Week 4- Contract Management

Question 1

What is a contract?

Answer 1

Is an agreement between two competent parties based on the genuine consent of the parties supported by consideration made for a lawful objective in the form required by law

Question 2

What are the three types of contracts?

Answer 2

• Spot contracts
• Short-term contracts
• Long-term contracts

Question 3

What are spot contracts?

Answer 3

Are contracts for one-off purchases where there is no intention of developing a longer relationship with the supplier

Question 4

What are short-term contracts?

Answer 4

Contracts for routine purchases over relatively limited time period (typically a year or less)

Question 5

What are long term contracts?

Answer 5

Are for purchases on a continuous basis for a like time period (typically several years or indefinitely)

Question 6

What should you consider when selecting a long term contract? (4)

Answer 6

• Market uncertainty
• Process or technology uncertainty
• Supplier’s ability to impact costs
• Degree of trust between buyer and supplier

Question 7

What is contract management?

Answer 7

Is the process of maximising value throughout the contract terms and minimise risk aswell as ensuring that what’s in the contract get delivered

Question 8

CIPS definition of contract management

Answer 8

“Is the process of systemically and efficiently managing contract creation, execution and analysis for maximising operational and financial performance and minimising risk”

Question 9

Why is contract management important? (2)

Answer 9

• Organisations facing increasing pressures to reduce costs and improve financial and operational performance
• New regulations, globalisation and increases in contract volumes and complexity shows the importance

Question 10

What are the 4 phases of the contract management cycle?

Answer 10

• Pre-award (strategy, structure, resources)
• Award (implementation)
• Management (development)
• End of contract (life cycle management)

Question 11

What happens in phase 1 of the contract management cycle (pre-award)? (4)

Answer 11

• Planning
• Engage with stakeholders (KPI & SLA details)
• Establishment contractual documentation
• Deciding the right approach Meg for the relationship elements of ‘process’

Question 12

The krajlic matrix

Answer 12

Question 13

Explain leverage items in krajlic matrix (4)

Answer 13

• High profit impact and low supply risk
• Exploitation of full purchasing power
• Targeted pricing/negotiations
• Abundant supply

Question 14

Explain strategic items in the Krajlic matrix (4)

Answer 14

• High profit impact and high supply risk
• Development of long-term relationships
• Collaboration and innovation
• Natural scarcity

Question 15

Explain non-critical items (4)

Answer 15

• low profit impact and low supply risk
• Product standardisation
• Profess efficiency (automated purchasing e.g catalogues, e-tendering)
• Abundant supply

Question 16

Explain bottleneck items in the Krajlic matrix (4)

Answer 16

• Low profit impact and a high supply risk
• low control of suppliers
• Innovation and product substitution and replacement
• Production-based scarcity

Question 17

Linton (2017) Proactive engagement-Level of formalisation

Answer 17

Question 18

What happens in phase 2 (award/implement) of the contract management process? (5)

Answer 18

• Transition/mobilisation
• Activating administration (e.g contract database, accounts, payable)
• Activating performance mechanisms and incentivisation
• Scheduling initial review meetings
• Risk management

Question 19

What happens in phase 3 (Management/development)? (6)

Answer 19

• Review meetings
• Managing changes/variations
• Dealing with resolving conflict
• Stakeholder engagement
• Supplier relationship management
• Supplier development

Question 20

What happens in phase 4 (end of contract lifestyle) of the contract management cycle? (4)

Answer 20

• Decide if the contract is required for another term
• Organisations allow enough time for contract renewal or to find a new supplier
• Consider potential ongoing responsibilities and liabilities after the contract date
• Take care of the suppliers and position of your organisations assets

Question 21

What are the key areas of contract management? (11)

Answer 21

Question 22

What does effective contract management achieve? (5)

Answer 22

• expected business benefits and value for money are being achieved
• Supplier is co-operative and responsive
• No disputes and no surprises
• A professional and objective debate over changes can be had
• Efficiencies are being realised

Question 23

Symptoms of poor contract management (6)

Answer 23

• Poor or inappropriate scope of work
• Cost and time over runs
• Conflicts and disputes with stakeholders & contracts
• Lack of compliance
• Critical success factors not identified
• Health and safety issues

Question 24

Why does a procurement specialist need an understanding of contract law? (6)

Answer 24

• To effectively manage risk in a specific contract
• Use the buyer’s contract terms not the suppliers
• Negotiate clauses where risk must flow to the supplier
• Provide for remedies in the event of a supplier’s breach of contract
• Provide for contract change
• Liaise with legal specialists when necessary

Question 25

Why does a procurement specialist need an understanding of the formation of a contract? (4)

Answer 25

• The buyer’s ‘enquiry’ or ‘invitation to tender’ is not an offer to purchase
• The supplier’s quotation or tender is an offer unless qualified in writing
• The buyer’s purchase is acceptance (mostly)
• Supplier’s with differing terms will form the contract unless challenged by the buyer
• The buyer’s negotiation on any facet of a supplier’s quotation or tender is a counter offer giving the supplier the opportunity to accept, reject or modify the counter offer

Question 26

What makes a contract valid? (5)

Answer 26

• Offer
• Acceptance
• Adequate consideration
• Capacity
• Legality

Question 27

What is valuable consideration?

Answer 27

May consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance detriment, loss or responsibility, given, suffered, or undertaken by the other

Question 28

When do you have the right to terminate a contract? (4)

Answer 28

• Renunciation
• Substantial failure to perform
• For convenience (public sector implications)
• Impossibility

Question 29

What are the advantages of standard forms of contract advantages? (7)

Answer 29

• Encapsulate the industry expertise
• Have been subjected to rigorous drafting and debate
• Balance the risk between purchaser and supplier
• The specific project/purchase detail can be tailored
• Negotiation can still take place
• Keep up to date to reflect developments in law
• Save time and expertise

Question 30

Industry examples of contract management

Answer 30

TBC