Differentiate between different contractual relationships

Question 1

Contractual Relationships

Answer 1

• Arms Length
  o Traditional buyer/seller relationship
  o Minimal contact between the parties
  o Transactions often involves one-off supply of materials, equipment, or labour
• Professional or consultancy services
  o May simply be commitment of personnel
• Management contracts
  o Contractor manages but owner finances
• Preferred Supplier
  o This is a much closer, longer term relationship
  o Often used for security of supply of key goods
• Partnering/Alliancing/Joint Venture
  o Where there is a long-term commitment between two or more organisations in achieving common project objectives
  o It can vary from an agreement to collaborate on a project right up to forming a new joint venture company
• Turnkey
  o A Supplier undertakes to provide a total solution where the Buyer can literally take delivery and “turn the key” to switch it on

Question 2

Explain a supplier selection process

Answer 2

• The process of selecting a supplier to acquire the necessary materials to support the outputs of organisations.
• Selection of the best and/or the most suitable suppliers is based on assessing supplier capabilities.

> Define needs
> Survey the marketplace
> Identify and evaluate suppliers
> Specify requirements and criteria
> Invite tenders for supply
> Assess tenders and appoint supplier
> Negotiate contract

Question 3

Supplier Evaluation

Answer 3

• Organisation
  > Size, Maturity, QA Systems, HSE Systems
• Financial
  > Guarantees, Credit references, Financial history, Commitments
• Experience
  > Project type, size, and history
  > Utilisation of sub-contractors, partners, and other resources
• Management
  > Experience, Attitude, Training & Development, Staff turnover
• Performance
  > Cost, Time, Quality, References, Safety, Customer relationships