floattuber
Mechanical
If a machine shop completely blows by their quote for a widget, would you as the customer, pay the additional amount? I'm leaving this rather open ended for now, to see what the concensus is. I'll fill in the details later.
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Machine shop over ran quote
- Thread starter floattuber
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moltenmetal
Chemical
Was this an estimate or a fixed price offer?
If it were an estimate, pay up and chalk this up to experience.
If it were a fixed price offer, $XXX to make this part, then you should not pay a penny more than the quoted price unless something changed between bid and completion.
If it were an estimate, pay up and chalk this up to experience.
If it were a fixed price offer, $XXX to make this part, then you should not pay a penny more than the quoted price unless something changed between bid and completion.
If the shop provided the quote based on all the required information being available i.e. complete drawing, and then the purchase order (contract) explicitly states that amount, and the machine shop accepted that purchase order then my first response would be 'NO', I'll pay you what you quoted not a penny more.
Now, if the information they had was incomplete, or there was an error, or there was some 'discovery'/R&D involved... then there's arguably room for negotiation that it's fair I pay them a bit more.
If they are a company you want to keep a good relationship with, you might consider paying more, perhaps split the difference or something.
However, I don't believe you'd be legally, morally or ethically obliged to do so.
Now, if the information they had was incomplete, or there was an error, or there was some 'discovery'/R&D involved... then there's arguably room for negotiation that it's fair I pay them a bit more.
If they are a company you want to keep a good relationship with, you might consider paying more, perhaps split the difference or something.
However, I don't believe you'd be legally, morally or ethically obliged to do so.
Posting guidelines faq731-376 (probably not aimed specifically at you)
What is Engineering anyway: faq1088-1484
What is Engineering anyway: faq1088-1484
msquared48
Structural
If the mistake was theirs, they should eat it. However a 10% overage is reasonable.
If it was your mistake, pay it.
If it is somewhere in between, negotiate.
Mike McCann
MMC Engineering
Motto: KISS
Motivation: Don't ask
If it was your mistake, pay it.
If it is somewhere in between, negotiate.
Mike McCann
MMC Engineering
Motto: KISS
Motivation: Don't ask
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- #5
floattuber
Mechanical
No change in design, no scope change. They had the complete drawings. Let's assume this is a fixed price order.
Then no more money.
Unless, like I said, it's in your long term interests to have a good relationship with them.
Not sure about the 'Structural' world but places I've worked didn't normally think any overage as reasonable on a fixed price order.
Unless, like I said, it's in your long term interests to have a good relationship with them.
Not sure about the 'Structural' world but places I've worked didn't normally think any overage as reasonable on a fixed price order.
Posting guidelines faq731-376 (probably not aimed specifically at you)
What is Engineering anyway: faq1088-1484
What is Engineering anyway: faq1088-1484
msquared48
Structural
Then the "mistake" was theirs - the mistake was in the bidding.
Do you feel that they lowballed to get the bid?
Mike McCann
MMC Engineering
Motto: KISS
Motivation: Don't ask
Do you feel that they lowballed to get the bid?
Mike McCann
MMC Engineering
Motto: KISS
Motivation: Don't ask
Was the quote and delivery contemporaneous?
A quote is an offer to provide something for the price quoted. In court it would probably be upheld as a contract.
If a significant time went by between quote and authorization to manufacture, or some external factor outside of the vendor's control occurred, such as a drastic and unanticipated change in raw material costs, then there are reasons to negotiate.
A quote is an offer to provide something for the price quoted. In court it would probably be upheld as a contract.
If a significant time went by between quote and authorization to manufacture, or some external factor outside of the vendor's control occurred, such as a drastic and unanticipated change in raw material costs, then there are reasons to negotiate.
MikeHalloran
Mechanical
Estimates are wide open. I expect some warning of extreme overages, but basically your only recourse is refusal of future business.
Quotations are understood to be fixed price. ... but most supplier quote documents have boilerplate, front or back, about things that are beyond their control, like supplier surcharges, design changes, all that stuff.
I like to develop long term relationships with vendors. Not involving reverse cash flows or favors or anything like that. I just tend to issue RFQs for non-commodity items to people with whom I have done business before, and had satisfactory results. That way, if a quote comes in higher than I expected, we can work together, over the phone or by email, to adjust the design so as to make everyone happy. Establishing that level of rapport, and the necessary common vocabulary, usually requires meeting in person at least once. That works better if it's not a social meeting, but a shop visit to hammer on an actual problem.
Pay the vendor. If it leaves a bad taste in your mouth, don't call him again. Maybe you could get lawyers involved, or cause him to do so, but you'd just end up paying lawyers, and being distracted from what you're really trying to do.
Mike Halloran
Pembroke Pines, FL, USA
Quotations are understood to be fixed price. ... but most supplier quote documents have boilerplate, front or back, about things that are beyond their control, like supplier surcharges, design changes, all that stuff.
I like to develop long term relationships with vendors. Not involving reverse cash flows or favors or anything like that. I just tend to issue RFQs for non-commodity items to people with whom I have done business before, and had satisfactory results. That way, if a quote comes in higher than I expected, we can work together, over the phone or by email, to adjust the design so as to make everyone happy. Establishing that level of rapport, and the necessary common vocabulary, usually requires meeting in person at least once. That works better if it's not a social meeting, but a shop visit to hammer on an actual problem.
Pay the vendor. If it leaves a bad taste in your mouth, don't call him again. Maybe you could get lawyers involved, or cause him to do so, but you'd just end up paying lawyers, and being distracted from what you're really trying to do.
Mike Halloran
Pembroke Pines, FL, USA
- Thread starter
- #10
floattuber
Mechanical
Thanks for the replies; they mirror my thinking and just about everybody else's here. Here's the fun story.
I work for a large aerospace company and the machine shop is a group within the company but they are based in an "emerging market" south of the border (SOTB). They have to bid for our machine shop work along with local vendors.
This is a new business that the company spent lots of money on and management is compelling us to send work there in order to justify their existence. Nevermind that we can get work done locally for about half the price.
Yes, I do think they under bid the job so they can get it. In fact, my first quote was higher than local but management wanted to see if the SOTB shop could match it and of course they did...until now.
The point of my original post is that the competition for the SOTB shop is local vendors who will stand by their original quotes. In my view, the SOTB shop should do the same.
I work for a large aerospace company and the machine shop is a group within the company but they are based in an "emerging market" south of the border (SOTB). They have to bid for our machine shop work along with local vendors.
This is a new business that the company spent lots of money on and management is compelling us to send work there in order to justify their existence. Nevermind that we can get work done locally for about half the price.
Yes, I do think they under bid the job so they can get it. In fact, my first quote was higher than local but management wanted to see if the SOTB shop could match it and of course they did...until now.
The point of my original post is that the competition for the SOTB shop is local vendors who will stand by their original quotes. In my view, the SOTB shop should do the same.
MikeHalloran
Mechanical
Well, that's a horse of a very different color.
You're not dealing in a free market; you're saddled with a captive shop.
Taking a hard line with a captive shop is going to rock someone's boat.
It's a career decision....
Mike Halloran
Pembroke Pines, FL, USA
You're not dealing in a free market; you're saddled with a captive shop.
Taking a hard line with a captive shop is going to rock someone's boat.
It's a career decision....
Mike Halloran
Pembroke Pines, FL, USA
"Unless, like I said, it's in your long term interests to have a good relationship with them."
So, is it in your long term interest?
So, is it in your long term interest?
Posting guidelines faq731-376 (probably not aimed specifically at you)
What is Engineering anyway: faq1088-1484
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- Thread starter
- #14
floattuber
Mechanical
I'm letting management sort it out. My managers agree, the shop should eat the cost, but I know that's not going to be the case. We'll end up having to pass the cost on to our internal customers.
I work for a large aerospace company and the machine shop is a group within the company
Ultimately, it's your customers that will pick up the bill for this. This is uncompetitive practice and we all know where that can lead to in this day and age....
Ultimately, it's your customers that will pick up the bill for this. This is uncompetitive practice and we all know where that can lead to in this day and age....
The SOTB shop was given the opportunity to lower their cost in order to win the work and now that the work is done are raising the cost back up.
That's verging on dishonest, just taking advantage of the 'special relationship'.
As you say, the decision is out of your hands, but we all know what the decision should have been.
That's verging on dishonest, just taking advantage of the 'special relationship'.
As you say, the decision is out of your hands, but we all know what the decision should have been.
...what does seem weird to me is that machine shop work made
SOTB in "emerging market" can cost higher than work done in USA.
As you said their first quote was almost double price (!)than local USA vendors and then they probably underbid after the managements guidance.
I should expect that due to lower labour cost the SOTB work should be cheaper.
Possibly transport cost elevates the total price?
(if the "emerging" is e.g. Brazil)
Anyway, a fixed quote is usually "firm" but in this case the underbiding explains all..
SOTB in "emerging market" can cost higher than work done in USA.
As you said their first quote was almost double price (!)than local USA vendors and then they probably underbid after the managements guidance.
I should expect that due to lower labour cost the SOTB work should be cheaper.
Possibly transport cost elevates the total price?
(if the "emerging" is e.g. Brazil)
Anyway, a fixed quote is usually "firm" but in this case the underbiding explains all..
GregLocock
Automotive
Another way to look at it is that you are both internal divisions of one company and this may be a way of transferring profits from a high tax environment to a low tax environment. Overall transfer pricing within a multinational is more a tax lawyer's playground than anything that engineers need to worry about.
Cheers
Greg Locock
New here? Try reading these, they might help FAQ731-376
Cheers
Greg Locock
New here? Try reading these, they might help FAQ731-376
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- #19
floattuber
Mechanical
Their labor rate is indeed cheaper than the US shop rate, however, the SOTB shop takes twice as long!
Ultimately, everybody who buys a plane ticket picks up the tab.
Ultimately, everybody who buys a plane ticket picks up the tab.
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