Purchase order cancelled - clients position?

A clients PO cancelled by one of their customers - recoup costs incurred and any compensation?

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My client has had a large PO cancelled valuing £29k (incl VAT).  The work he was to perform involved some time up front to get everything in place, plus the purchase of machinery in order to undertake the work (c.£7.5k) and some minor costs.  An intermediary has inferred that he may be entitled to some compensation and monies to cover his time spent and costs incurred.

Does anyone have any experience in this area - how do we calculate the value of what he should claim?  We want to ensure it is fair and doesn't cause any issues between the parties involved?  The basic costs and time spent are relatively straight forward, but what do we include for the machinery - it does have a residual value, but isn't being used at present as was bought specifically for the order.  Also, do we include anything to compensate for the time set aside and lost profits?

Any thoughts would be gratefully received.

Replies (8)

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By Duggimon
08th Aug 2017 16:34

I would think any claim would be subject to the terms and conditions agreed upon when the order was initially placed. What do those say?

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By mrme89
08th Aug 2017 16:38

What are the cancellation clauses set out within the contract between the two parties?

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RLI
By lionofludesch
09th Aug 2017 09:18

You ought to be asking this on one of those legal fora instead of an accountancy forum.

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By Jan CM
09th Aug 2017 10:57

Thank you for your comments. There are no T&Cs or a formal contract.

Apologies, it wasn't the legal aspect I was really asking about, it was more how to put a value on any loss of income, etc, to start off any negotiations, if they arise.

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Replying to Jan CM:
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By WhichTyler
09th Aug 2017 11:13

Hard to say without detail, but one big question is can he return the machinery he was foolish enough to buy before he had written commitment from his customer?

Their time spent may have to be written of to experience. Education is expensive, as my grandmother used to say, and perhaps they have learned their lesson...

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By JWASLTD
09th Aug 2017 11:16

your client should learn a valuable lesson. T&Cs are a necessity. it wont cost must to get fairly standard T&Cs set up. In this case, they are unlikely to get anything back.

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Replying to JWASLTD:
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By WhichTyler
09th Aug 2017 11:22

They may not have a legal right to anything back, but they may be able to negotiate a commercial deal that mitigates the loss. Depends on the relationship between the parties and the reason for cancellation (e.g. if the project is delayed, maybe they can have first crack if it comes back to life. If your client had an affair with customer's spouse it may be trickier).

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By Jan CM
10th Aug 2017 15:30

Thanks for the comments!

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