Examining contract modifications in purchasing personal protective equipment: A bargaining approach

Abstract

This paper presents a bargaining model of contract outcomes as a function of contract uncertainties associated with critical supply purchasing after a crisis. It examines contract modifications and termination. The model yields the following results: (1) contract modification by the government alone (unilateral modification) does not change the optimal contract; (2) contract modification by mutual agreement (bilateral modification) makes the optimal contract dependent on product price, acquisition costs, transaction costs, and uncertainty; (3) mutual contract modifications are affected negatively by government costs of contract modification and are affected positively by supplier's costs of contract modification; (4) the government may find it necessary to terminate a contract if the contract elasticity of government utility is zero, and the contractor may want to terminate the contract when its supply price equals the acquisition price.