CIPS L4M3 Chapter 1 (1.3) Flashcards
What is the process to arrive at contractual arrangements?
through direct negotiation or through a process of competitive tender.
What is the key element of a one-off contract?
It relates to a single purchase. A single purchase is not the same as a single item
What is a one-off purchase contract?
A contract for a single engagement - can be simple or complex, it may or may not have been tendered
For simple items, the reasons for using a one-off contract are - low value spends, urgent need and a lack of planning
For complex purchases the reasons for using a one-off approach are - lack of a full developed strategy for the spend area and/or the inability to predict future funding.
Although contracts for one-off purchases maybe simple, low value purchase they may still include?
Warranties and guarantees
Insurance requirements
Specification requirements
Minimum quality standards
Built-in change process
Ability to extend the scope of the contract
Ability to extend the duration of the contract
Data security protocols
What are the benefits of one-off contracts for the purchaser?
- The potential for speedy delivery for simple low-value purchase
- The ability to tap into falling market prices and/or special offers
- Ability to narrow down the terms
What are benefits of one-off contracts for the supplier?
- there may not be any competition, enabling the supplier to set their own price, if one-off contract is on a spot-purchase basis,
- the total spend may be significant even if the individual order values are low, if purchasers regularly use one-off contracts,
What are the risks of one-off contracts for the purchaser?
- Tied to on-the-day price, no market investigation and limited competition
- The contract will not allow for extensions should ‘more-of-the-same’ be required
- Limited ability to develop a relationship with the supplier
- When regulated can be viewed as avoiding the regulations by keeping values below financial thresholds
What are risks of one-off contracts for the supplier?
- Low value ad-hoc purchases make production planning difficult
- A failure to perform on this one contract could lose a potential client forever
What is an Ad-hoc purchase?
An item bought for a single and non-recurring use or purpose
What is an informal framework arrangement?
- A loose set-up, without any legal standing.
- No commonly agreed terms.
- Also referred to as an approved supplier list.
What are the advantages of an informal framework arrangement for the purchaser?
- Reduces tender process costs and speed to supply
- Ability to build trust through regular work
- Ability to include newly discovered potential providers
What are the advantages of an informal framework arrangement for the Supplier?
- Better chance of winning tenders when low number able to bid
- Potential for high turnover of low-value orders for known client
- Ability to build trust through regular work
- Ability to target potential customers without constraints of tender timescales
What are the disadvantages of an informal framework arrangement for the purchaser?
- Limits the number of potential providers so the best or most appropriate provider could be missed
- Resource intensive as all documentation needs to be checked
- Resource requirement for vetting new suppliers
- Risk of the lists becoming large and unmanageable
What are the disadvantages of an informal framework arrangement for the Supplier?
- No access if not on the list/framework
- This can be resource intensive as documentation may need to be provided separately for many databases
- Risk of lists becoming large and reducing likelihood of winning work
What is a formal framework agreement?
The agreement which set out the terms and conditions that will apply if a contract is created. It is not itself the contract because there is no consideration involved and does not commit either party to actually enter into a contract. It is intended to be legally binding on the parties from the point in time when the contract under the framework is created.
What will the formal framework agreement contain?
- How call offs can be made - whether a mini-competition is required or a direct call off can be made
- How price is calculated
- The specification - this may have various options to cater for different needs
- The duration of the agreement
- Who can access the agreement - a true framework agreement is a closed system
- Any limitations
- The main terms to be included in the contract
What are the types of Framework agreements?
- one-to-one
- one-to-many
- many-to-one
- many-to-many
What is Mini competition?
A limited tender exercise, usually only on price, under the rules set out in a framework agreement; only suppliers appointed to the framework can take part
What are the purposes of the mini competition?
- For price to be calculated based on the precise requirements
- To allow contract-specific terms to be refined
- To maintain an element of competition among the framework suppliers
What is a closed system?
A system or process that, once started, does not allow new entrants. A framework agreement might have multiple buyers and multiple suppliers, but once set up, no additional buyers or suppliers can be added to it
What is a Direct call off?
Placing an order under a framework agreement without having further competition
or
a contract placed without further competition, with the supplier with the highest ranking when the original evaluations for appointment to the framework were made
What is the advantage and disadvantage of a direct call off?
Advantage - it makes all suppliers receive a reasonable share of the available opportunities and retains competition among them
Disadvantage - if a supplier receives most or all of the work, suppliers may be reluctant to tender unless they are confident of being in that top slot
What is a call off or term contract?
A contract which exists for a fixed period of time, rather than for a specific purchase. They are used where the purchaser has a regular requirement for goods or services of similar nature which they want to be provided by a single supplier
List examples of call off contracts
- Servicing and maintaining equipment in buildings, fire alarms, lifts.
- Services which cannot be carried out on site, laundry
- Supply of goods which are regularly required but where the purchaser can only stock a limited amount
- For repetitive services which do not vary, price may be expressed as an annual or quarterly fee
- For goods or services which might be different from order to order, price will normally be described in a schedule of rates.
What are the benefits of a call off contract for the purchaser?
- Guaranteed delivery for the length of the contract
- Agreed prices, helping with setting, and controlling budgets
- Simple order mechanisms at the point of need. As all the contractual terms are agreed, individual orders can be quick and easy
- Schedule of rates pricing enables electronic procure-to-pay systems, which gives greater control and visibility of spend
- The value of spend and length of contract justify the costs of proper market engagement and tender of negotiation processes resulting in better value for money
- The longer the contract, the greater the opportunities for aligning working practices to create joint efficiencies
What are benefits of a call off contract for the supplier?
- Certainty of future demand - makes it easier to plan resources and production and to predict cash flow
- Simple order and payment systems - reduce administration costs
- Agreed specifications - can reduce the costs of short-order runs.
- The longer the contract, the greater the opportunities for aligning working practices to create joint efficiencies
What are the risks of a call off contract for purchasers?
- If prices generally fall, purchaser may be locked into a higher rate
- In sectors where technology changes rapidly, a term contract risks tying down the specification in a way that prevents innovation
What are the risks of a call off contract for suppliers?
- If costs of raw materials are rising but the sale price is fixed, the contract may make a loss
- In long term contracts, the ability to move production on to newer models or designs may be hampered by a need to continue serving a client with an older specification
What is GATT?
the General Agreement on Tariffs and Trade is an international agreement first signed in 1947 aimed at lowering trade barriers
What is GATS?
General Agreement on the Trade in Services is an international agreement regulating barriers to the provision of services between different countries
What is the defination of Goods, Services and Works?
- Goods - products; tangible items or materials that can be touched, stored and moved e.g. raw materials, components or finished goods
- Services - something done or provided by a person or a group of peope, intangible, cannot be touched or stored
- Works - a special type of service e.g. construction works, buildings, civil engineering.
What are the aspects of a contract for services?
- Regulated procurement (public procurement
- International trade
- Key personnel
- Local knowledge
- Data sharing
- Insurance
- Conflicts of interest
- Codes of conduct
What is a developing economy?
A national economy which is still developing it industrial base, financial institutions and economic infrastructure
What is a transitional economy?
A national economy which is moving from being a state-controlled economy to a full market economy (e.g. ex-Soviet Union countries)
What are the aspects of a contract for hire (short-term arrangements e.g. room) or lease (long-tern contracts e.g. building)?
- Why hire/lease rather than buy?
- Hire the asset or buy the service?
- Transfer of risk
- Maintenance
- Period of hire and arrangements at the end of the period
- Extending the scope of the contract
- Reducing the scope of the contract
What is a Hire Purchase agreement?
Where the asset is hired for a period of time and at the end of the period there will be a transfer of ownership
