a purchase order to your company. Thus, you may be able to terminate your relationship with the medical device manufacturer upon fulfillment of its most recent purchase order.
Practically speaking, this, and other legal arguments, may coax the medical device manufacturer to the negotiating table, resulting in a continuing beneficial relationship between the parties.