Q Flashcards
Which of the following is the model form of contract for construction which is recommended by World Bank?
A) ITC
B) JCT
C) CIPS
D) FIDIC
Answer(s): D
Explanation:
FIDIC is the International Federation of Consulting Engineers (or Fédération Internationale des Ingénieurs Conseils in French). FIDIC has produced many publications, including the model form contracts, best practice guidances, research on sustainability, integrity and risk management. FIDIC model form contracts have been developed by this organisation since 1999, now they consist of several different books which are marked by colours. Thus, FIDIC model contracts also have the nickname “Rainbow suite of contracts”. Basically, the “Rainbow Suite” include the following books:
Which of the following are likely to feature within an outcome-specification?
1. Dimension
2. Performance requirement
3. Input material
4. Product function
A) 2 and 4 only
B) 3 and 4 only
C) 1 and 2 only
D) 1 and 3 only
Answer(s): A
Explanation:
There are two main types of specification: performance specification and conformance specification (sometimes called prescriptive or technical specifications).
Performance specifications have following features:
- Focus on outputs
- Set out result to be achieved
- The ‘what’, not the ‘how’
- Give supplier flexibility to present solutions that the buyer may not have considered
XYZ Ltd is negotiating a long-term supply contract of important parts with a supplier. Dave, procurement manager teams up with Alla, legal manager to construct a service level agreement. Dave is concerned that poor performance of supplier may cause damages to the operations of the organisation.
Which of the following can be used in conjunction with SLA to compensate the buying organisation in case of supplier’s poor performance?
1. Warranties
2. Force majeure clauses
3. Penalty clauses
4. Service credits
A) 1 and 3 only
B) 3 and 4 only
C) 1 and 2 only
D) 4 and 2 only
Answer(s): B
Explanation:
Service level agreement often sets out the minimum quality standards of the services provided, remedies if that standards are not met, consequences if the targets are exceeded. Penalty clauses and service credits are remedies that are often used in conjunction with service level agreement to ensure the performance and to compensate the purchaser if targets are not met.
In which of the following section of a specification, requirements for training to use the equipment will be set out?
A) Performance
B) Consultation requirements
C) Implementation
D) Issue reference
Answer(s): C
Explanation:
Implementation is a substantive requirement which covers the following areas:
- Will there be a need to train the staff to use the equipment?
- Are there integration requirements with other systems or processes?
- How will this work?
- What are the timescales?
- Are detailed method statements required?
Consultation requirements regards to explicitness of compliance with any national or local legal requirements
In common law, which of the following documents is legally binding without the need for consideration?
A) One-off contract
B) Hire purchase agreement
C) Deed
D) Blanket order
Answer(s): C
Explanation:
In common law (the legal system in which most rules come from case law or precedents, such as UK, US, Australia, etc), the contract is legally binding if it has the following requirements:
- Offer
- Acceptance
- Certainty & Intention to Create Legal Relations
- Consideration & Promissory Estoppel
- Legal capacity
According to these rules, ‘Blanket order’, ‘One-off purchase’, and ‘Hire purchase agreement’ are contractually binding. One of the reason is that they have consideration. However, there is a type of legal instruments that does not need consideration to be legally binding. They are called ‘Deeds’. A deed (anciently “an evidence”) is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferring (conveyancing) title to property. At common law, to be valid and enforceable, a deed must meet several requirements:
If service level agreement is used as a schedule that makes up the contract, it will be most likely to be a part of…?
A) Pricing arrangement
B) Performance management framework
C) Exclusion of liabilities
D) Specifications
Answer(s): B
Explanation:
If a service level agreement is used as a schedule to a contract, it will generally have the following contents:
- Service definitions. If the service information is provided by the specification, SLA should only refer to the specification to avoid any inconsistencies.
- Details on how to measure KPIs, who will measure KPIs
- Minimum requirements or targets
- Remedies if the minimum requirements are not met
…
Since SLA often lists out the KPI targets, consequences for not meeting the KPI targets and remedies to situation of poor performance, it is a part of performance management.
A construction company often subcontracts approximately 50% of the project works because of unpredictable customer’s demand. Although larger corporate customers require quick response to RFQ, the time lapse between tender bid submission and contract commencement is usually long.
Which of the following arrangement would benefit both the contractor and customer?
A) Collateral contract
B) Bilateral contract
C) Indemnity agreement
D) Framework agreement
Answer(s): D
Explanation:
According to the scenario, customers’ demand changes regularly but the construction project commencement often delays. If the contractor and the customer mutually sign a legally binding contract too soon long before the commencement, the contractor may suffer poor cash flow (it must buy the materials first but has to wait for long time to be paid). A framework agreement may help both parties.
A framework agreement is a formal agreement between two organisations that is intended to become legally binding in the event that a contract is created. A framework agreement could benefit the both parties in the following ways:
- At the time of signing, the framework agreement has not yet become a legally binding contract. The contractor and client only agree on the principles of future contracts (such as whether the work can be subcontracted or how payment will be proceeded). A well structured framework agreement will allow both parties to apply changes before contract commencement, especially regarding price and quality.
- The framework agreement assures a certainty between the contractor and client.
- The administrative works is reduced under a framework agreement.
Which of the following should be taken to avoid the conflicts between orally negotiated terms before the conclusion of contract and the final written contract?
A) Finding signs of misrepresentation of the other contracting party
B) Prevailing orally negotiated terms over the final written contract
C) Embedding a term excluding all prior oral discussions that are not mentioned in the final written contract
D) Avoiding long negotiation
Answer(s): C
Explanation:
When a written contract is based on oral negotiation, to avoid the conflicts between orally negotiated terms and final written contract, the contract should include an express term that specifically excludes all prior oral discussion. However, orally negotiated terms can be used to interpret the final contract.
This practice (excluding prior discussion) is so common in international commercial contract that UNIDROIT Principles of International Commercial Contracts have an article (2.1.17) dealing with this.
Which of the following documents are likely to have legal standing? Select TWO that apply:
A) Quotation
B) Request for information
C) Tender
D) Requisition
E) Estimate
Answer(s): A,C
Explanation:
A quotation and a tender are both firm offers which have legal standing to the offeror. Tenders are more detailed than quotations and will include quality aspects as well as prices. LO 1, AC 1.1 & AC 1.2
A company is considering entering a new market.
Which of the following are the external factors that influence the difference between cost and price of this company? Select THREE that apply
A) Procurement policy
B) Process efficiency
C) Business strategy
D) Threat of substitution
E) Competitiveness of the market
F) Relative bargaining power of supplier and purchaser
Answer(s): D,E,F
Explanation:
The difference between cost and price is profit. According to Michael E. Porter, the profitability of an industry is shaped by five forces:
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
The pricing arrangement in which markup is added into cost base to calculate the final price is known as…?
A) Fixed Price approach
B) Market based approach
C) Price indices
D) Cost plus pricing
Answer(s): D
Explanation:
The market approach is a method of determining the value of an asset based on the selling price of similar assets.
A fixed-price strategy means you set a price and keep it constant for an extended period of time. Cost-plus pricing is also known as markup pricing. It’s a pricing method where a fixed percentage is added on top of the cost to produce
A price index (PI) is a measure of how prices change over a period of time, or in other words, it is a way to measure inflation. There are multiple methods on how to calculate inflation (or deflation).
Which of the following will be included in a conformance specification?
1. Brand names
2. Description of the operating environments
- Chemical formulae
- Required safety level
A) 1 and 2 only
B) 1 and 3 only
C) 1 and 4 only
D) 2 and 3 only
Answer(s): D
Explanation:
According to CIPS, there are two main types of specification:
- Conformance specification is more output driven as it outlines the product details exactly which may include the material, dimensions, tolerances, source, ingredients, packaging, storage of the part or material.
- Performance specification is more output driven in terms of what the part or material must achieve.
Among the four options, only 2. ‘Description of the operating environments’ and 3. ‘Chemical formulae’ are possible components of a conformance specification. Brand names can be a part of a performance specification, according to a document published by CIPS and NIGP.
Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management (CRM) system. Cleveland perceived an urgent need to replace the existing CRM system to deal with the increasing number of customers and services.
Urgent Digital Ltd (Digital) is one of the bidders of Cleveland’s ITT for designing, building and managing the new CRM system. Its bid team is led by Hank Irvine, its technical director. Hank realises that winning the Cleveland contract (valued at approximately £50M) will enhance his career. During discussions with Cleveland, Hank offers certain assurances regarding timescales for the project. He has not carried out any investigations into the viability of the timescales. Hank has little idea whether the timescales can be met.
Cleveland decides that Digital’s bid meets with its requirements, especially given the assurances in timescale offered by Hank, and decides to proceed with it, subject to a formal contract. Eventually, a formal contract is signed by both parties. The initial assurances given by Hank about the timing of the project are never going to be achieved and are at best grossly exaggerated.
Cleveland brought the case to the court and sought rescission of contract with Digital. Is Cleveland’s claim appropriate in this case?
Yes, because Cleveland needs to seek rescission first before claiming for damages
Yes, because both parties agreed with rescission of their contract
No, because the work had been carried out which could not be returned
No, because the contract does not include any provision on rescission
Answer(s): C
Explanation:
Hank’s pre-contractual assurances may amount to misrepresentation. Remedies for misrepresentation could be rescission of contract or damages. Rescission will be impossible in the following instance:
- Where the innocent party has affirmed the contract; that is, acted in a way confirming that they wish it to continue
- Where the claim has not been brought within a reasonable time (this is a point of general law)
- Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods have been consumed or have deteriorated)
- Where there has been intervention of innocent third-party (e.g., if the goods have been sold on) In this case, the subject of contract is designing, building and managing the new CRM system which is impossible to be restituted. Therefore, the contract cannot be rescinded.
Reference:
CIPS study guide page 53-55 LO 1, AC 1.2
Which of the following is the term that describes an item bought for a single and non-recurring use or purpose?
A) Call-off purchase
B) Ad-hoc purchase
C) Operational purchase
D) Stock purchase
Answer(s): B
Explanation:
Ad-hoc purchase is the item bought for a single and non-recurring use or purpose. A call-off contract, also known as a blanket order, is a purchase order which enables bulk orders over a period of time.
Operational procurement refers to the procurement of goods and services that are required to sustain an organization’s day-to-day business operations.
Which of the following are examples of incentives which can be embedded in contract terms? Select THREE that apply
A) Gainshare
B) Indemnity
C) Contract extensions
D) Service credits
E) Liquidated damages
F) Faster payment
Answer(s): A,C,F
Explanation:
Gainsharing is a system of management used by a business to increase profitability by motivating suppliers to improve their performance. As their performance meets the targets, suppliers share financially in the gain (improvement). Gainshare is an incentive for cost control.
Other incentives for good performance are:
- Contract extensions: Buyer can extend the contract duration as an incentive to supplier for meeting their targets.
- Accelerated payments
To check whether supplier actually complies with the labour standards set out in the contract, the purchaser should have…?
A) Right to penalise the supplier
B) Right to terminate the contract
C) Right of audit
D) Right to rescind the contract
Answer(s): C
Explanation:
Many firms have compliance policies for suppliers in place. To ensure that the supplier actually comply with the standards set out, the purchaser can employ the right to audit. The buyer usually obtains the right to examine records of a vendor to determine if a fraud or a violation of company policy has occurred through the following methods:
- Right-to-audit agreement The agreement can be printed on the back of a purchase order, contract, or other procurement form.
- A simple request If the right-to-audit agreement wasn’t included on the procurement form, and the buyer suspects irregularities, he may have to beg the vendor to allow an audit to be performed. If the buyer is a major customer of the vendor, the buyer may be able to wield a big enough stick to obtain permission to look at the records.
- Right-to-audit Pitfalls
Is the government only source of industrial standards within a country?
A) No, the government can only adopt standards regarding security and defence
B) Yes, while ISO make standards for international trade, the government standardises other facets of their country
C) No, an organisation can also generate its own internal standards
D) Yes, the standards must be made by legislative branch of the country
Answer(s): C
Explanation:
A standard is a document that sets out requirements for a specific item, material, component, system or service, or describes in detail a particular method or procedure. Standards are established by consensus and approved by recognized standardization bodies. There are several different types of standards. Some of the most commonly-used standards set out the requirements that a particular kind of product, service or process must fulfil, in order to establish that it is `fit for purpose’. Other types of standard relate to methods of testing, terminology and definitions, information requirements, or the compatibility of connections. Standards provide individuals, businesses and all kinds of organizations with a common basis for mutual understanding. They are especially useful for communication, measurement, commerce and manufacturing.
Standards make trade easier by ensuring compatibility and interoperability of components, products and services. They bring benefits to businesses and consumers in terms of reducing costs, enhancing performance and improving safety.
Standards are voluntary, which means that businesses and other organizations are not legally obliged to apply them. However, in certain cases standards may facilitate compliance with legal requirements, such as those contained in European directives and regulations. Standards can be made by a company, a standard organisation (such as ISO or BSI) or regulatory bodies.
Which of the following is used to detail the complex matter that may be verbiage to the main document?
A) Contract variation
B) Schedule
C) Subcontracting
D) Standard terms and conditions
Answer(s): B
Explanation:
Without further explanation, a schedule may be deemed to form an integral part of the obligations of either or both parties. Obviously, the scope or binding nature of such schedule depends on the way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching the general terms and conditions of sale without explaining to which part of the sale they apply or which provisions apply does not subject a sale pursuant to the body text of the agreement to those general terms and conditions.
Subcontracting is the practice of assigning, or outsourcing, part of the obligations and tasks under a contract to another party known as a subcontractor.
Southwark is negotiating a contract with Orchard to provide software and IT services. Orchard will manufacture and install the products which are contractually supplied by IBM. Southwark’s procurement manager is worried that during the contract there would be some problems that they would not able to claim for damages from Orchard.
Which of the following should be included in the head contract so that Southward can sue IBM, should the need arise?
A) Negligence
B) Indemnity
C) Collateral warranty deed
D) Insurance
Answer(s): C
Explanation:
A Collateral Warranty is a contract under which a consultant, a building contractor or a sub- contractor warrants to a third party that is has fulfilled its obligations under its professional appointment, building contract or sub-contract. The purpose of a Collateral Warranty is to give a third party, who is not a party to the original contract, rights to enforce that original contract. In this case, IBM is the subcontractor, then purchaser can use collateral warranty deed to bind them.
Which of the following indicates the ratio between profit and costs?
A) Gearing
B) Margin
C) Mark-up
D) Liquidity
Answer(s): C
Explanation:
Mark up is the profit as a percentage of total costs. LO 3, AC 3.3
Which of the following encourages social and environmental criteria in public sector contracting in the UK?
A) Social Action, Responsibility and Heroism Act
B) The Public Services Act
C) Children and Social Work Act
D) Supply and Appropriation Act
Answer(s): B
Explanation:
Social and environmental criteria are increasingly encouraged in public sector contracting. In the UK, The Public Services (Social Value) Act 2012 encourages public organising to apply social and environmental criteria in contract.
In a contract, both buyer and supplier agreed the lead time is 3 days. The contract also requires that any variation must be made in writing. Then the buyer places an order by phone call and requests delivery the next day, but the supplier delivers on the third day since the order. Can buyer refuse to pay as supplier did not deliver per time?
A) No, the supplier delivers within a reasonable time
B) Yes, late delivery is a force majeure event
C) Yes, the supplier has breached the contract
D) No, supplier has shortened lead time to 1 day
Answer(s): A
Explanation:
Lead time is the amount of time that passes from the start of a process until its conclusion. In procurement, lead time can be understood as the amount of time that passes from placing an order until the delivery.
In the scenario, the contract requires the supplier to make a delivery within 3 days since the order. This contract can only be amended with written consent from both parties. Therefore, there is no ground for shortening the lead time to 1 day because the new lead time is only the request of buyer. Then the supplier still makes delivery within agreed lead time. LO 1, AC 1.1
In a sale contract, a clause requires the seller to “defend, reimburse, and hold harmless” the buyer and its personnel from and against any and all damages arising in connection with some specific circumstances. This clause is an example of…?
A) Insurance
B) Liquidated damages
C) Indemnity
D) Force Majeure
Answer(s): C
Explanation:
An indemnity is a promise by one party to compensate another for the loss suffered as a consequence of a specific event, called the ‘‘trigger event’’. The trigger event can be anything defined by the parties, including:
- A breach of contract;
- A party’s fault or negligence;
- A specific action.
An indemnity operates as a transfer of risks between the parties, and changes what they would otherwise be liable for or entitled to under a normal damage claim. Force Majeure Provisions: A force majeure event refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract.
Liquidated damages are presented in certain legal contracts as an estimate of otherwise intangible or hard-to-define losses to one of the parties. It is a provision that allows for the payment of a specified sum should one of the parties be in breach of contract. LO 3, AC 3.2
Which of the following are reasons why a purchaser wants to embed a subcontracting clause into the main contract? Select TWO that apply:
A) To induce the conflicts between the main contractor and subcontractors
B) To improve supply chain transparency
C) To reduce the main contract complexity
D) To keep main contractor liable
F) To condemn whole liabilities to subcontractors
Answer(s): B, D
Explanation:
There are number of reasons why the purchaser will want to control the supplier’s subcontracting:
- Supply chain transparency: Normally the purchaser has invested a lot of effort into selecting the right contractor. However, the main contractor’s selection of subcontractor might not be in such careful manner, which may result in poor performance. Purchaser must know who subcontractors are. Controlling the subcontracting process can help the purchaser control the outcome.
- Contract terms: the purchaser’s requirements must be reflected in the subcontracts. The subcontracting clauses may require the main contractor to do this.
- Liability: the main contractor may subcontract the whole or a part of its liabilities. Subcontracting clause may bind the contractor to be liable with the work, it cannot just blame the subcontractor for any faults.
A construction company is undertaking a housing development project. They need lots of bricks and other building materials, but the construction site doesn’t have large area for storage of materials. Therefore, the company’s suppliers must deliver the building materials with fixed quantity and at fixed time intervals.
What type of contract is used between the construction company and its suppliers?
A) Framework agreement
B) Spot transaction
C) One off contract
D) Call off contract
Answer(s): D
Explanation:
In the scenario, the contract between the company and its suppliers is continuous rather than one- off. So it cannot be one-off contract or spot purchase. The quantity and time is well known and fixed, this type of contract is known as call-off contract or blanket order.
Reference:
CIPS study guide page 63-64 LO 1, AC 1.3
Which of the following is the set of principles that enables courts to determine exactly what the written contract says and what that must mean, then the court will uphold that?
A) Order of precedence
B) Rules of interpretation
C) Unfair Contract Act 1977
D) Rules of contract formation
Answer(s): B
Explanation:
Courts may be called upon to interpret a statute due to disputes over the meaning of a word or phrase contained within a statute. These disputes may arise through a variety of reasons. It has long been held that words are an imperfect means of communication. Omissions may have occurred at the drafting stage, word or phraseology ambiguity, etymological change through time, oversight on specific points, or a failure to adapt legislation to new developments. This may result in the judiciary providing a role in statutory interpretation. Statutory interpretation in its broadest sense is the process of determining the true meaning of a written document. In UK, the Interpretation Act 1978 provides limited scope to assist judges with statutory interpretation in that it only provides standard definitions to common provisions such as a rebuttable presumption that terminology in the masculine gender also include the feminine, and that the singular includes plural. An order of precedence clause sets out the order in which the contract documents take precedence in the event of an inconsistency.
The Unfair Contract Terms Act 1977 (c 50) is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of disclaimers of liability. The terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.
Which of the following is regulated by standard ISO 14001?
A) Energy management
B) Quality management systems
C) Environmental management
D) Information security management
Answer(s): C
Explanation:
ISO has about 22,000 international standards covering a vast range of aspects of product or service quality. Below are some of the most common ISO standards:
- ISO 9001: Quality management system
- ISO 27001: Information security management
- ISO 5001: Energy management
- ISO 14001: Environmental management
Under general legal principles of contract formation, which of the following will always automatically result in the termination of an offer?
1. Negotiation
2. Rejection
3. Failure conditionality
4. Non-disclosure
A) 3 and 4 only
B) 1 and 4 only
C) 1 and 2 only
D) 2 and 3 only
Answer(s): D
Explanation:
There are a number of ways for an offer to be terminated. They are events that may occur after an offer has been made which bring it to an end so that it can no longer be accepted. An offer is terminated in the following circumstances:
1. Revocation
2. Rejection
- Lapse of time
- Conditional Offer (or Failure of Conditionality)
- Operation of law
- Death
- Acceptance
- Illegality
Which of the following are likely to be advantages of using invitation to tender? Select TWO that apply:
Short turnaround times
A) Quick implementation
B) Driving forward planning culture
C) Lower administration costs
D) Reducing risks of bribery and corruption
Answer(s): B,D
Explanation:
Advantages of using invitation to tender may be as below:
No Nepotism: Tenders or bids are evaluated on the basis of certain predetermined criteria, such as price, quality and value for money. In other words, the firm offering the highest quality product or service at the lowest price point would win the contract. As most tender documents are opened and evaluated in a public process, I think that there remains little room for nepotism or favoritism of any kind.
Value for Money: From the perspective of the client, tenders offer the greatest value for the amount of money spent. This is due to the fact that the client can choose from a wide pool of potential suppliers to select the ones that can produce the highest quality product or service at the lowest price point. This allows the company, establishment or organization to save money without having to compromise on quality. Therefore, despite being quite time consuming, tendering is, in my opinion, a profitable long-term process from an organization’s point of view.
Encourages Competition: The process of tendering helps promote a competitive market. This is because a number of potential contractors, firms or suppliers get a chance to bid for every project. And because selection depends on quality and price, every bidder tries to reduce operational inefficiencies and redundancies as much as possible in order to lower expenses and improve quality. This entire process encourages healthy competition in the market and prevents complacency and laziness, which in turn provides a boost to innovation and new ideas. Easier Entry: The system of tendering makes it easier and simpler for new firms to enter the market or even a particular industry. This is due to the fact that contracts under this system are awarded on the basis of predetermined, objective criteria. As a result, even a firm that is a new entrant to the market, having no connections or contacts in the industry, can win a prestigious and lucrative contract by providing the highest value for the client’s money. This process therefore helps new firms to quickly get a foothold in the market or industry, thus significantly lowering the traditional barriers to entry.
XYZ Ltd is negotiating a long-term supply contract of important parts with a supplier. Dave, procurement manager teams up with Alla, legal manager to construct a service level agreement. Dave is concerned that poor performance of supplier may cause damages to the operations of the organisation.
Which of the following can be used in conjunction with SLA to compensate the buying organisation in case of supplier’s poor performance?
1. Warranties
- Force majeure clauses
- Penalty clauses
- Service credits
A) 1 and 3 only
B) 3 and 4 only
C) 1 and 2 only
D) 4 and 2 only
Answer(s): B
Explanation:
Service level agreement often sets out the minimum quality standards of the services provided, remedies if that standards are not met, consequences if the targets are exceeded. Penalty clauses and service credits are remedies that are often used in conjunction with service level agreement to ensure the performance and to compensate the purchaser if targets are not met.
Which of the following is the model form of contract for construction which is recommended by World Bank?
A) ITC
B) JCT
C) CIPS
D) FIDIC
Answer(s): D
Explanation:
FIDIC is the International Federation of Consulting Engineers (or Fédération Internationale des Ingénieurs Conseils in French). FIDIC has produced many publications, including the model form contracts, best practice guidances, research on sustainability, integrity and risk management. FIDIC model form contracts have been developed by this organisation since 1999, now they consist of several different books which are marked by colours. Thus, FIDIC model contracts also have the nickname “Rainbow suite of contracts”. Basically, the “Rainbow Suite” include the following books:
* Yellow book: Plant and Design-Build Contract (2 editions: 1999 and 2017)
* Silver book: EPC/Turnkey Contract (2 editions: 1999 and 2017)
* Red book: Construction Contracts (2 editions: 1999 and 2017)
* Emerald book: Conditions of Contract for Underground Works (1st Ed 2019)
* Blue-Green book: Dredgers Contract (2 editions: 2006 and 2016)
* Gold book: Design, Build and Operate Contract Guide
* Pink book: Construction Contract Multilateral Development Bank Harmonised Ed (2 editions: 2005 and 2010)
This type of model contract is commonly used around the world because its author, International Federation of Consulting Engineers, collaborates closely with development banks such as World Bank, Africa Development Bank, Asia Development Bank, etc. Every construction project that is financed by these institutions must adopt the FIDIC contracts. The Joint Contracts Tribunal, also known as the JCT, produces standard forms of contract for construction, guidance notes and other standard documentation for use in the construction industry in the United Kingdom. From its establishment in 1931, JCT has expanded the number of contributing organisations.
ITC (International Trade Centre) produces contracts specifically designed for small companies doing international business, covering the sale of goods, distribution, services and joint ventures. Many small companies are now engaged in international trade, but don’t have access to the necessary contract forms to protect themselves. ITC and leading legal experts developed eight generic contract templates that incorporate internationally recognized standards and laws for most small business situations.
CIPS has several model forms of contract designed specifically for IT buying and servicing.
Which of the following are always included within a framework agreement? Select TWO that apply:
A) Exact quantity to be purchased
B) Call-off procedure
C) Exact price to be paid
D) Duration
E) Insurance
Answer(s): B,D
Explanation:
A framework agreement will set out the following:
- 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
- Any limitations
- The main terms to be included in the contract or the form of contract to be used, where this is intended to be a standard form.
Which of the following are features of performance specification?
1. Method of achieving the buyer’s desired result
2.
What needs to be achieved when using the product
3. Purposes of the product
4. Technical and physical characteristics of the product
A) 2 and 4 only
B) 1 and 2 only
C) 1 and 4 only
D) 2 and 3 only
Answer(s): D
Explanation:
There are 2 major types of specifications:
1. Performance specifications
These are Specifications that define the purpose of the goods or services in terms of how effectively it will perform. Performance is a logical extension of function. Performance specifications define the task or desired result by focusing on what is to be achieved. They do not describe the method of achieving the desired result.
2. Technical (or conformance) specifications
These are Specifications that define the technical and physical characteristics and/or measurements of a product, such as physical aspects (e.g. dimensions, colour, and surface finish), design details, material properties, energy requirements, processes, maintenance requirements and operational requirements. They are used when functional and performance characteristics are insufficient to define the requirement and are often used for engineering and information technology requirements.
Danielle buys a car from Aaron. Not long after, she receives an proposal from Brian, who is interested in buying the car but his budget is very constraint. Then, Brian decides to sign a hire purchase agreement with Danielle which lasts 4 years. Brian lives very far from Danielle, so he hires Charlie to deliver the car to his place. During the transport, Charlie has an accident and the car is written off. At the time of accident, who has the title of the car?
A) Charlie
B) Aaron
C) Brian
D) Danielle
Answer(s): D
Explanation:
Hire purchase is an arrangement for buying expensive consumer goods, where the buyer makes an initial down payment and pays the balance plus interest in installments. The ownership of the merchandise is not officially transferred to the buyer until all the payments have been made. Danielle has purchased the car from Aaron, which means its title has been transferred to her. The accident happens before the last instalment is paid. Therefore, the ownership of the car still belongs to Danielle
A purchase order can become a contract between supplier and purchaser if it is…?
A) Received by the supplier
B) Accepted by the supplier
C) Issued by the buyer
D) Edited by the supplier
Answer(s): B
Explanation:
A purchase order is a document sent from a buyer to a seller, with a request to order a product. The purchase order often has its number, description and quantity of the goods, unit prices and total price, name of issuer, time of delivery, standard terms and conditions, etc. It is effectively an offer to supplier. The purchase order will become a formal contract if supplier accepted it by written notice or by performance (such as deliver the goods to the buyer’s premise).
A large company supplies a lot of products. Their shipments are often delayed and customers are not satisfied.
Which of the following KPIs is most likely to be applied to this situation?
A) Technical support
B) OTIF delivery
C) Delay damages
D) Consignment stock availability
Answer(s): B
Explanation:
If the deliveries often delay, buyer should use KPI to measure how many missed deliveries there are and the percentage of total missed deliveries on total number of deliveries for period. OTIF (one- time in-full) delivery might help.
Consignment stock availability means that the supplier holds adequate range/number of units of stock to offer a reliable service
Delay damages are the consequences caused by delay of deliveries Technical support is the acceptable quality of technical information/support provided by supplier for goods supplied. LO 2, AC 2.2
Which of the following statements is true about model form of contract?
A) When model contracts are employed, there are no requirements for legal advice and input
B) Model contract form’s standard clauses often contain correct legal terminology without recourse to third party experts.
C) The standard clauses of model contract forms give the offeror legal advantages over the offeree
D) Only the publishers of model forms of contract can edit the clauses of these forms
Answer(s): B
Explanation:
Model forms of contract are published by some industry or professional organisations such as FIDIC, ITC, CIPS,… These forms are often carefully prepared by legal professionals, with correct legal terminology. The standard clauses within these forms are based on fair and balanced risk/reward allocation between the contracting parties. The model contract forms also include standard clauses to be selected or deleted on an as required basis.
Despite being standardised to be used in any jurisdiction, legal advice may be required if the users decide to make variations to the forms.
The correct answer should be “Model contract form’s standard clauses often contain correct legal terminology without recourse to third party experts.”
Rochdale Ltd is looking for a new IT system to automate some of its operations. In designing the specification, procurement manager supposes that it should be done solely by the IT department who have deep expertise on this matter. Is procurement manager’s opinion appropriate?
A) No, because challenging the user’s demand is the role of procurement
B) Yes, because designing complex specification would waste procurement manager’s time
C) Yes, because procurement professional has no expertise in IT sector
D) No, because designing complex specification could only be outsourced
Answer(s): A
Explanation:
Procurement professionals have a role in challenging specifications. Technical experts can get things wrong and asking naive questions can be useful in bringing these to light. The challenging may include:
- Does the organisation really need these features/functions?
- With this specification, are there many available suppliers in the market?
- How many does the organisation really need?
etc
Blakenall District Hospital (BDH) is a large hospital that is a major part of the government’s health service. Purchasing staff are in the habit of placing many long-term contracts with suppliers and sub- contractors.
Whilst these contracts are usually carried out successfully, prices are often paid that are well over budget. The purchasing manager is concerned to find that, in some cases, members of staff are forcing suppliers to accept fixed price contracts. The policy has caused several problems such as some suppliers refusing to deal with BDH and a few going out of business mid-way through performing a contract with BDH. This is due to fluctuating market prices of materials. The procurement manager suggests supplier to adopt variable pricing arrangement with price index. Is this a right course of action?
A) No, variable pricing would only benefit the suppliers
B) Yes, this type of arrangement would provide absolute certainty when budgeting
C) Yes, this pricing arrangement would reimburse the fluctuation of material prices
D) No, price adjustment should be applied to short-term supply contract only (3-month duration or less)
Answer(s): C
Explanation:
Procurement staff in the Hospital is forcing suppliers into fixed price contract. If the costs generally rise, supplier may operate at a loss. This situation can disrupt the relationship, that is the reason why some suppliers refusing to deal with BDH and a few going out of business mid-way. Alternative methods could be variable pricing arrangement. This method would reimburse the fluctuation of market price. It will also benefit buyer if the market price drops. This type of arrangement should be applied to long-term contracts (i.e. 18 months or more).
Which of the following are among five ‘pillars’ of information assurance?
1. Recovery plan
2. Availability
3. Non-repudiation
4. Governance
A) 2 and 3 only
B) 1 and 2 only
C) 1 and 4 only
D) 3 and 4 only
Answer(s): A
Explanation:
Information Assurance (IA)
Information Assurance (IA) is the practice of managing information-related risks and the steps involved to protect information systems such as computer and network systems. The IA transformation is a partnership that stretches across the Department of Defense (DoD), Office of National Intelligence, Committee on National Security Systems, National Institute of Science and Technology (NIST), and the Office of Management and Budget. The US Government’s definition of information assurance is:
“measures that protect and defend information and information systems by ensuring their availability, integrity, authentication, confidentiality, and non-repudiation. These measures include providing for restoration of information systems by incorporating protection, detection, and reaction capabilities.”
Information Assurance (IA) is essentially protecting information systems, and is often associated with the following five pillars:
- Integrity
- Availability
- Authentication
- Confidentiality
- Nonrepudiation
The following pillars can be applied in a variety of ways, depending on the sensitivity of the information, or information systems within your organization. Currently, these five pillars are used at the heart of the US Governments ability to conduct safe and secure operations in a global environment.
1. Integrity
Integrity involves assurance that all information systems are protected and not tampered with. IA aims to maintain integrity through means such as anti-virus software on all computer system, and ensuring all staff with access to know how to appropriately use their systems to minimize malware, or viruses entering information systems.
2. Availability
Availability simply means those who need access to information, are allowed to access it. Information should be available to only those who are aware of the risks associated with information systems.
3. Authentication
Authentication involves ensuring those who have access to information, are who they say they are. Ways of improving authentication involve methods such as two-factor authentication, strong passwords, bio-metrics and other devices. Authentication may also be used to not only identify users, but also other devices.
4. Confidentiality
IA involves the confidentiality of information, meaning only those with authorization may view certain data. This step is closely mirrored by the six data processing principles of the General Data Protection Regulation (GDPR), where by personal data must be processed in a secure manner “using appropriate technical and organizational measures” (“integrity and confidentiality”).
5. Nonrepudiation
The final pillar simply means someone with access to your organizations information system cannot deny having completed an action within the system, as there should be methods in place to prove that they did make said action.
Which of the following is a true statement on express and implied terms?
A) Express terms always take precedent over implied terms
B) Implied terms may derive from oral negotiations
C) Express terms must always be in writing
D) Express terms must be prepared by the party with expert knowledge
Answer(s): B
Explanation:
Express terms are the terms of the agreement which are expressly agreed between the parties. Ideally, they will be written down in a contract between the parties but where the contract is agreed verbally, they will be the terms discussed and agreed between the parties. Implied terms are terms implied into the contract by the courts. They are not expressly set out in the contract but are taken to be as effective as if they were and as if they had been included from day one of the contract. The express terms and any implied terms together create the legally binding obligations on the parties.
The types of express terms to be found in a contract are many and varied and will depend on the type of contract. Any term written into the contract is an express term and may refer to price, time scales, warranties and indemnities, limitations on liability, conditions precedent and so on. An implied term is a term which the courts imply into a contract because it has not been expressly included by the parties. This may be because the parties did not consider it, did not think that any problem would arise in relation to it or simply omitted to include it. The courts are very reluctant to imply terms into contracts and will only do so in the following circumstances:
1. terms implied under statute
2. terms implied under common law
3. terms implied because of custom or usage
4. terms implied due to previous dealings
5. terms implied `in fact’ or to reflect the parties’ intentions
Which of the following is most likely to reduce ITT preparation time while maintaining the clarity of tendering documents?
A) Using request for quotation
B) Standardising documentation whenever possible
C) Monitoring usage
D) Eliminating pre-qualification stage from all tendering processes
Answer(s): B
Explanation:
One of the major disadvantages of tendering process is that it is lengthy, bureaucratic and slow. To reduce the preparation time, buying organisation can:
- Plan forward
- Standardise tendering documents (such as notices, terms and conditions,…) whenever possible
- Train procurement staff
- Write down policies for tender-waiver
Buying organisation should not eliminate the pre-qualification stage from all tendering processes. This stage is used as a filter to select the most competent suppliers for next stage in restricted tendering. To save time in this process, you can design a model questionnaire.
