Expert: Lee Kilcup - 1/8/2008

Question
Hello-
My company awarded a contract to a vendor to make (15) electrical components for Approx. $750k.  The vendor was told to supply a prototype for approval, prior to proceeding. After we received the 1st prototype we decided that it was not what we wanted.
Now we are contemplating canceling the contract.  Do you have any idea what percentage of the contract would be at risk dollar wise, if they ordered the material already, admin, time etc.
Thanks Much - Allen

Answer
I don't know what the terms of your contract regarding cancellation are... If you are responsible for the cost plus the profit or fee on that cost only then you should find out what they have ordered and are responsible for (with appropriate substantiation) add their fee (if you know the %). I hope you had an agreement about what the prototype was going to cost or some specific termination language, worst case you could be responsible for the entire contract. I would review your contract very closely