Chapter 2.2 - Apply the post-contract stages (stages 9-13) of the CIPS Procurement cycle to the practical procurement and supply environment Flashcards
Name 7 ways a procurement professional can accept the offer
- Telephone call
- Letter
- Face to face conversation
- Handshake
- Click of the mouse
- Nod of the head in an auction
What should the contractual terms copy?
The terms in the documentation originally sent out to the suppliers when the quotation or bid was requested
Name 3 types of contract
- Verbal
- Written
- Implied
Name the 6 stages of forming a contract
- Intention
- Capacity
- Offer
- Consideration
- Acceptance
- Legally binding
Intention
All parties must have an intention to form a legally binding agreement
Age of maturity
Depending on the legal system and context, the age of maturity can vary dramatically.
Name 3 legal exemption of entering a contract
- Infants / minors (those under the age of maturity)
- Individuals operating under a mental disorder
- Individuals who are intoxicated
Name 3 things businesses can’t form contracts with
- Bankrupted individuals
- Companies which have not yet been formed
- Companies which have been dissolved
Offer
A promise to do something within the agreed terms
Invitation to treat
An expression of a willingness to negotiate by providing an offer with the intention of forming a contract
Consideration
What is exchanged between two parties - has to have value but doesnt need to be financial
Sufficient consideration
What is exchanged must have a value however this value does not have to reflect what the product or service is actually worth
Name 4 ways you can accept an offer
- Body language
- Formal letter or email
- By paying for goods or services
- A signed contract or purchase order
What makes offers legally binding
When they are accepted
If an offer is challenged what is this called?
A counter offer
Does silence count as acceptance?
No
Standard term contract
A pre-written contract that leaves little or no room for negotiation on terms between the parties
Force Majeure
A contract exclusion clause, limiting (or excluding) liability when a party is unable to fulfil its obkigations under a contract due to genuinely unforeseen and unpreventable circumstances eg, an earthquake or volcanic erruption. force majeure events are often referred to as acts of God
Name 5 things standard terms or model contracts include
- Definitions
- General terms
- Commercial provisions
- Secondary commercial provisions
- Standard clauses
Name 3 advantages of standard/model contracts
- Saves time
- Saves money
- Industry standard contracts are widely accepted and understood by both buyers and suppliers
Name 3 disadvantages of standard/model contracts
- Bespoke terms may not be included
- Better terms could be negotiated
- Buyers do not get experience in creating contracts
What are terms
Rights and duties agreed between the parties, which are then documented in a contract
Name 2 types of terms
- Implied
- Expressed
What are implied terms
Always present in a contract and are set by national law
Name 3 implied terms from the Consumer Rights Act 2021
- Seller has the right to sell the goods
- The buyer will have quiet possession of the goods
- The goods supplied should be of satisfactory quality
Name 3 implied terms from Supply of Goods and Services Act 1982
- Work will be carried out with reasonable skill and care
- Work will be carried out within a reasonable time
- Work will be carried out for reasonable payment
What are express terms
Agreed between the parties negotiating the contract - they are negotiated and created rather than being automatically included
Name 10 examples of express terms
- price
- specification
- payment terms
- retention of title
- damages
- exclusion clauses
- indemnity clauses
- breaches
- termination
- conflict resolution
Name 10 factors that can influence price
- Profit levels
- Budget
- Currency fluctuations
- Economic market
- Quality
- Volume
- Supply and demand
- Material availability
- Skill of the workforce
- Immediacy of the requirement
Name 6 tactics a buyer can use when negotiating a price
- Take it or leave it
- Good cop bad cop
- Salami
- One last thing
- Russian front
- Mother hubbard
Bespoke
Made or provided especially for a specific end user
Cash flow
The amount of money going into and out of a business
Name 6 terms for a specification
- Written description
- Technical drawings
- Industry standards
- Recipes or formulae
- Brands
- Samples
Name 7 examples of common payment terms
- proforma
- Net 15 days
- Net 30 days
- Net 30 days
- Net 45 days
- Net 60 days
- Net 90 days
What is the retention of title clause also known as
Romalpa Clause
What does the retention of title clause state
When ownership transfer from the supplier to the buyer
Why does the retention of title clause only apply to products?
Because services are never physically owned
Breach
Failure to carry out actions in accordance with a contract
Name 3 categories of breaches
- Material
- Anticipatory
- Fundamental
What are damages
A sum of money that the supplier pays to the buyer if it fails to carry out its contractual obligations
Name 2 types of damages
- liquidated
- Unliquidated
Liquidated damages
A fixed amount of money, agreed between the parties, that is payable if a contract is breached. liquidated damages can be enforced by law and the injured party should not have to seek legal action for them to be paid
Unliquidated damages
An unfixed amount of money. Unliquidated damages terms are used when the amount of money that will compensate the injured party cannot be known in advance. A court decides on the fair amount of unliquidated damages for a breach of contract
Name 2 advantages of liquidated damages
- Pre-agreed amount
- No need for legal intervention
Name 1 advantage of unliquidated damages
- Full amount of loss can be recovered
Name 1 disadvantage of liquidated damages
- could receive less than the actual amount lost
Name 1 disadvantage of unliquidated damages
- Has to be awarded through court
What is an exclusion clause?
used in contracts to try and exclude one party, or to restrict the amount of liability that might come from a breach of contract
Name 2 things exclusion clauses can do
- Restrict or limit liability
- Seek some form of guarantee in place of normal liability for breach of contract
Name 2 things an exclusion clause must be to be valid
- The clause must be incorporated into the contract
- The clause must be constructed in a clear and precise way
What is an indemnity clause
Means the other party will accept liability and risk for any loss that happens when carrying out the contract and will replace repair or repay what the injured party or parties have lost
Name 3 things indemnity clauses may include
- Costs or debts
- Loss or damage to the buyer’s property due to negligent or defective work
- Business losses experienced due to a supplier’s poor professional advice
Name the 6 types of termination
- End of contractual term
- Performance
- Prior Agreement
- Frustration
- Breach
- Bankruptcy
Liquidated damages
An agreed sum of money which is payable by one party to another in the event that they breach a term in a contract; the damages must be a genuine estimate before the breach occurs of any consequences from a financial viewpoint
Name 3 terms that can survive termination
- Confidentiality
- Disposal
- Decontamination
Alternative dispute resolution
Any method of resolving a dispute between two parties which does not involve court action, including escalation to higher levels of authority, mediation, adjudication and arbitration. ADR may include negotiation, mediation, reconciliation, arbitration and then litigation
Name 5 contract terms concerning conflict resolution
- Negotiation
- Reconciliation
- Mediation
- Arbitration
- Litigation
Mediation
This involves a neutral third party which encourages the buyer and supplier not just to think about their legal rights under the contracts but also their commercial interests. Mediation attempts to get both parties to reach a compromise
Arbitration
The settling of a dispute between buyer and supplier by an impartial third party. This party may be named in the contract. The buyer and supplier agree to accept the third party’s decision
What is the final stage if arbitration fails?
Litigation
Litigation
The settling of a dispute using a legal court or judiciary
Remedies
Contractual remedies are the provisions in a contract that enable the injured party to take action when the other party does not comply with the contractual terms
Conditions
Conditions are the critical elements in a contract which can, if breached, allow for termination of the contract or contractor
What are primary terms
Relate directly to the products or services being supplied
What are secondary terms
Support the main purpose of the contract
Name 4 implied conditions in a contract
- Title
- Description
- Fitness for use / quality
- Sale by sample
Time is of the essence
An express condition of a contract used to underline the importance of timely delivery. It is an explicit statement of when goods or services must be delivered. Time is of the essence if failure to supply in accordance with the contract terms has a significant impact in the purchasers ability to perform its normal functions. Time is not of the essence if the late delivery has limited or no impact
Warranties
Lesser terms in a contract which can result in damages but not contractual termination in the event of a breach
Damages
A legal remedy for a breach of contract
What type of term is a warranty
Secondary term
Innominate terms
Terms which could be either conditions or warranties depending on judgements made as part of dispute resolution process
Mobilisation
The contract phase where the new supplier sets up and initiates the project prior to delivery
Name 6 things included in effective contract mobilisation
- Clear communication
- Setting clear objectives
- Liaising with stakeholders
- Managing change
- Looking for opportunities
- Managing relationships
Adversarial
Lacking trust, confrontational, negative
What could you use to monitor progress of objectives
A Gantt chart
How to advise secondary stakeholders that a contract has been renewed or awarded to a new supplier
Send a generic memo informing them of the change and inviting any questions or concerns they may have
Name Kotter’s 8 stage change management model
- Create a sense of urgency
- Build a guiding coalition
- Form strategic vision and initiatives
- Enlist volunteer army
- Enable action by removing barriers
- Generate short term wins
- Sustain acceleration
- Institute change
Name 4 types of leadership according to Hersey-Blanchards model that suppliers may require
- Delegating
- Supporting
- Coaching
- Directing
TUPE
Transfer of Undertakings (Protection of employment). TUPE regs protect the rights of the employees where work they were employed to undertake is transferred to a new business
When should you follow TUPE regs?
If a contract is being outsourced or an outsourced contract is changing supplier
Name the 4 contract implementation stages
- Transition
- Start up
- Operations
- Management
Standstill (alcatel) period
A requirement in the UK for a tendering organisation to have a 10 day standstill period when no work is undertaken after notification of a tender outcome to the market. this is often referred to as the ‘Alcatel period’ after the legal case that led to the standstill period being introduced
Is there a legal obligation to give feedback in the private sector
No
Procedure
A method by which a task should be undertaken
What should KPIs always be?
SMART
Specific
Measurable
Achievable
Realistic
Time bound
Qualitative
Measured in terms of quality
Quantitative
Measured in terms of numbers or quantity
Name 2 things KPIs can be
- Qualitative
- Quantitative
Name 7 examples of what KPIs can measure
- On time, in full deliveries
- Supplier lead time
- Quality
- Number of defects
- Cost saving
- Communication levels
- Innovation
What should KPIs relate to
Critical success factors
Name 4 advantages of using KPIs to manage suppliers
- Supplier motivation
- Improved communication
- Improved quality
- Early identification of risk
What are SLAs designed to do?
Define exactly what the buyer will receive
name 4 principles procurement professionals should consider when preparing SLAs
- The service levels should be reasonable
- They should be important to the buying organisation
- They should be simple and easy to monitor
- They should be understood by all parties
What are management by objectives
Process of defining objectives that are strategic to the organisation, relating them to the mission and vision and communicating them to both internal and external stakeholders
Name the 5 steps to creating MBOs
- Set objectives
- set supplier targets
- Monitor supplier performance
- Evaluate supplier performance
- Set objectives to improve performance
Name 9 ways supplier and buyer reviews can be helpful
- Provide updates on market news
- Inform of any potential issues/risks in the supply chain
- Provide information on the supplier’s organisation
- Inform of any innovation or technological advances
- Reduce the risk of contract and performance disputes
- Virtually
- Face to face
- Over the telephone
- By email
Virtually
Using online systems such as email or video conferencing
Macro environment
external factors beyond an organisations control that will influence its successes, such as government policy, technology and social and cultural factors
Name 6 ways feedback should be delivered
- With good intentions
- In a timely manner
- In a specific style
- With empathy or sympathy
- Constructively
- With solutions, where possible
Name 3 ways contracts can be changed
- An amendment - a physical change in the existing agreement
- An addendum - when an additional document is added to the existing contract
- A schedule - an addition to a contract which is designed to be regularly updated
Fixed prices
In most cases, this relates to a set of prices that have been agreed and are fixed in the contract for a period of time
Schedule of rates
A list of prices associated with the products or services to be provided. Note that the rate may be different for different order volumes
Pareto Rule
The theory that 80% of outcomes result from 20% of inputs, for example, 80% of sales are to the top 20% of customers
ABC analysis
A simplistic segmentation approach based loosely on pareto analysis. ABC analysis can be used to break down an organisations total external spend based on value so its resources are used to manage these expenditures and prioritised accordingly
Name 2 tools that can be used when deciding which style of management a supplier requires
- ABC analysis
- Kraljic matrix
Name 7 benefits of a collaborative relationship
- Shared information
- Innovation
- Reduced defects
- Improved quality
- Continuity of supply
- Stable supply chain
- Cost reduction
Joint venture
A business agreement where two or more parties share and pool resources on a project
Name 5 things you share in a joint venture
- Ownership
- Control
- Risk
- Profit
- Loss
Name 8 ways of managing supplier relationships
- SLAs
- KPIs
- MBos
- Regular reviews and audits
- Continuous improvement
- Supplier development
- Managing variations
- Back-up plan
Name 10 things procurement professionals can increase their knowledge of in supplier reviews
- Production
- Internal factors
- Product shortages
- Staff changes
- Delays
- Quality
- Lead and cycle times
- Price
- External factors
- Costs
Dashboard
A way of presenting feedback to suppliers on SLAs and KPIs
ISO 9001
An international standard for quality management
ISO 14001
This sets out the international standards for an environmental management system
Name 10 areas that can be reviewed during an audit
- Quality processes
- Environmental policies
- General impression of the operation
- Equipment condition
- Warehouse and inventory processes
- Code of ethics
- Health and safety policy
- CSR policy
- Staffing levels
- Culture
National audit office
An independent body that audits the spending of public sector money in the UK
Who are public sector audits conducted by?
National Audit Office
Kaizen
Japanese word for improvement; methodology used to refer to small continuous improvements in all aspects of the organisation such as technology, processes, quality, org culture, safety, leadership and productivity
Incremental
Gradual or at a slow pace
Name 8 types of waste that buyers and suppliers try to eliminate from the supply chain by applying continuous improvement
- Over-production
- Unnecessary motion
- Waiting
- Transport and handling
- Over processing
- Inventory
- Defects
- Skills
Name 8 results that can be achieved by applying continuous improvement methods
- Reduced process times
- Reduced lead time
- Reduced defects
- Improved quality
- Improved innovation
- Reduced cost
- Improved sustainability
- Improved environmental practises
Supplier development
Process of working with suppliers to improve processes, products or services that deliver benefits for both buyer and supplier
Single Point of Failure (SPOF)
A single point of failure is a weakness in a process, that if dysfunctional will automatically generate a failure
Name 9 ways that risk can expose itself
- Financial concerns
- Product defects
- Single Points of Failure
- Material shortages
- Personal conflicts
- Force Majeure
- Regulations
- Lack of capacity
- Loss of competence
How can you show possible outcomes of potential supplier or contract failure
Risk matrix
Name 3 strategies suppliers may put in place to handle risk
- Back up suppliers
- Alternative products
- Safety stocks
Five Rights of Procurement
The original ‘Five rights’ of procurement are traditionally: quantity, quality, time, place and price
Why should you hold safety stock?
To ensure that production or supply continues if there is a temporary break in the supply chain
Name 4 things that relate to the level of engagement that is required by procurement professionals
- the category of product or service
- The relationship style
- The exposure to risk
- Supply and demand
Name an important consideration within asset management
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