Let's make a deal!
Dynapower Systems is a manufacturer of specialty power transmission systems used in industry. Their power systems use a specific subsystem high torque gearbox that is available from a small number of manufacturers, and includes unique interface modifications (specialty spline and drill hole configuration) that requires suppliers to invest in specialty tooling to meet Dynapower's specifications.
Dynapower sends out a Request for Quotation (RFQ) for the gearbox to known manufacturers, asking for pricing at a per unit as well as for volume orders of 20 and 100. The RFQ also provides that Dynapower anticipates a requirement of up to 100 gearboxes over the next 18 months, although it may issue multiple Purchase Orders (POs) in smaller lot sizes. A specification is provided to bidders including their unique interface requirements. The RFQ stipulates that bids must be valid for 90 days.
Gear Industries received the RFQ and submitted a quotation that provided pricing of
- $1,200 per unit,
- $1,000 per unit if 20 units are purchased, and
- $800 per unit if 100 units are ordered.
Although not specific in their quote, Gear Industries includes a portion of the cost of specialty tooling to make their products compatible with Dynapower, totaling $20,000, which they anticipate will be recovered at a rate of $200 per unit. They have never sold to Dynapower before, and they are eager to win this business.
Gear Industries' quotation is the lowest for the 100 unit volume pricing, although it was higher for the single unit and 20 unit pricing. Dynapower informs Gear Industries that they have been selected as a supplier for their 18 month gearbox requirements, and they will be receiving POs accordingly. Dynapower sends Gear Systems a PO for 20 units at a price of $800 per unit, to be delivered in 30 days. Payment would be made 60 days after delivery (Net 60). The PO is signed by Dynapower's Purchasing Agent, and includes a space for countersignature by the supplier, Gear Industries.
Gear Industries does not countersign the PO, but proceeds to manufacture the 20 units and deliver them to Dynapower on time per the PO. The units meet all specification and quality requirements. Gear Industries issues an invoice for $1,000 per unit (total due $20,000), with payment due in 30 days (Net 30). Dynapower issues a payment to Gear Industries for $16,000, which was received by Gear Industries 58 days after delivery.
Dynapower issues a second PO for 20 units at $800 per unit, exactly like the first PO. Gear Industries does not countersign the PO, but delivers compliant units per the PO along with an invoice for $20,000, plus $4,000 past due from the first order, due Net 30. Dynapower issues a payment to Gear Industries for $16,000, which is received 55 days after delivery.
Dynapower issues a third PO for 20 units at $800 per unit. Gear Industries notifies Dynapower that they will not accept the PO unless Dynapower agrees to a unit price of $1,000 and pays all past due amounts immediately. Dynapower refuses to accept the higher prices and threatens to sue Gear Industries for unspecified costs that may include, at a minimum, the cost of shutting down their production line, late charges imposed by Dynapower's customers, and the cost of finding an alternative supplier. Gear industries threatens to counter sue for $40,000 consisting of all past due amounts ($8,000) plus the cost of the tooling that is unique to Dynapower's requirements ($20,000) and $12,000 in punitive damages for late payment and bad faith behavior.
Was there a contract? If so, at what point(s) did the parties enter into a contact, and what was agreed? Is either or both parties in breach? Which party do you think has a stronger claim and why?