Session 6 reading Flashcards
three stages of contracting
- pre contractual
- contractual stage
- post contractual
pre contractual stage
determining the specifications of need and tendering process
contractual stage
negotiation and contract signing
post contractual stage
project execution and claims handling
main governance modes
- hierarchy
- bilateral contract
- spot market buying
hierarchy contract
- in house supplier
- contracting within the hierarchy of the organization
- tough negotiations for internal transfer prices
bilateral contract
- buyer-supplier not anonymous
- agree on a customized contract
- long term
spot market buying
- buyer-supplier anonymous
- highly routinized transactions
- standardized products
- focused on price
various contract documents
- letter of intent
- master of framework agreement
- purchase order
- single contract
letter of intent
- general intentions
- non disclosure agreements
- before agreement is finalized
master of framework agreement
- agreed pricing, general terms and conditions
- for recurring buys
purchase order
- quantities, delivery dates
single contract
- general terms and conditions, agreed prices
- for one off buys
core mechanisms of contracts
pricing mechanisms
payment mechanisms
activity allocation mechanisms
pricing mechanisms
fixed price contract
cost reimbursable
unit rate
fixed price contract
- supplier receives pre determined amount of money for a specified order
cost reimbursable
- supplier compensation decided after completion of tasks
- based on actual resources consumed
unit rate contract
- predetermined rates for given amount of output ‘
- usually for standardized activities that are difficult to estimate in terms of time and volume
- client should insist for a fixed price
payment mechanisms
- lump sum
- milestone payment
lump sum
payment all at once
milestone payment
- installments
- for long term projects
- when supplier incurs substantial expenses upfront
activity allocation mechanisms
- construct contract
- design and construct
- engineering, procurement, and construction (EPC)
- design, build, finance, and maintain contract (DBFM)
- design, build, finance, maintain, and operate (DBFMO) contract
construct contract
- supplier only needs to produce based on the specification from the customer
design and construct
- supplier also has to design the object
EPC contract
- supplier has to additionally manage and procure all materials and contractor
DBFM
- supplier has to arrange for the financing of the investments and the maintenance of the object
- customer pays a periodic fee
DBFMO
- supplier also has to operate the object
more detailed variations of pricing mechanisms
- fixed price with economic price adjustment (following price changes in important cost factors)
- fixed price plus incentive fee (for early completion, quality)
- cost reimbursable contracts plus: percentage, fixed, performance based fee
fixed price contract advantages
- client knows where he stands financially
- supplier faces all risks
- no need for settlement
- employer has certainty about completion data
fixed price contract disadvantages
- difficult to get insights into cost breakdown
- difficulty judging the price quoted by supplier
- requires thorough preparation
cost reimbursable contract advantages
- client can start work immediately
- client obtains exact picture of cost structure
cost reimbursable contract disadvantages
- no predetermined fixed price
- buyer not sure about financial outcomes
- no incentive to work fast
- every setback is charge to the client
- client needs to follow up on the quantity and quality reports of the contractor
- client is not forced to specify what he wants
- client is uncertain about exact delivery date
target sum contract
- variant of cost reimbursable contracts
- targets agreed in terms of cost, time, planned performance
- formulas devised for the distribution of gains and loses
- target price for the project is proposed by the contractor
finding of supply management ethical responsibility
strategic supply management skills and perceived reputation have a positive direct impact on performance. SMER is not directly affected by skills and has a direct impact on performance through its positive relationship with perceived reputation
