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Who will be in charge of the price of raw materials?

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A long‐term contract guarantees the prices at which a multinational company supplies certain raw materials to another company. The contract covers the quantities and prices – around one billion dollars over five years. The price of these raw materials soars on the markets, to exceed by more than 30% the price set in the original contract. The producing company requests that the selling price be reassessed accordingly. The buyer refuses, relying on the long‐term commitment made in the initial contract: proposing an increase of only 4%. The disagreement lasts several months. On both sides, lawyers prepare for trials; everyone believes they can convince the judge. However, mediation is finally accepted. A few sessions, over a two‐week period, lead to an intermediate price reassessment, the setting of minimum purchase quantities, and a revision clause for periodic price increases or decreases, depending on the market conditions. Mediation has allowed each company to continue their commercial relationship without market fluctuations becoming a burden.

It is better for the parties to spontaneously agree on the profile and name of a third party, but sometimes an external authority – the public administration, a judge, a common hierarchical superior – designates a mediator with the parties accepting, nolens volens, this choice. The main characteristic of ad hoc mediators is that they halt their operations at the end of their mission.

Mediation

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