L4M3

Question 1

An estimate is not a firm offer.

Answer 1

A quotation and a tender are both firm offers.

Tenders are more detailed than quotations and will include quality aspects as well as prices.

Question 2

RFQs are useful in that they are quick and informal, but they carry the risks that they only look at price not quality, and they may not be tied adequately to contract documents.

ITTs are more formal and take longer, but they have full audit trails, consider quality aspects as well as price, and are usually more closely reflected in final contract documents.

Answer 2

RFQs are useful in that they are quick and informal, but they carry the risks that they only look at price not quality, and they may not be tied adequately to contract documents.

ITTs are more formal and take longer, but they have full audit trails, consider quality aspects as well as price, and are usually more closely reflected in final contract documents.

Question 3

Tender processes must be transparent.

Answer 3

If there is a reason for normal processes to be waived, this must be fully documented and approved at a high level.

Question 4

Procurement professionals have a role in challenging specifications.

Answer 4

Technical experts can get things wrong and asking naïve questions can be useful in bringing these to light.

Question 5

Construct the contract documents as a single package.

Make sure all of the cross-references work.

Ensure all schedules are referenced in the main agreement terms.

Question 6

What are the key components of a performance management framework.

Answer 6

• Key performance indicators (KPIs) – what you are measuring
• Targets – the performance level to be achieved
• Consequences – what happens if the measures are not achieved and/or if they are exceeded.

Question 7

The KPIs and performance management framework are only contract documents if they say they are.

Answer 7

Information issued with an RFQ or an ITT may not be fully incorporated into that contract unless care is taken to ensure that it is.

The simplest method is to append it to the core contract document as a schedule, clearly referenced from the contract terms.

Question 8

The contract is the total agreement and may consist of a number of different documents.

It may not actually be labelled ‘contract’ but might be called ‘agreement’, ‘commission’ or ‘appointment’.

Question 9

Contracts should protect both parties, but the degree to which they do will reflect the relative bargaining positions of the purchaser and the supplier and their ability to influence the contract terms.

Answer 9

A schedule attached to a contract has no force unless it is referred to within the terms and conditions.

The schedules provide detail to explain, amplify and/or limit the areas covered by the terms and conditions.

Question 10

Contracts can be amended during their lifespan?

Answer 10

Any contract expected to last for more than a very short period of time should include a mechanism for variation which sets out who can authorise changes and any limits to those changes.

Question 11

Are these four actions offers?
•	Invitation to treat
•	Declaration of intention
•	A ‘mere puff’
•	Provision of information

Answer 11

NO

Question 12

The six ways in which an offer ceases to exist:

Answer 12

• Withdrawal (sometimes called revocation),
• Lapse
• Death of the person making the offer,
• Rejection (including counter offer),
• Failure of conditions,
• Acceptance.

Question 13

An offer can only be accepted if it is still open.

Answer 13

The acceptance must be unconditional

Question 14

The rules regarding when offers and acceptance become effective are complex and can be different depending on which legal system applies.

Answer 14

It is sensible to be explicit in stating which country’s system has jurisdiction and to include precise terms regarding receipt and acceptance of tenders when inviting offers.

Question 15

Consideration must be given directly in exchange.

Answer 15

It cannot be something already done, or something that is already an existing duty (unless it goes above and beyond that duty).

It cannot be a vague promise and it must be a given from one party to the contract to the other party (not a third party).

It must be specific to and it must have (usually monetary) value.

It does not, in legal terms, have to give good value for the exchange.

Question 16

When the promise is made by way of a ‘deed’ rather than a ‘contract’, consideration is not required.

Answer 16

A document is a ‘deed’ if it explicitly says it is.

Question 17

People without the capacity to contract are individuals (young people or those with limited mental capacity) who are deemed not to fully understand the nature of contracting.

Answer 17

Ultra vires relates to companies or public bodies acting outside the legal limits of what they are permitted to do.

Question 18

In the battle of the forms, it is usually the most recently issued set of terms and conditions that will take precedence.

Question 19

• Generally, a term drafted for a specific contract will take precedence over a standard term.
• Express terms will override implied terms, unless the implied term is created by a statutory regulation.

Question 20

• The fairness of holding parties to the written contract will be considered; that is, it will be assumed, unless there is very strong evidence to the contrary, that the parties knew what they were agreeing to. (Note that it is not a judgement on whether the contract itself is fair – parties are free to make a bad bargain – merely that, having made the agreement, it is fair that it be upheld.)
• All of the contract documents will be reviewed and an attempt made to determine the true intentions of the parties, but it will be difficult to override a very precise express term.

Question 21

The Vienna Convention (CISG) applies to goods where the contract is between two commercial organisations whose place of business is in different Contracting States, only if those countries have not excluded the rules in respect of the goods in question or the territorial areas where the businesses are based.

The companies themselves can agree terms different to the CISG rules. Explicit terms in the contract will override the CISG rules.

Question 22

Does the CISG require contracts or amendments to contracts to be in writing.

Answer 22

No!

If the contract is relying on CISG rules, it is wise to exclude this particular feature of those rules and explicitly state that all variations must be in writing.

Question 23

A one-off purchase contract can be simple or complex.

It may or may not have been tendered.

Question 24

The complexity of the one-off purchase contract will need to reflect the complexity of the product, service or works being purchased.

Question 25

An informal framework arrangement has no legal standing.

Answer 25

It is essentially an ‘approved list’ of suppliers or service providers.

It can provide a quick and easy route to pre-qualified suppliers but is resource intensive to maintain and there is a risk that good suppliers who are not on the list will be ‘missed’.

Question 26

A mini-competition is a tender carried out using only the suppliers on a framework agreement.

Answer 26

It is used to clarify contract-specific terms and encourage competition (particularly price competition).

Question 27

It is better to refer to contracts for a specified period as ‘term contracts’ rather than ‘call-off contracts’ to avoid confusing them with the contracts created under framework agreements.

Question 28

The difference between goods, services and works can be important if the procurement is subject to regulation and/or trade agreements as different rules or financial thresholds may apply.

Question 29

In addition to normal considerations, the key areas to consider in contracts for hire are:

Answer 29

• the reason for that approach,
• which risks are to be transferred to the hirer
• which will remain with the owner,
• who is responsible for the maintenance of the asset,
• what happens to the asset at the end of the hire period,
• what happens to the hire period if the scope of the contract has to be increased or reduced.

Question 30

A good procurement exercise needs to be project managed

Answer 30

The first key stage in project management is the scoping exercise.

Scoping questions relating to specification include

• who will produce the draft,
• whether there an existing basis for a draft and, if not,
• what fundamental objectives need to be achieved.

It is also important to understand who the relevant stakeholders are: who may be consulted about the specification?

Question 31

A previously used specification must always be robustly challenged to see how well it fits the proposed circumstances

Answer 31

Aspects which appear not to fit should be analysed to understand why they were included in the sample specification and whether this changes the view on whether or not they should be omitted or changed.

Question 32

One of the starting points for developing a specification to meet an identified need is to use sample versions already in existence.

Question 33

Market dialogue is an ongoing conversation between suppliers and purchasers.

Answer 33

It can be used (among other things) to assist in developing current and future specifications.

Care must be taken to ensure that supplier bias does not creep in as a result of using a single supplier to produce a specification.

All information must be treated as confidential.

Question 34

Standards are published at a point in time and often go beyond what is required in the specific project being tendered

Answer 34

Invitations to tender and contracts should be very specific in stating whether the standard applies at the point of publication or whether there is an automatic requirement to comply with any updates.

The contract must also specify the order of preference if an update to the standard conflicts with the contract specification.

Question 35

What are the key substantive elements to be included in a specification?

Answer 35

• characteristics of the product or service;
• timescales for delivery;
• response times for defects;
• KPIs relating to performance and reliability;
• lifespan and durability expectations;
• documentary requirements for training/user manuals and/or management information;
• any specific requirements regarding implementation.

Question 36

Social, environmental and ethical criteria are becoming increasingly important.

Answer 36

Driving forces include regulation, consumer and other stakeholder pressure, more informed stakeholders, and cost savings from waste reduction.

Question 37

Social and environmental criteria may add to the cost of delivering the specification – but this is not always the case.

Answer 37

Purchasers should seek disclosure of costs associated with social and environmental criteria to ensure that costs are not disproportionate to gains, and must monitor suppliers closely to ensure that the requirements are being met.

Monitoring is likely to need on-site auditing of suppliers.

Question 38

IA (Information assurance) applies specifically to the technical ICT systems in which data is managed, stored, processed or exchanged.

Answer 38

Information assurance only relates to computer systems and networks.

It needs to be supported by a wider information governance framework which covers all aspects of controlling the data, information, knowledge, etc., held within the business.

Information governance includes paper documents, control of visitors, verbal communications, etc.

Question 39

KPI measurement is about improvement.

Answer 39

The measures must be about things which are important, which relate to potential problems or potential improvements, and which can be influenced.

The costs of capturing the information must never outweigh the potential benefit from avoiding the problem or generating the improvement.

Question 40

Some of the data captured for KPI measurement may not be directly usable as a measure, but can still provide useful context for deciding the correct management response to the performance level being achieved.

Answer 40

This is particularly true of qualitative assessments

Question 41

KPI data must be easily accessible and capable of being trusted by both parties.

Answer 41

KPIs are measures of the outputs of activity.

Question 42

A ‘service level agreement’ may mean a non-contractual agreement, a schedule or a section of a wider contract, the whole contract or a side agreement.

Answer 42

The nature and status of the agreement must be made clear. In all cases it fulfils the same function:
-to define the standards and provide details of what could happen if they are not met and (sometimes) if they are exceeded.

Question 43

If the SLA is the only form of agreement there is, and it does not include reference to consideration, the agreement must be executed as a deed in order to be legally binding.

Question 44

Express terms are explicit and will normally override implied terms unless the implied term is created by statute and the law states that it cannot be overridden

Answer 44

Oral contracts also include express terms.

Terms from pre-contract negotiations might be implied into a written contract unless the written contract clearly precludes them.

Question 45

An organisation’s standard terms will be different when they act as a purchaser compared to when they act as a supplier.

Answer 45

Standard terms and conditions must cover all of the key areas, no matter how short the document is.

Question 46

Contracts are complicated for a reason.

Answer 46

Simplifying the language might remove some of the protection intended to be afforded by the wording – never do so without taking legal advice.

Question 47

Standard terms are useful for low value, low risk, repetitive purchases.

Answer 47

They are not appropriate for any purchase which warrants a full bespoke specification and tender.

Question 48

Model forms contain core clauses that are standard, but they are templates designed to be used with supporting documentation that is project-specific.

Answer 48

When amending standard forms be careful to ensure that all cross-references have been appropriately amended.

Question 49

Liability is a legal responsibility and indemnity is a promise to meet the costs arising from the liability.

Answer 49

Contract terms may seek to limit liability by placing a financial limit on indemnity levels.

Question 50

Insurance is used to make certain that the offending party can meet the financial costs of its liability in the event of a claim.

Answer 50

Contract terms should be used to require that subcontractors are also appropriately insured.

Question 51

Contract terms should be used to control subcontracting, including whether it is permitted at all and any specific terms that may be necessary in the subcontracts, regarding payment terms, insurance, etc.

Question 52

Contract terms are one tool to be used in seeking to impose or encourage ethical sourcing in the supply chain, but they must be supported by a right of audit to see what actually happens on the ground.

Question 53

Price is the amount paid by the purchaser;

Answer 53

cost is the total sum of all the inputs required to produce the product or service.

Question 54

The design of price schedules must take into account how the price information may need to be used, other than for the primary function of invoicing and payment.

Answer 54

Consider which other stakeholders should be consulted.

Question 55

‘Units’ used on price schedules do not need to be individual items, they can be batches of items or other measures such as square metres.

Question 56

Standard schedules exist as a starting point for pricing, but are rarely compulsory.

Answer 56

Tendering and negotiation can be carried out using them as reference points against which prices can be compared.

Using them also avoids the costs and potential risks of designing a totally new schedule.

Question 57

Fixed pricing and schedules of rates can be combined within a single contract to cover different aspects of the supply.

Question 58

Purchasers need suppliers to make a profit in order for contracts to be sustainable, but that profit should not be excessive.

Answer 58

Understanding supplier mark-ups and margins can help purchasers determine whether they are getting a reasonable deal.

Question 59

Cost-plus contracts place all of the risk of increased costs on the purchaser, and so there is no motivation for the supplier to control cost.

Question 60

If periodic price changes are to be linked to published price indices, take care to ensure that the most appropriate index is chosen.

Answer 60

Using consumer price-related indices will not be appropriate if the main input into the contract price is the cost of labour, or the cost of one of the raw materials such as steel.

Question 61

Indexation is a useful way of predetermining price adjustments by reference to an externally validated source of input cost changes.

Answer 61

Automatic indexation reduces the incentive for a supplier to seek cost efficiencies.

Question 62

Incentives should only be used where the improvement sought is of financial benefit (over and above the cost of the incentive) to the purchaser.

Answer 62

Examples are controlling costs and speedier delivery.