Question:
Practitioner Corporate Award
Assessment Code: PDC
This assessment tests the learning outcomes and module content of:
Module: Developing Contracts in Procurement and Supply
Task
Using a set of your organisations (or one with which you are familiar) terms and conditions, explain how the terms and conditions help the organisation ensure that:
- The risks of poor quality, extension of time, increased costs and unethical practice are managed effectively
- The relevant performance measures are monitored and managed.
You should use a full set of terms which includes appropriate schedule content and relevant appendices.
Outline the concept of the “battle of the forms” and explain how you could ensure that any agreement is carried out under the organisation’s own terms and conditions.
Guidance for candidates Your work should consist of 3,000 words.
Solution/Answer
Table of Contents
1.1 Organisation Background. 4
2.0 Contracts Management and Development 4
3.0 XXX Organisation Procurement and Supply (PS&M) Terms and Conditions. 5
4.0 XXX Terms and Conditions Application. 7
4.5 Performance Measures Monitoring and Management 11
5.1 Introduction of Battle of Forms 13
5.2 Solving Battle of Forms Issues 14
6.0 Conclusion and Recommendations 15
Appendix 1: XXX Contract Terms and Conditions 19
Executive Summary
In this report, an evaluation of XXX organisation terms and conditions has been evaluated. This is in terms of their impact on making sure that poor quality, time extension, costs increase, and unethical practices effective management in the organisation. Apart from this, appropriate performance measures and management in a company’s operations have been evaluated. To achieve this, XXX organisation in Saudi Arabia (KSA) industrial cleaning sector has been assessed. The selected contract is the sourcing of boiler retubing, including materials supply with a contractor executing the work.
From an evaluation of the contract, XXX procurement of the identified spend category is defined by appropriate terms and conditions. The rationale of this is ensuring management of entire issues faced. The areas of focus in the contract are; Personnel issues, Indemnity, Insurance and risks, Confidence, Quality issues, Performance levels, and suspending contract/ force Majeure. Also, through a reference on the different findings sourced from the analysis, it notes that terms and conditions evident in the procurement and supply department are important for guaranteeing organisation success. The rationale is that the terms and conditions influence managing costs, profitability, and organisation performance in the industrial sector.
At the end of this report, a Battle of Forms evaluation has been conducted, which lacks mutual agreement of terms and conditions in implementing the contract. To solve the battle of forms, XXX organisation best practice is to ensure they are flexible in terms and conditions while shelving their hard positioning.
Based on the outcomes of this report, the various recommendation which can be provided are;
- Maintaining clear records on the level in which various parties adhere to their terms and conditions to ensure effective handling of claims
- To adopt Lord Denning’s strategy to reassure all engaged stakeholders in an agreement on the basis of the developed terms and conditions of a contract
- Apply elaborate KPIs and reports for guiding a successful contract management implementation
- Capacity development of the procurement and management team to have an improved understanding of the entire contents in their terms and conditions
1.0 Introduction
The aim of this assessment is to evaluate contract terms and conditions. In terms of the contract terms and conditions, this contributes to managing the risk of poor quality, time extension, costs increase, unethical practices, and performance management. According to CIPS (2016), in contract management, their terms and conditions are important to guarantee the selection of the right individuals to execute it and the scope of engagement among the different stakeholders. As a result, Muhammad et al. (2019) has recommended for modern organisations to be successful in their contract management, creating relevant terms and conditions is instrumental. The rationale of this is to guarantee increased flexibility, accessibility, transparency, consistency, and customising their contract management.
1.1 Organisation Background
XXX organisation is a leading Saudi Arabia (KSA) organisation in industrial cleaning. In its vast business portfolio, XXX provides industrial maintenance, chemical cleaning, waste management, and steam blowing for refineries and petrochemical plants. Over the years, the organisation has mastered providing integrated service platforms of technologies, systems, products, and services for their industrial and public sectors. Lately, the organisation has invested in hazardous materials management, waste management and recycling, municipal waste management, and wastes to energy conversion. As a result, the organisation has introduced boiler retubing as a category of spend. This is one of their core spend categories from their $20 million annually in CAPEX, Services, Sup contracting, hiring, and materials. Hence, the organisation executes immense contracts to guarantee the organisation sustainable practices that are mandated for achieving sustainable global business strategies. In this report, the contract selected is boiler retubing, inclusive of the supply of material and a contract for doing the work.
2.0 Contracts Management and Development
In CIPS, contracts are identified to have existed from when society began to prevail, particularly in business, verbally trading, communication, and goods and services (CIPS, 2021). Also, CIPS identifies a contract as being anchored on guaranteeing various stakeholders’ engagement in contract development and guaranteeing rights, managing risks, and entire responsibilities. Hence, the purpose of a contract establishes its terms and conditions and its execution environment. According to CIPS (2018), it notes that different terms and conditions in a contract are based on the cycle of contract management. The relevance of the cycle is ensuring various suppliers and buyers adhere to contractual obligations in line with negotiations and future change practice. As illustrated in figure 1, CIPS (2018) identify the terms and conditions as being applicable in aligning procurement teams and external business environment through different stakeholders facilitation in executing such a contract.
Figure 1: Contract Management Cycle
Source: CIPS (2018)
3.0 XXX Organisation Procurement and Supply (PS&M) Terms and Conditions
The P&SM in XXX organisation has the sole role of crafting terms and conditions which guide stakeholders in implementing such contracts. The terms and conditions are grouped into various categories as summarised in table 1;
| Categories of Terms and Conditions | Description |
| Products and services | A seller makes sure they are executing core mandate as directed by XXX purchasing order, on-site delivery, and appropriate timelines |
| Set standards | Standards set by XXX are dependent on the contractor skills, carrying out due diligence, safe practices, meeting future demands |
| Timely products and services provision | Seller is mandated with a core function of offering timely good and services as defined in their purchase order |
| Products and services rejection | Seller assumes the entire liability of goods or services returned due to their failure to meet specific set standards with a requirement of refund |
| Transfer | Terms and conditions in the contract require their transfer to seller strictly on time with pay issued |
| Deliver and manage loss risks | Seller in a contract has the mandate of provision of goods/services promptly in their site with full costs being for the seller |
| Compliant to set legislations, tax, and permit | The seller ought to provide sufficient notices, taxation, all fees, license, and KSA legislation |
| Confidentiality | XXX safe from the other party disclosing confidential information in their execution of the contract |
| Intellectual property | The entire stakeholders in a contract are safe from infringement of their intellectual rights, license, and mainstreaming entire materials by the seller |
| Liens and Encumbrances | The entire mandate is passed to the seller for leveraging on entire claims, liens, and any charge with potential security issues noted |
| Indemnity | Stakeholders in a contract are offered protection from any form of harm due to evident loss, claim, incurred cost, accidental occurrence, and injuries. |
| Termination | The Force Majeure is a provision in the XXX operations when there are evident threats to get insolvent, bankrupt, and environmental problems as organisation operate in the cleaning sector |
Table 1: A summary of XXX Contract terms and conditions
Source: XXX Internal documents
4.0 XXX Terms and Conditions Application
4.1 Risk of Poor Quality
XXX terms and conditions guarantee high-quality procured boiler retubing. In procurement, Grandia and Meeham (2017) identify quality as a critical factor determining a contract execution success. Based on the set standards in XXX terms and conditions, this influences the quality set in such a contract. The terms note that “Vendor agrees that before starting the performance of the Contract, it shall, as applicable, have implemented and documented a quality assurance program meeting the requirements of ISO 9001 or an internationally recognized standard of the same level appropriate to Vendor s industry”. Failure to meet the set requirements demand XXX to request a chargeback from the contractor when these stipulations are not achieved.
In CIPS, an emphasis exists on the necessity for organisations to maintain a high-quality level evidenced by a description, costs, and varying phenomena. Many organisations are nevertheless unaware of the KPIs, quality specifications, and guarantees (CIPS Notes, 2018).
Figure 2: Contract and Quality requirements
Also, the terms and conditions provide an appropriate threshold or KPIs that note the existence of poor quality. The terms and conditions indicate that “If for any reason Vendor is uncertain as to whether the Products to be supplied by it will comply with any of the above, it must promptly and before dispatch inform Buyer in writing with full details of the possible non-compliance for consideration.” Hence, XXX terms and conditions of ensuring that they have a clear threshold on quality expectations with non-compliance being put into account.
4.2 Extension of Time
In XXX organisation, their contracts are implemented in three distinct phases: pre-contract, contract execution, and post-contract. In all three phases, rights, risks, and roles are prioritised. For XXX safety from any uneventful risk in the selected contract, their terms and conditions highlight various suppliers’ role for their safety from the extension of time. Their terms and conditions highlight that “Buyer shall have the right, at any time up to six (6) years after completion or cancellation of any Order”. Therefore, through a reference on the XXX terms and conditions, they harness time reduction on products and services provision by reducing entire costs and risk management. There are instances where the contract can be suspended due to the failure of extension of time. The contract highlight that “Buyer may suspend performance of the Contract if any corresponding contract relating to the Order between Buyer and a third party is suspended for whatever reason.” Hence, this is an indicator that the extension of time is directly influencing the scope of implementing a contract. The selected contract execution in XXX is actively directed by detailed and clear terms and conditions in its overall contract phases.
4.3 Increased costs
CIPS (2020) report notes the need for terms and conditions to guide appropriate liability management and consequential losses for avoiding cost overruns. Specifically, in XXX contract terms and conditions, they support this view by noting that “Unless otherwise stated on the face of the order or in the Special Terms and Conditions, the Contract price shall be inclusive of the costs of delivery DDP (named location) (as defined in Incoterms 2010) to the Place of Delivery”. This means that at the signing of a contract, all the costs of the products are services are appropriately understood and cannot be changed at any point of the contract. In specific, the terms and conditions note that “In the event, Vendor has incurred or will incur costs and expenses, and where these costs and expenses are or will be recharged to Buyer by Vendor as part of the purchase price of this Order.” In line with the KSA legislation, all the costs are supposed to be handled by the vendor or the seller on behalf of the XXX organisation.
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