@cips Practitioner Corporate Award Assessment 2 This assessment consists of two compulsory questions Question 1: 50% of the total marks Module: Managing Expenditures with Suppliers You are required to select an example of a category of procurement of a product, service or constructional ‘works bought by your organisation. You are required to: (@) Research the market of your chosen category and review its size, scope and extent of competition (b) Summarise the demand and supply factors that impact on the chosen category of procurement (c) Explain the current pricing mechanism applied to the category and assess the factors that impact on the pricing of the category (d) Apply two matrices to assess the category of expenditure (e} Formulate proposals for pricing arrangements that can be adopted for this category Guidance This section of your work should consist of approximately 2,000 words and should include a title, your Candidate number, contents page, executive summary, references and a bibliography. Any source materials such as web sites, company reports, indices, market data, articles, journals or texts should be referred to in your references or bibliography. Syllabus Coverage The following content from the Practitioner syllabus can be used to answer this assessment: r * How markets can be defined in terms of size, scope and stages of development * The levels of industry competition such as perfect competition, imperfect competition, oligopoly, duopoly and monopolies * How demand and supply factors impact on organisations in the supply chain * The impact of market change can have on organisations | * Analytical tools to explain the impact of the external environment on organisations in supply chains * How macro economic factors such as interest rates, inflation, exchange rates and the level of economic activity (GDP/ GNP) impacts on organisations * The use of portfolio matrices to assess categories of expenditures and perceptions of the organisation by suppliers * The main types of pricing arrangements in commercial agreements + The breakdown between direct and indirect costs * Types of published data that can provide information on costs and prices * Published reports and indices on markets * The comparison of quoted prices to historical data * The link between costs, prices, margins and mark ups * Negotiating improved prices/ Estimating whole life costs@cips This assessment helps you achieve the following capabilities: ‘* Identify the types of markets served by the organisation, its suppliers and customers so that decision making can improve the performance of the organisation * Analyse the competitive forces and trends that influence markets that the organisation, its suppliers and customers operate in and appreciate the balance of power in commercial relationships * Assess the impact of changing demand and supply factors on the organisation, its suppliers and customers * Evaluate the impact of market change on the pricing and availability of products and services to make decisions to improve performance ‘+ Assess the impact of interest rates, inflation, exchange rates and the level of economic activity (GDP/ GNP) on pricing and availability of products and services * Apply portfolio analysis techniques to assess relationships in supply chains and develop plans for their improvement * Monitor pricing arrangements in commercial agreements to ensure effective price and cost management for the organisation with its supply chain ‘* Use relevant sources of information to estimate the breakdown of costs between direct and indirect costs for purchased goods and services to ensure the effective management of costs and prices ‘+ Research market data and use to estimate current and future prices and costs for purchased goods and services * Use published sources of information to agree variations in pricing for purchased goods and services to ensure the effective management of costs and prices * Compare historical prices with newly quoted prices and evaluate the reasons for any significant discrepancies to negotiate competitive prices * Analyse the whole life costs of purchased goods or services and take actions to reduce or avoid on going costs 4 Question Two Is overleaf@cips Question Two: 50% of the total marks Module: Developing Contracts in Procurement and Supply Case Study: TALENT Ragim is a contracts manager for TALENT Construction, and is therefore responsible for the planning, co- ordination, organisation and supervision of work on major contracts. He is currently managing a new on- shore warehousing facility that is being built and is set to replace three other warehouses which are to be closed at the end of this year. The new warehousing facility has been commissioned by a large engineering group, AMC. AMC has operated both on and offshore in the Caspian region for the past ten years. The warehouse is to be based at a supplies terminal that will service three oil platforms. The existing warehousing sites will be demolished and the land is to be sold on for property development. The proceeds Of the sale of the land will pay for the new warehousing facility that TALENT are building, Ragim has worked for TALENT Construction for the last seven years and was promoted to the position of contract manager 3 years ago. It is a position that he is proud of, although it is not without difficulties. In the new build, 2 major work package is the procurement and installation of pipework in the site as the new warehouse will provide supplies of diesel and bulk chemicals to the transport fleet from the new warehousing facility. Ragim has experienced a number of problems in dealing with the pipework sub- contractor- ‘Tubing’ Ragim had sent an E-Mail to 3 different suppliers requesting quotes in accordance with TALENT’s standard terms and procedures. The E-Mail included details of the specification for the pipework and a plan showing where it was to be laid. The specification for the pipework had been prepared by the firm of architects, FLM Designs, that had planned the site. The E-Mails sent to suppliers stated that the purchase would be made on the basis of TALENT’s Conditions of Purchase for Supplies. Their standard terms are illustrated at the end of this case study exercise Of the 3 quotes received, Ragim discounted the lowest bidder- Caucasus Piping, because he was aware of some problems they had experienced with the company in the past. Instead, Ragim liked the quote Provided by Tubing which came to a total of $828,500. Tubing has the facilities and equipment to carry out an extensive range of structural and pipework fabrication including carbon steel, and copper-nickel alloys. Tubing quoted for the supply and fitting of 50mm diameter piping in an alloy of Aluminium-Nickel-Silicon- brass. Tubings’s quotation worked out to be $81,500 more than Caucasus Piping's bid, but Ragim felt that Tubing would prove a more reliable source. The third bidder declined to quote because of their preference to undertake work in the middle east. Tubing had referred to their standard terms of contract in the E-Mail, excerpts of which were as follows:@cips TUBING STANDARD CONDITIONS OF SALE 1. CONDITIONS APPLICABLE 1.1 The Supplier shall sell and the Purchaser shall purchase the product/services in accordance with any written quotation of the Seller which is accepted by the Purchaser. These terms are binding on both the Purchaser and the Supplier and can only be varied with the consent of the Supplier. 1.2 Any variations in these conditions (including any special terms and conditions agreed between the Parties) shall be inapplicable unless agreed in writing by the Supplier, acting by their Managing Director or ‘other person authorised in writing, 1.3 Any typographical, clerical or other error or omission in any sales literature, quotation, price list, acceptance of offer, invoice or other document or information issued by the Supplier shall be subject to correction without any liability on the part of the Supplier. 2 THE PRICE AND PAYMENT 2.1 The Price shall be that as stipulated in the Supplier's quotation at date of the acceptance for the Works. Any event of any increase in the cost to the Supplier of resources, labour, overheads, or any increase in taxes or duties, or any variation In exchange rate the Supplier may increase the price payable under the contract and include such increase in any applications for payment. 2.2 Payment of the price shall be due on the delivery of the Works. Time for payment shall be of the essence. If the Purchaser does not pay the Price on delivery the Supplier may bring an action for the price even though property in the Works has not passed to the Purchaser. The Purchaser will pay the price in full without discount (except any discount allowed by these terms) deductions, set off or abatement on any ground. 2.3 Interest on overdue invoices shall accrue from the date when payment become, due from day to day until the date of payment at a rate of 8% above the bank base rate. 3. THE WORKS 3.1 The quantity and description of the Works shall be set out in the Supplier's quotation, 3.2 The Supplier may make any changes in the specification of the Works which do not materially affect thelr quality or performance required to conform with any applicable statutory requirements where the Works are supplied to the Supplier’s specification. 3.3 The Purchaser shall be liable for any risks and expenses for any Variations to Contract. 4. DELIVERY OF THE WORKS 4.1 Delivery of the Works shall be made by the Supplier notifying the Purchaser that the Product/Service is available for use. 4.2 The Supplier shall use its reasonable endeavours to meet any date stated for delivery. In any event time Of delivery shall not be of the essence. The Supplier shall not be liable for any delay in delivery howsoever caused. 5. ACCEPTANCE OF THE WORKS 5.1 The Purchaser shall be deemed to have accepted the Works within 5 working days of delivery to the Purchaser. After acceptance the Purchaser shall not be entitled to reject Works which are not in accordance with the contract. The Supplier shall be responsible for repairs to the Works provided such fault is notified to the Supplier in writing. In these terms, the ‘Defects Liability Period’ means 12 months calculated from the date of delivery of the Works. The Supplier only accepts liability for faulty design where that design is Created by the Supplier up to a maximum of $100,000, 5.2 In these terms, the Supplier's liability for defects shall not extend to cover latent defects in the Works, 6. GENERAL 6.1 The Supplier shall be entitled to an extension of time if delayed in the carrying out of the Works. The ‘extension of time will be granted in the event of: 6.1.1 Variations to any part of the Work or a Contract Option necessitated by a cause attributable to a default or neglect of the Purchaser or third party.@cips 6.1.2 Any undue interference with any part of the Work made by the Purchaser or their representatives, including any suspension ordered by the Purchaser's representatives. 6.1.3 Any changes in laws, regulations, directives or other measures in law 6.1.4 For any Force Majeure event. Under the Contract, Force Majeure means war, hostilities (whether war declared or not) invasion, act of foreign enemies, Ionising radiations or contamination by radioactivity, Rebellion, revolution, insurrection, military or civil war, riot, civil commotion or disorder, or any circumstances beyond the reasonable control of the Supplier including but not limited to strikes, lock outs, accidents, war, fire, reduction in or availability of power at the Suppliers premises or breakdown of equipment 6.1.5 Any tests or inspections required by the Purchaser which are additional to those provided for in the Contract. 6.1.6 Delay, impediment or prevention caused by any other contractor engaged by the Purchaser. The party giving notice shall be excused the performance or punctual performance, as the case may be, of such obligation for so long as the circumstances of prevention or delay may continue. 6.2 Any notice required or permitted to be given by either party to the other under the conditions shall be in writing addressed to the other party at its registered office or principle place of business or such other address as may at the relevant time have been notified pursuant to this provision to the party giving notice. 7. CONSEQUENTIAL LOSS ‘The Supplier shall not be liable for any cost claims damages or expenses arising out of any tortuous act or ‘omission or any breach of Contract or statutory duty calculated by reference to profits income or accrual or loss of such Profits income production or accruals or by reference to accrual of such cost claims damages or expenses on a time basis, to the fullest extent of the law. 8. ADDITIONAL COSTS The Purchaser agrees to pay for any loss or extra cost incurred by the Supplier through the Purchasers instructions or lack of instructions or through failure or delay in taking delivery or through any acts or default con the part of the Purchaser, its servants, agents or employees. Ragim had a brief read of these clauses and he knew only too well that these were very different to TALENT’s standard terms. He phoned the sales administration department at Tubing to tell them to start supplying pipework to site in week 12 of the programme. There was little float time in the project and it was important for the pipework to be installed by the end of week 17, so there was no time to waste When making the phone call, Ragim mentioned to the Sales Assistant at Tubing that the contract terms would have to be in accordance with TALENT’s and at the same time, he quoted an order number for the work. A few days later, Ragim’s assistant, Francis, sent the order to Tubing including their contractual terms on the reverse of the order form. Two weeks later, Tubing’s sales administration department sent a confirmation of order to TALENT referring to Tubing’s standard terms of sale. The confirmation stated that work was “underway”, All did not go to plan though! ‘The first problem with the pipework was that the first delivery to site was 10 days late. The lateness meant that the pipework was not finished until the beginning of week 28 and this caused scheduling difficulties to another sub-contractor responsible for new road building. The road construction company made a claim for $225,000 for the delay caused by Tubing. The second problem concerned increased costs of the pipework. The total sum of Tubing’s invoices amounted to an additional $129,250 as they claimed that the costs of materials had increased during the contract period. Tubing state that they are able to claim the additional sum through their standard contractual terms of sale. Not only are they claiming additional costs, but they also wish to have anextension of time because of delays caused in obtaining their raw materials due to delays experienced for their inbound supplies at the port. The third problem now that TALENT are near completing the new warehousing facility. AMC, the company that had commissioned the work, had found through one of their structural engineers, that the pipework was not all supplied at the required diameter of 50cm. Tests had found that some of the pipework was 30cm and this affected the pressure of the oil to be supplied to vessels and other transportation. TALENT’s engineering personnel argued these sections would need to be taken out and replaced. Ragim duly notified Tubing of the need to replace the existing pipework which would affect the groundworks that had been completed. A structural engineer estimated that the likely costs for the relaying of the pipework would be in the region of $245,000. This will delay the opening of the facility and so AMC could resort to claiming consequential losses including loss of profits on the sale of their land. ‘TALENT Standard Terms CONDITIONS OF PURCHASE FOR SUPPLIES ‘These conditions may only be varied with the written ageeement of the Purchaser. No terms or conditions put forward at any time by the Supplier shall form any part of the Contract 1, DEFINITIONS In these Conditions "the Purchaser" means TALENT. ‘The Supplier means the supplier named in the Contract and ‘the Works’ means any such Works as ate to be supplied to the Purchaser by the Supplier (or by any of the Suppliers sub-contractors) pursuant to or in connection with this contract (the Contract), 2. DEFECTS 2.1 The Works shall be to the reasonable satisfaction of the Purchaser and shall conform in all respects with any particulars specified in this Conteaet and in any variations thereto. 2.2 The Works shall conform in all respects with the requirements of any statutes, conteacts regulations or by- Jaws from time to time in force. 2.3 The Works shall be fit for the purpose for which such Works are ordinarily used and for any particular purpose made known to the Supplier by the Purchaser and the Purchaser relies on the skill and judgement of the Supplier in the supply of the Works and the execution of the Contract. The Contractor shall rectify or complete to the reasonable satisfaction of the Project Manager within the time stated in the Taking Over Certificate any outstanding items of Work or Plant noted as requiring rectification or as incomplete. In the event the Contractor fails to do so, the Purchaser may arrange for the outstanding work to be done and the Cost shall be certified by the Project Manager and deducted from the Contract Price. In these terms, the ‘Defects Liability Period’ means 12 months calculated from the date of taking over of the Works. ‘The Contzactor shall be responsible for making good by repair or replacement with all possible speed at theit expense any defect in or damage to any part of the Works which may appear or occur during the Defects Liability Period which arises: From defective materials, workmanship or design From any act or omission of the Contractor done or omitted during the Defects Liability Period 24 In this Contract, if any defect of the kind referred to in Sub-Clause 2.3 shall appear in any part of the Works within a period of six years after the data of the taking over of the Works the same shall be made good by the Supplier by repair or replacement at the Purchaser's option provided that the defect was caused by the ‘gx038 misconduct of the Supplies. Gross misconduct implies a failure to pay due regard to the consequences which a conscientious and responsible contractor would normally foresee as likely to ensue as a result of their act or omissionCF 34 32 13 1 78 @cips Soe ‘THE PRICE The price of the Works shall be as stated in the Contract and no increase will be accepted by the Purchaser unless agreed in writing before the execution of the Contract. Unless otherwise agreed in writing by the Purchaser the Supplier shall render a separate invoice in respect of ‘each consignment delivered under this Contract. Payment shall be due 60 days after receipt of the Works or the correct invoice whichever is the later. DELIVERY ‘The Works shall be delivered to the place named. Any access to premises and any labour and equipment that may be provided by the Purchaser in connection with delivery shall be provided without acceptance by the Purchaser of any liability whatsoever and the Supplier shall indemnify the Purchaser in respect of any actions, suits, claims, demands, losses, charges, costs and expenses which the Purchaser may suffer or incur as a result of or in connection with any damage or injury (whether fatal or otherwise) occusting in the course of delivery or installation to the extent that any such damage or injury is attributable to any act or omission of the Supplier or any of his sub-contractors. Where any access to the premises is necessary in connection with delivery or installation the Supplier and hhis sub-contractors shall at all times comply with the reasonable requirements of the Purchaser. ‘The time of delivery shall be of the essence and failure to deliver within the time promised or specified shall tenable the Purchaser (at their option) to release themselves from any obligation to accept and pay for the Works and/or to cancel all or pact of the contract therefore, in either case without prejudice to their other rights and remedies. PROPERTY AND RISK Property and risk in the Works shall without prejudice to any of the rights or remedies of the Purchaser pass to the Purchaser at the time of delivery. DAMAGE IN TRANSIT On despatch of any consigament of the Works the Supplier shall send to the Purchaser at the address for delivery of the Works an advice note specifying the means of transport, the place and date of despatch, the umber of packages and their weight and volume. ‘The Supplier shall free of charge and as quickly as possible either repaie or replace (as the Purchaser shall elect) such of the Works as may either be damaged in transit or having been placed in transit fail to be delivered to the Purchaser provided that: G@) in the ease of damage to such Works in transit the Purchaser shall give notice to the Supplier that the Works have been damaged. (B) in the case of non-delivery the Purchaser shall (provided that the Purchaser has been advised of the dispatch of the Works) give notice to the Supplier that the Works have not been delivered. INSPECTION, REJECTION AND GUARANTEE ‘The Supplier shall permit the Purchaser or their authorised representatives to make any inspections or tests they may reasonably require and the Supplier shall afford all reasonable facilities and assistance free of charge at their premises. 2 The Puschaser may by written notice to the Supplier reject any of the Works which fail to meet the requirements specified. Such notice shall be given within a reasonable time after delivery to the Purchaser of the Works concerned. The guarantee period applicable to the Works shall be 12 months from putting into service or 18 months from delivery whichever shall be the shorter (ubject to any alternative guarantee arrangements agreed in ‘writing between the Purchaser and the Supplier) If the Purchaser shall within such guarantee period or within 30 days thereafter give notice in writing to the Supplier of any defect in any of the Works as may have arisen during such guarantee period under proper and normal use the Supplier shall as quickly as possible remedy such defects (whether by repair or replacement as the Puschaser shall elect) without cost to the Purchaser Any Works rejected or returned by the Purchaser shall be returned to the Supplier at the Supplier's risk and expense,@cips 8. LABELLING AND PACKAGING 8.1 The Works shall be packed and marked in a proper manner and in accordance with the Purchaser's instructions and any statutory requirements and any requirements of the carriers. In particular the Works shall be marked with the Contract Number, the name of the contents shall be clearly marked on each container and all containers of hazardous Works (and all documents relating thereto) shall bear prominent and adequate warnings. 8.2 The Supplier shall inclemnify the Pucchaser against all actions, suits, claims, demands, losses, charges, costs and expenses which the Purchaser may suffer or incur as a result of or in connection with any breach of thi Condition, 83 All packing materials will be considered non-returnable and will be destroyed unless the Suppliers advice note states that such materials will be charged for unless returned. ‘The Purchaser accepts no liability in respect of the non-artival at the Supplier's premises of empty packages returned by the Purchaser unless the Supplier shall within ten days of receiving notice from the Purchaser that the packages have been dispatched notify the Purchaser of such non-arsival. 9, PATENTS AND INFORMATION 9.1 It shall be a condition of this Contract that, except to the extent that the Works are made up in accordance with designs furnished by the Purchaser, none of the Works will infringe any patent, trade matk, registered design, copyright or other right in the nature of industrial property of any third party and the Supplier shall indemnify the Purchaser against all actions, suits, claims, demands, losses, charges, costs and expenses which the Purchaser may suffer or incur as a result of or in connection with any breach of this Condition, 9.2 All rights (including ownership and copyright) in any specifications, instructions, plans, drawings, patterns, models, designs or other material furnished to or made available to the Supplier by the Purchaser pursuant to this Contract shall remain vested solely in the Purchaser and Supplier shall not (except to the extent necessary for the implementation of this Contract) without prior written consent of the Purchaser use or disclose any such specifications plans, drawings, patterns, models or designs or any information (whether or not relevant to this Contract) which the Supplier may obtain pursuant to this Contract and in particular the Supplier shall not refer to the Purchaser or the Contract in any advertisement without the Purchaser's prior ‘written agreement. 10, HEALTH AND SAFETY ‘The Supplier warrants to the Purchaser that the Supplier has satisfied themselves that all necessary tests and examinations have been made of will be made prior to delivery of the Works to ensure that the Works ace designed and constructed so as to be safe and without risk to the health or safety of persons using the same, and that he has made available to the Purchaser adequate information about the use for which the Works have been designed and have been tested and about any conditions necessary t0 ensure to health. The Supplier shall indemnify the Purchaser against all actions, suits, claims, demands, losses, charges, costs and expenses which the Purchaser may suffer or incur as a result of or in connection with any breach of this Condition. 41, INDEMNITY AND INSURANCE 11.1 Without prejudice to any rights or remedies of the Purchaser the Supplier shall indemnify the Purchaser against all actions, suits, claims, demands, losses, charges, costs and expenses which the Purchaser may suffer or incur as a result of of in connection with any damage to property or in respect of any injury (whether fatal or otherwise) to any person which may result directly or indirectly from any defect in the Works or the negligent or wrongful act or omission of the Supplier. 11.2 The Supplier shall effect with a reputable company a policy of policies of insurance covering all the matters which are the subject of indemnities under these Conditions and shall at the cequest of the Purchaser produce the relevant policy or policies together with receipts or other evidence of payment of the latest premium due, 12, CONFIDENTIALITY 12.1 ‘The Supplier shall keep secret and not disclose and shall procure that his employees keep secret and do not disclose any information of a confidential nature obtained by him by reason of this Contract except information which is in the public domain otherwise than by reason of a breach of this provision.@cips 122 The provisions of paragsaph 12.1 shall apply during the continuance of this Contract and after its termination howsoever arising, 13, RECOVERY OF SUMS DUE Wherever under this Contract any sum of money is recoverable from or payable by the Supplies, that sum may be deducted from any sum then due, or which at any later time may become due, to the Supplier under this Contract of under any other agecement or contsact with the Purchaser or with any department, agency or authority of the Purchaser. 14, ASSIGNMENT AND SUB-CONTRACTING 14.1 The Supplier shall not without the written consent of the Purchaser assign the benefit or burden of this Contract of any part thereof, 14.2 No sub-contracting by the Supplier shall in any way relieve the Supplier of any of their responsibilities under this Contract. Tasks ‘Advise Ragim on the following issues: (f) TALENT’s potential liabilities for the three problems outlined in the case study. You should provide justificationds for your answers. {g) Improvements that Ragim should attempt to make in the future to avoid the difficulties outlined in the case study. Guidance Your work should consist of approximately 1,000 words and any source materials such as web sites, reports, articles, market data, journals or texts should be referred to in your references or bibliography. Syllabus Coverage The following content from the Practitioner syllabus can be used to answer this assessment: The main types of contracts and agreements, * The documentation that is used to create commercial agreements for the supply of goods, services or works ‘+ The sources of express terms that can be used to regulate contracts made for the supply of goods or services ‘+ The legal issues that relate to the creation of commercial agreements with customers or suppliers relating to offers, counter offers, acceptance, and other issues ‘© Core clauses that comprise commercial agreements with customers or suppliers ‘+ Key provisions of legislation that relate to contracts for the supply of goods and services ‘© The use of contractual KPIs that link to technical and commercial requirements in contracts ‘+The main types of risks in the performance of contracts such as internal, market, economic, legal, ethical sourcing and performance based risks * Performance management and ensuring compliance to agreed standards ‘* Payment responsibilities in contract management ‘© Creating targets for assessing the performance of suppliers based on the SMART (specific, measurable, achievable, relevant and timely) targets for performance@cips This assessment helps you achieve the following capabilities: * Develop appropriate contractual agreements for suppliers with stakeholders ‘+ Select appropriate contract terms that specifically relate to the supply of goods, services or works to be contracted for ‘* Review processes and procedures for creating contracts to ensure that all legal requirements are ‘complied with and recommend any changes required ‘+ Interpret and provide advice to colleagues and stakeholders on the core clauses of commercial agreements with customers or suppliers ‘* Research legislation that relates to contracts for the supply of goods and services and advise stakeholders on their implications * Develop and advise colleagues and stakeholders on the use and benefits of KPIs applied to technical and commercial requirements in contracts ‘+ Work with suppliers, internal customers or stakeholders to achieve added value in procurement and supply * Evaluate the potential risks that purchased goods and services may be subjected to and liaise with suppliers and stakeholders to create plans to mitigate the adverse effects of these risks ‘* Monitor the supply of goods and services to ensure required performance standards are achieved ‘Ensure compliance to, and take remedial actions for any deviations from contracted payment terms for purchased goods and services * Formulate SMART (specific, measurable, achievable, relevant and timely) targets for supplier performance and agree their application with suppliers and stakeholders ‘* Create improvement plans to correct defective performance or to mitigate risks for purchased goods or services ‘Managing Expenditures Developing Contracts: Asaestment Two Mark Moore (© chartered institute of Purchasing and Supply 2024