L4M3 Chapter 1 Flashcards
What is the definition of Contract?
The totality of the agreement between both parties as evidence by contract documents
What is the definition of Whole Agreement?
Core documents and several separate schedules
Can contracts be amended after signing?
Yes, so long as existing contract states express terms/ clauses of how to create a Variation agreement
In legal terms, is there a difference between quotation and tender?
No, legal do not distinguish the difference
What is an Estimate?
An Estimate is a suppliers best guess/ estimate of the price of supply. It has no legal standing because it’s variables are open ended/ subject to change.
What is a Quotation (RfQ)?
Quotation is a fixed price to supply a product/ service and only has one variable: Price.
Having one variable of Price is what separates it from Estimate
What is the main difference between Quotation (RfQ) and Tenders (RfP)?
They are both fixed offers of price, however, Tender is a more complex/ detailed.
When should Quotations (RfQ) be used?
Under Framework arrangements/ agreements are in place and the only variable to discuss is Price.
Suppliers have been pre qualified
Low risk/ low value engagements
Where specification and delivery lead time is fixed.
What is a Tender (RfP, RfT & ITT)?
Tenders are more complex/ detailed version of quotations which assess multiple variables. i.e. Price, Quality, Lead Time, Terms.
It also include supplier pre-qualification.
When should Tenders (RfP) be used?
Complex projects
High risk, high value engagements
Where Price and Quality need assessing
When suppliers are not pre qualified
What is a common misconception of the use of Quotations (RfQ)?
Contract terms! RfQs should operate under existing framework agreements. In short, where negotiated terms are in already in place.
What is a Framework Agreement?
Framework Agreement is an agreement between buyer and supplier, which only becomes legally binding when a contract is called off.
FWAs are not legally binding nor do they commit either party to anything until a contract is called off.
FWA acts as an overarching guide to all subsequent contracts
What are the advantages of RfQs?
Saves time if specifics are known, i.e. brand name or model so the buyer only needs to assess price.
Enables quick turnaround, Quick to action, Quick result.
What are the disadvantages of RfQs?
Too convenient. Can lead buyer to ignore quality needs.
If not used under FWA, quotes will often default to supplier terms.
If not used under FWA, then contract terms are not considered.
If not used under FWA, then supplier pre qualification may be ignored.
What RfQ controls should you put in place?
Set up FWAs
Set maximum value limits. i.e. Tender must occur at £20k
Issue buyers standard terms with RfQs.
Only permit pre-qualified suppliers.
Apply Category Management to aggregate spend.
Set minimum number of quotes needed at each value stage i.e. £0-£10k 1 quote, £10k to £20k 3 quotes.
Utilise platforms to collate quotes.
Internal monitoring of RfQ usage.
Staff training.
Which industries are RfP, RfT & ITT most regulated?
Public sector organisations where tax payer money funds activity.
What are the advantage of RfPs?
Full audit trails. Use of e platforms further supports this.
Provides transparency, bribery, corruption etc.
Potential for wider supply base by being able to pre-qualify new suppliers
Encourages strategic planning of RfP event to gain the max out of sourcing activity and drive innovation/ efficient process
Drafting of brief can include buyer standard term clauses or red line terms
What are the disadvantages of RfPs?
Administrative burden.
Regimented process, with readily available templates can lead to laziness of buyers who don’t consider unique aspect of tender.
Rushed timeline lead to mistakes.
Risk of regulated industry buyers not following procedure, thus exposed to breaking rules.
In experience of drafting tender document lead to abnormal volumes of Q&As from supplier, thus wasting time.
What RfP controls should you put in place?
Ensure buyer are using correct document templates.
Ensure legal processes are considered.
Monitor accuracy of tender documents and correct where necessary.
Staff training.
Create vetted tender documents for everyone to use.
What is the definition of Waiver?
Waiver is a deliberate decision to not follow rules. This should be signed off by a senior staff member with written justification.
What is the definition of Specification?
Specification is a document which sets out the buyers demands of a supplier.
Remember, a Specification should be included in any contracts as a schedule.
What are the risks of a poorly designed Specifications?
Incorrect spec of product service
Poor quality
Over or under priced
Claims for RfP extension because supplier need to resubmit
Time and resource lost with correction processes
Risk of not fulfilling 5Ps of purchasing
Risk to end users or does not meet legal standard
How many types of Specification are there, and what are they?
There are 2 type of Specification:
Performance, also known as prescriptive
Conformance, also known as technical
Can Specification types be used together?
Yes, Performance and Conformance Specs can be used in tandem as a hybrid approach.
What is the definition of a Performance Specification?
A Performance Specification focuses on the outputs, not the inputs. This is often when the buying organization does not have subject matter expertise and leaves it to the supplier to dictate the inputs via their proposal.
What is the definition of a Conformance Specification?
A Conformance Specification focuses on the inputs and the outputs. i.e. buying organisation has expertise to dictate methods, processes, brands, part numbers etc.
What are the advantages of Performance Specifications?
Performance Specification enables the supplier to apply their expertise and inhibit innovation of solutions, driving added value.
What are the advantages of Conformance Specifications?
Conformance Specifications enable the supplier to control the input and thus, outputs, ensuring consistency. However, it stifles supplier innovation, added value etc.
Who should be considered when drafting a specification?
Multiple key technical stakeholders, who will add expertise and value to drafting. The buyer is expected to challenge these stakeholders to avoid bias and encourage engagement.
What 10 things should be considered when drafting a specification?
Purpose
Perspective
Scope
Improvement and innovation
Regulatory compliance and quality
Type
Relevance
Performance
Clarity
Service conditions
How do you make a specification a contract document?
You must expressly state the specification is a contract document by adding it to a schedule which is then expressly called out in the contract clauses.
What is the definition of a Performance Management Framework?
A Performance Management Framework is a series of standard and targets the supplier must achieve and sets out corrective actions.
What 3 components makes up a performance management framework?
KPIs - what you are measuring
Targets - To performance level to be achieved
Consequences - What happens if target are not achieved
Remember, KPIs are useless without targets and consequences. How do you know if the 70% KPI achievement is good or bad with out a target!?
What does measuring KPI performance show about the supplier?
Measuring KPIs shows the buyer the following supplier relationship status:
Stable
Improving
Declining
How do you make a KPIs/ Performance Management Frameworks legally binding?
You must expressly state the PMA/ KPI is a contract document by adding it to a schedule which is then expressly called out in the contract clauses.
When should KPI be considered/ drafted?
During the specification design stage, and issues with RfP invites/ briefs
What makes up the core of a contract?
Contractual terms, often called T&Cs
Under what circumstances does a formal contract exist?
The terms are set out in detail
Both parties agree to terms and intend to make them enforceable by law
When either party has written down details of the terms and signed it
Remember, a formal contract can still exist when details have not been written down.
Remember, formal contracts also go by the name of agreement, commission, letter of appointment, or a service level agreement.
How can you encourage buyers to use the correct contract templates?
Implement a decision tree, process map and publish internally.
What is the definition of a Term Agreement/ Contract?
Contracts with a specified period of time until expiration i.e. not evergreen.
What does a traditional contract format look like?
Articles - parties names, identification, how parties will referred to as i.e. ‘The Client’ and the basis of the contract i.e. the purpose of the contract is to provide goods or services.
Recitals - sets out the facts and deliverables. This is where error lead to weakness in legal standings.
Contract particulars (standard terms) - sets out the specific variables.
Full terms and conditions - correct reference to support schedule needed here to legally enforce them.
Schedules - document based on negotiation between parties setting out the specific project details. i.e. pricing, KPIs etc
What is the definition of Market Leverage?
Power of the purchaser to influence commercial negotiation.
Also known as Buyer Power
Remember, regulated procurement persons often say their standard terms cannot be negotiated because of a regulated industry. That is false. They can definitely be amended.
Remember, a Schedule is also known as an Appendix.