Company A recently bought a rock-crushing unit from Company B. This unit was expected to produce 750 tons of crushed rocks per hour, but has in practice been producing only 500 tons per hour.
Paul, president of Company A, complains to Gordon, sales manager of Company B, about the fact that he is now unable to fill contracts, which he secured based on the expected capacity of the machine. In some instances, he has been required to buy crushed rock - at retail prices - to satisfy his contract obligations. Furthermore, he is not able to repay the loan with the expected higher income from the increased production. Paul threatens to sue Company B, unless they return half of the purchase price of the equipment.
Frank, the foreman of Company A's new rock crushing installation, and Elmer, the company's chief engineer, are not happy with the new equipment. However, they are not sure that company B is at fault. The contract for the new equipment specified that the unit should be able to crush 750 tons of properly graded limestone per hour. Company B had samples supplied by Company A and based its promise of performance on these tests. Paul had been using stone taken from several different company quarries. Both Frank and Elmer had objected to this since much of this stone was harder than that in the sample given to Company B. The equipment had not broken down, but it was not able to deliver the specified capacity.
Frank and Elmer discussed this matter and decided to present the problem to Paul. If Company B fought Paul's suit, Frank and Elmer would certainly be called on to testify. Moreover, they both felt that Company B has a right to know that Company A has been using a harder rock than that used in the test.
Paul listened to Frank and Elmer, but was not convinced that he ought to inform Company B of the difference in rock hardness. Paul thought that the performance guarantee covered the crushing of rock for any and all of the company's quarries.
What course of action do you suggest for Company A? Explain.
Garrett, T. M., Baumhart, R.C., Purcell, T. V., and Roets, P.: 1968, Cases in Business Ethics (Prentice-Hall)