Exam Questions 2 Flashcards
Q1/ Why is it important for a specification to be part of the contract document
To ensure that is legally bound, so that if a supplier does not meet the requirements of the specification that you have some legal address. Specifications are central to all commercial contracts
Q2/ List 2 advantages and 2 disadvantages of a standard contract template
All key risks set out
Standard clause prompter drafters to think about relevance
Legal meaning out words will be fully considered
Standard List of schedules prompts inclusion
Potential to use wrong template
Can result in complacency as part of the drafter
Failure to cross-check references can lead to nonsensical requirements or conditions
Reference to legislation may become obsolete
Schedules may be appended with no firm reference to them in the contract terms
Disparity between references in contract terms and schedules
Q3/ List and briefly describe the 5 sections of a contract (P18)
- The schedules-this is the main part where all the project specifics exist
- Terms and conditions (definitions and interpretation)-
- Articles-a summary party A enters into a contract with party B-who the parties are
- Recitals-set the facts around the contract- A wants to buy B
- Contract Particulars-completion dates, specific insurance required,
Q4/ Describe 4 common schedules in a contract (P23)
- performance management framework-KPIS, Targets, assessment scheme, incentives-these need to be linked to clauses in the body of the of the contract. Also needs to be a mechanism for adjustment in this
- Health and Safety-sets out pre-construction info required by law, requirements for risk assessments, hazards, live contract documents-to be updated through project
- Core Lists or exclusion lists-what is included and what is not. Links to pricing schedule.
- Preliminaries-often in construction contracts-explain the context in which the contract has to be performed.
Q5/. Why might contract variations arise and how should they be dealt with?
Changes may occur as a result of unforeseen circumstances (i.e. change in regulations)
Change may be necessary because of external events or at the request of one or other party
KPIs can become obsolete if there are easier ways to measure
Technology may change rapidly
A lack of a change mechanism may cause stagnation, ineffective delivery or early termination
There should be a formal change mechanism
A change process should include:
Who can request a change? Who can authorise a change? Who can accept a change? Mechanism for agreeing price adjustments Implications for the contract if a variation (change) order is rejected Format for a variation (change) order
Q6/. List 5 conditions for contract creation
- Offer
- Acceptance
- Consideration
- Capacity to contract
- Intention to create legal relations
Q7/ Explain what the follow case law relates to
- Fisher v Bell
- Carbolic Smokeball Company v Cahill-advertising
- Fisher v Bell (Flick knife)-Invitation to treat. Flick knife on display and shopkeeper charged with offering an offensive weapon. He was acquitted on the basis that the display was not an offer but an invitation to treat.
- Carbolic Smokeball Company v Cahill-advertising puff-stated that they would pay £100 to anyone who caught flu after using their puff balls. They placed £1000 in the bank for claims. Cahill caught flu and claimed. The company refused to pay but they lost the case because it was not an advertising puff-the fact that they placed £1000 on deposit was evidence that it was part of the offer
Q8/ What is the difference between an offer and a counteroffer?
A full statement of what the offeror is willing to provide and the terms by which they are willing to provide it
A counter offer is when you receive an offer but instead of accepting it you state that you will accept there offer but subject to a change (in which case it is a new offer)
Q9/ Acceptance is subject to which three conditions (P33)?
- Can only occur while the offer is open, and it must be absolute and unconditional
- Cannot be made by someone with diminished capacity
- Subject-to-contract letter-this is not a formal offer or acceptance
Q10/ Explain the distinction between sufficient consideration and adequate consideration
Adequacy and sufficiency of consideration. Consideration must be sufficient but not necessarily adequate. I can sell my car for £1 and that is sufficient because there is an exchange and the law does not denote what is adequate.
Q11/ What is the distinction between domestic and commercial arrangements when considering the intention to create legal relations?
Commercial contracts are generally assumed to be intended to be enforceable while domestic agreements are thought not to be.
Q12/ Which groups would be deemed as not having the capacity to contract?
Infants/minors
People with mental health issues
People under the influence of drugs
Ultra vires – public sector organisations may only legally be able to contract to do certain things. The equivalency in commercial companies set out in ‘articles of incorporation’
NB All commercial entities, and the people who represent them, are deemed to have a capacity to contract.
Q13/ What is the battle of the forms and suggest 2 ways to stop this arising
A series of forms (orders, delivery notes etc.) issued in sequence by purchaser and
suppliers, each containing terms that appear to override those on the previous
document. The battle of the forms is won by the person who ‘fires the last shot’. Shots can however continue to be fired after the battle has been won or lost
- get them to sign your terms and conditions
- put a contract in place.
Q14/ Describe the main risks of oral contracts.
Formal record of transaction is unlikely in oral contracts and confirmation on the following may therefore be difficult:
Warranty
Specification
Timescales
Cost
Liabilities
It can lead to ambiguity over terms and Procurement and supply personnel should avoid oral contracts where possible
Q15/ What is the purpose of the Vienna Convention (CISG)? What does it cover?
. Its purpose is to set out a framework for international transactions based on a uniform approach and it aims to get around the problems created by differences in local laws.
It is only applicable in specific situations
- Applies only to goods
- Applies only to private commercial transactions (B2B)
- Applies only where the parties have their place of business in different Contracting States
Note-Countries and parties can exclude parts of the treaty
Only covers offer, acceptance and consideration
Q16/ Give an example of each of the three types of misrepresentation and explain the remedies available.
Fraudulent Misrepresentation-deliberately lying in order to induce someone into entering into a contract. This machine produces 1000 products per hour when it has never done that and you know the maximum it can ever produce is 500 per hour -termination and damages
Negligent Misrepresentation-not deliberate but inducing someone to enter into a contract based on information you gave them which is incorrect (and you are negligent in not knowing it). This machine produces 1000 products per hour when you have not actually check that it can do that-termination and damages
Innocent Misrepresentation-genuine mistake made-termination or damages
Q17/James is a lettings manager. He tells a client that there is no water meter in a property and that they will pay a fixed cost of around £30pm. The client moves in and within the first week Thames Water contacts the client and tells them they have taken a meter reading and that they will receive the first bill in six months. It will be based on the amount of water they have used. When the client complains to James, James apologises and admits to them that he did not check whether the property had a water meter or not. This is
a. Innocent Misrepresentation
b. Fraudulent Misrepresentation
c. Negligent Misrepresentation
d. It is not misrepresentation
c. Negligent Misrepresentation
- Under general legal principles of contract formation, which of the following will always automatically result in the termination of an offer? Select THREE that apply.
a. Acceptance
b. Negotiation
c. Variation
d. Non-disclosure
e. Revocation
f. Lapse
a. Acceptance
e. Revocation
f. Lapse
- Which would be a key advantage of using a standard contract template?
a. the buyer will not need to negotiate any terms or conditions
b. it is likely to cover the precise needs of the procurement
c. all the main key risk areas are likely to be covered
d. It ensures that there is the capacity to contract
c. all the main key risk areas are likely to be covered
- James walks into a shop. There is a toy with a £5.00 ticket on it. James takes it to the counter and hands over £5.00. James’ action is called
a. a counteroffer
b. an offer
c. an invitation to treat
d. acceptance
b. an offer
- Explain the following terms
a. ultra vires
b. Caveat Emptor
c. Bona fide
d. “Time is of the essence”
a. ultra vires- – public sector organisations may only legally be able to contract to do certain things. The equivalency in commercial companies set out in ‘articles of incorporation’
b. Caveat Emptor - it means let the buyer beware. Buyers must take responsibility for carrying out due diligence before entering into a contract. The law does not protect the buyer against making a bad bargain!
c. Bona fide in good faith
d. “Time is of the essence” it means that delivery is considered primary clause in the contract (rather than secondary) so if this is put in you can terminate the contract. If you don’t put it in them it is seen as less important and you can only claim damages
- What is meant by the rules of interpretation? P 45
Set of rules which have evolved to defines how the law will interpret contract. i.e words will have there everyday meaning unless there is a specific definition within the contract
- Suggest the circumstances when it may be useful to use the following –
a. Performance based specification
b. Framework Agreement
c. Standards within a specification
d. Standard terms and conditions
a. Performance based specification – often used for services. i.e. when you want the supplier to determine the best way to achieve a result. You need clear outputs/outcomes
b. Framework Agreement – when the buyers want to pre-evaluate a supplier/s and agree terms and conditions up front. The buyer however may not know the exact times or volumes of requirements but want to simplify the procurement process when a requirement does arise.
c. Standards within a specification – these can act a a shortcut to suppliers and make it clear exactly what the requirements are. If there is a clear need to conform to a standard as such FCS or food standards then quoting this in the specification can make it very clear to the supplier what the requirement is. Need to be very careful not add in standards that are really not required as this can reduce competition and add cost.
d. Standard terms and conditions – low value one off purchases
- Give your own examples of the following scenarios
a. Past Consideration
b. Implied Consideration
c. A promise to perform an existing obligation
a. Past Consideration - supplier comes to you and states that they added 6 additional parts to the last delivery they made three months ago and now they would like payment for it.
b. Implied Consideration-a supplier contact you to ask you about the next service. They state that as well as servicing the boiler they would like to service two pumps on the shop flow. You agree
c. A promise to perform an existing obligation – a supplier is on contract to service the fire alarm systems and attend call out when the system fails. All parts, 24 hours call out charges and labour are included. The fire alarm goes off in the middle of the night. There is no fire and the alarm cannot be silenced-a fault light is showing on the panel. The company is contacted and they have to send someone out for three hours from 1am to 4am. The engineer says that the company will be sending an extra bill because it is the middle of the night they need to charge an extra £200.
- You have been tasked with arranging the procurement of an industrial tank to replace your existing tank. The value of the purchase is £100,000. Identity the type of contract agreement you would use (LO1.3) and what factors you may need to cover in the contract.
One off contract – any personal on site, training, warranty, liquidated damages, H & S requirements, inspection and testing, service levels, time is off the essence/delivery, quality standards, built in change process, confidentiality,
- What is the difference between a direct call off from a framework agreement and the call off from a term contract?
Direct call off-this is when you have a framework agreement in which T & Cs have already been agreed. A direct call off would be made under a framework agreement if the framework agreement allows this. The framework agreement may say-for PAT testing use supplier A, for lighting use supplier B etc. Or there may only be one supplier on a framework. The supplier is not committed under a framework to supply and the purchase is not committed to order from a framework.
Term contract-a term contract is when you have an agreement with a supplier for an agreement period of time. Supplier A is to supply all electrical parts between Date xxxx and xxxx. In this agreement you have an agreement that you will use that supplier for a given time. There is a schedule of rates/pricing and you call off based on that. The supplier is commitment to meeting all orders place.
- Explain the following
a. title to goods
b. acceptance by performance
c. transfer of risk
d. specific performance
a. title to goods A Standard Clause to be used in a contract for the sale of goods to specify when title to the goods passes from the seller to the buyer. (ownership passes)
b. acceptance by performance-acceptance can be implied by actions. If the purchasers uses the goods then it is assumed that they have accepted the terms on which they are offer
c. transfer of risk- the point at which liability for damage transfers from one party to another (not the same as ownership)
d. specific performance -where a court order a party that I in breach of contract to perform exactly what it is required to do under the contract-ensures they cannot just get out of it by paying damages
e. force majeure-exclusion clause which relates to things that are outside the control of the parties, but why by their nature they are unforeseeable. Acts of good
- Suggest five factors that would need to be considered in a contract for the lease of a fleet of forklift trucks
Maintenance
Risk-what transfers to the buyer and when
Period of hire-how does this link to the life span of the vehicles
End of contract-who is responsible for what
Extending the length or scope of the contract
Q/ Express terms apply in all contracts through the buyer’s and supplier’s statutory rights. Is this correct?
a. Yes, in most jurisdictions there are expressly stated statutory rights.
b. No, these terms are specifically stated within the contract.
c. Yes, all terms must be expressly stated in the contract to be legally binding.
d. No, if it is a verbal agreement no terms will apply at all.
b. No, these terms are specifically stated within the contract.
Q/ What is an ineffective contract term?
Once that cannot be enforced because of the legal rules of jurisdiction. i.e if you tried to put a term in a contract stating that you exclude liability for death-this would be ineffective, as you cannot do this in the UK due to statute law.
Q/ Jurisdiction and Express Terms are likely to appear in (Select 2)
a. Specifications
b. Contracts
c. Service Level Agreements
d. Standard terms
e. KPIS
b. Contracts
d. Standard terms
Q/ What does time is of the essence mean?
Used to state the importance of timely delivery so that you can terminate a contract if they fail to deliver
Q/ Model contract forms are popular in some industries because they offer additional protections to suppliers. Is this correct?
a. Yes, in most industries model contracts provide additional supplier protections.
b. No, they are popular because in some industries it is a legal requirement to use them.
c. Yes, in most industries model contracts considerably limit supplier liability.
d. No, they are popular because they are widely accepted in some industries.
d. No, they are popular because they are widely accepted in some industries.
Q/. What are the following model form contracts used for
- JCT
- FIDIC
- NEC
- IMECHE/IET
- CIPS
- JCT-construction
- FIDIC-construction-electrical and mechanical works
- NEC-Construction
- IMECHE/IET-electrical-mechanical and engineering
- CIPS-IT
Q/. Which of the following is a provision in a contract under which one party commits to compensate the other for any harm or loss arising out of the contract?
a. Indemnity
b. Intellectual property
c. Liquidated damages
d. Warranty
a. Indemnity
Q/ What factors need to be considered when agreeing liability and indemnity terms in contracts?
Liquidated damages Exclusion of liability (i.e. force majeure) Negligence of the other party Indemnity Financial limit of indemnity Limiting scope of liability Transfer of liability – transfer of risk
Q/ Explain why a supplier may want to limit liability
They will want to limit what they are legally responsible for. For examples -they may agree to accept liability for direct losses but will want to limit accepting any liability for Indirect losses.
Q/What is insurance and why is it referenced in contracts?
An arrangement where a fee is paid to one party so that it will accept risk and meet any costs that would normally fall to the person who has legal liability for them.
Because if you become liable and have to indemnify the other party the amount may put you out of business. Insurance is a form of protection
Where liability is not limited, costs involved may lead to potential financial collapse of an organisation
Lack of insurance can be catastrophic for supplier or purchaser
Insurance clauses usually fall within same category as liability and indemnity
Q/ Briefly explain the following types of insurance Employer’s liability Public/products liability Professional indemnity (PI) cover Goods in transit cover Works/buildings
Employer’s liability- compensation for injury suffered in the course of employment
Public/products liability- injury, loss or damage caused by the company’s products, or on its premises, or as a result of the actions of its personnel
Professional indemnity (PI) cover - losses that occur as a result of poor or negligent advice that is given in a professional capacity (for example by accountants or engineers)
Goods in transit cover - damage caused during the delivery process
Works/buildings - cover for partially completed building works, or the buildings in which they are being carried out
Q/ You have contents insurance. It states that though you can make multiple claims within the year, each claim will pay out a maximum of £30,000? This is
a. each and every insurance
b. individual insurance
c. aggregate insurance
d. exclusion insurance
a. each and every insurance
Q/ A construction company employs builders and carpenters but if a requirement comes in for electrical services then they place an order on one of their suppliers who will complete the work on their behalf. This is
a. outsourcing
b. insourcing
c. employing
d. subcontracting
d. subcontracting
Q/ A clause states that if a product breaks down within the first 12 months it will be repaired or replaced free of charge. It is a
a. Remedy
b. Guarantee
c. SLA
d. Performance standard
b. Guarantee
Q/ Which of the following are characteristics of liquidated damages within a contract?
- Apply excessive penalties for all breaches.
- Explain the process for dispute management.
- Set out the circumstances when they apply.
- State the financial implications for the supplier.
a. 1 and 2
b. 2 and 3
c. 3 and 4
d. 1 and 3
b. 2 and 3
2. Explain the process for dispute management.
3. Set out the circumstances when they apply.
Q/ How can terms be used to support labour or ethical standards?
Insisting on minimum labour standard
Environmental impacts-how-use of KPIs, adherences to standards
Social impacts-KPIs, express clauses such as social benefit clauses
Fraud, bribery and corruption-adherences to Bribery Act 2010 or other legislation
Subcontracting
Upstream impacts-how suppliers’ supplier act
Q/. Explain what the difference is between cost and price
Price is the amount expressed in units of currency to be paid by the purchaser to the supplier in order to obtain the goods or services
Cost is the total sum of amounts paid by the supplier in order to produce the goods or services
NB- There is a clear relationship between cost and price, but it is not always a direct one
Q/ The schedule states that the labour rate should be £250.00 per day and there is a list of parts with an agreed price per part. This is a
a. schedule of rates
b. combination rate
c. cost schedule
d. fixed fee
Combination rates
May require a schedule of rates-which combines both goods (parts) and services (labour). Common in maintenance
Q/ This type of pricing supports budgeting for the buying organisation but if prices increase the supplier will bear all the risk. This type of pricing is
a. Cost plus
b. Fixed
c. Target
d. Incentivised
b. Fixed
Q/ Explain what is meant by the term cost-plus pricing and give two advantages and two disadvantages of this pricing.
Price is set on the basis of cost, plus an agreed profit mark-up
• Cost + (cost x % mark-up) = price (example cost £20, mark up 25%-£20 + (£20 x 25%) = £25)
• Identifying the agreed ‘cost’ figure may be challenging
• Requires a degree of trust and open-book accounting between parties
Advantages
- You know will only be paying a fixed profit mark up-so you can ensure this is competitive
- Risk of supplier collapse is reduced
Disadvantages
- unable to budget, as you do not have a fixed overall price you will pay
- There is no incentive for the supplier to manage their costs
Q/ Which of the following arrangements permit the supplier to charge more, in certain circumstances, over the term of the contract? Select the TWO that apply.
a. Pricing schedules.
b. Fixed priced.
c. Incentivisation.
d. Indexation.
e. Price adjustment formula.
d. Indexation.
e. Price adjustment formula.
Q/What are the disadvantages of not allowing any price adjustment in the contract. When might this approach be suitable?
You a guaranteed to pay a fixed price which allows budgeting, but it is inflexible, one party will lose and the other will gain and the supplier may be tempted to quote a higher initial price to cover the expected costs.
It is suitable for short term contract, which have a detailed specification and where the specification is not likely to vary.
Q/ Describe the benefits of clearly stating within the contract the circumstances and mechanism when prices can be adjusted.
Gives certainty to both parties
Can be linked to contract specific indices or economic indexes (such as RPI)
Supplier less likely to inflate prices at the start of the contract because they know there are mechanisms for adjustment if their prices increase.
Q/ Which of the following are necessary conditions for misrepresentation within a commercial agreement? Select the THREE that apply.
a. The statement must be made after the contract is created.
b. The statement must relate to fact.
c. The statement must be false.
d. The statement must be made by a contracting party.
e. The statement must be made in public.
f. The statement must have market credibility.
b. The statement must relate to fact.
c. The statement must be false.
d. The statement must be made by a contracting party.
Q/ What is meant by the scoping stage of specification development?
Scoping means setting out the objectives of the exercise, limit and constraints, preferred processes and the roles and responsibility of the teams. This stage should normally be managed by a procurement professional. Need to consider who is responsible for producing the first draft of the specification?
Q/ Why is it useful obtain a range of comparable specifications before starting first draft of a specification
- It is always easier to critique than it is to create. A blank page is never a good starting point for a discussion.
- Most of the necessary elements will be covered, acting as a prompt to ensure they are considered and a conscious decision made to include or omit.
- Using more than one sample specification provides ideas and options regarding different potential solutions.
- Using more than one sample specification is a good way of understanding the quality variations available.
- Cross-references to legislation, international standards or codes of practice act as prompts to check what you need to comply with.
- The sample specification(s) may suggest ways in which innovation can be promoted or captured during the life of the contract
Q/ What is a non-disclosure agreement and why might it be needed in specification development?
Intellectual property issues (non-disclosure agreements). Needed to maintain confidentiality, particularly if a supplier is involved in the development or it will be going to external parties
Q/ Describe 2 advantages and 2 disadvantages of developing a specification document from a pre-written specification.
Benefits
- Specifications are shorter- no need to repeat all the detail that is included in the standard-just reference the standard
- Suppliers can understand specifications more quickly
- Where international standards are used it removes a barrier to trade
- Use of the standard allows for different approaches to be offered, all of which will meet the desired outcome, without procurers having to second-guess what such approaches might be
- Use of the most up-to-date international standard should ensure that all recent influences (up to a point in time) have been considered
Disadvantages
- In-house staff may not be familiar with which standards do or could apply, so simplification opportunities are missed
- Staff may not fully understand the implication of the standards that they quote, and inadvertently create conflicts within the specification by drafting precise requirements that do not agree with the standard
- Staff may not fully understand either the quoted standard or their own operating environment and, as a result, use standards in situations for which they are not designed, thereby possibly adding cost without value
- Insufficient thought can be given to what needs to happen when the standard is updated
- SMEs may not be as familiar with international standards as larger companies, while still being capable of doing what is actually required
Q/ A major retail organisation has come under pressure from consumers to place more emphasis on social value when sourcing its products. It should prioritise which of the following criteria when developing specifications and selecting suppliers? 1. Reducing product costs. 2. Supporting local communities. 3. Improving working conditions. 4. Increasing sales revenues. Select one a. 1 and 2 b. 2 and 3 c. 3 and 4 d. 1 and 3
b. 2 and 3
2. Supporting local communities.
3. Improving working conditions.
Q/ Shortcuts to writing specifications includes (select 3)
a. SLAs
b. KPIs
c. standards
d. codes of practise
e. standard Ts & Cs
f. Branded products
c. standards
d. codes of practise
f. Branded products
Q/ Why might it be important to develop a dialogue with suppliers during the specification development process?
Understanding of the market can support the development of a better specification.
Q/ Explain what is meant by “standardisation” of requirements
The process of making products or processes conform to a standard. Standardisation has many benefits. Increased standardisation reduces the range of products available, but there might be cases where increasing the range is a better option.
Q/ Select two benefits of standardisation
- Durability
- Cost Savings
- Reduced Inventory Levels
- Flexibility
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 2 and 4
- Cost Savings
3. Reduced Inventory Levels
Q/ List two advantages of increasing the range of products
Greater competitive advantage
Greater Innovation and flexibility
Q/ Compliance with the ILO is an example of
a. Ethical Practise
b. Environment Practise
c. Technical Standard
d. Quality standards
a. Ethical Practise
Q/ How does information assurance relate to information governance?
Information Assurance should sit within a wider context of information governance (IG), i.e. protection of information managed outside of technical ICT systems
Key roles for IA and IG in developing specification are
- ensuring that specifications based on valid and accurate data
- specification should include requirements for meeting the necessary standard of IA
Q/What is
ISO27001
ISO14001
ISO9001
ISO27001-information security standard
ISO14001-environmental management standard
ISO9001-quality management standard
Q/ It is important that KPIs are linked to
a. organisation objectives
b. mission statements
c. governance mechanisms
d. delivery and quality standards
a. organisation objectives
Q/ Which of the following are likely to feature within an output-specification? 1. Product functions 2. Technical inputs 3. Performance requirements 4. Conformance standards Select one a. 1 and 2 only b. 2 and 3 only c. 1 and 3 only d. 2 and 4 only
- Product functions
3. Performance requirements
Q/ Suggest three elements that should be within a management response section of a service level agreement
a. a list of the KPIs
b. first action response
c. when the requirements should be waived
d. escalation process
e. the point when a failure become a potential breach of contract
f. a list of definitions
b. first action response
d. escalation process
e. the point when a failure become a potential breach of contract
Q/ What should be in the quality definition of an SLA
What the minimum standards are, failure of which is a breach of contract
What is an unacceptable standard of quality
Poor standards which may not ever be serious enough to become a breach of contract but might warrant a service credit or penalty payments
What exceeds the standards
(Note this could be in the SLA or the spec but not both)
Q/ Where would not you expect to see KPIS (Select 2)
a. SLA
b. Standard T & Cs
c. Specification
d. Articles
e. Contract Schedules
b. Standard T & Cs
d. Articles
Q/Which would be a good approach to contracting? (select 1)
a. purchasing everything on standard ts & cs
b. having an SLA as the only contract between the parties
c. not including the specification as part of the contact
d. including a specification and SLA as part of a set of contract documents
d. including a specification and SLA as part of a set of contract documents
Q/ Under what circumstances may you have to use a supplier service level agreement?
• Some SLAs will be Supplier-defined, as they have standard SLAs. IT contracts often have standard supplier SLA that they insist you sign up to
Q/ Which of the following enables bidders to present solutions that the buyer might not have considered when responding to an Invitation To Tender (ITT)? (Select 1)
a. Technical specification.
b. Input specification.
c. Performance specification.
d. Conformance specification.
c. Performance specification.
