CIPS L4M3 Chapter 1 (1.3) Flashcards
What is the process to arrive at contractual arrangements?
through direct negotiation or through a process of competitive tender.
What is the key element of a one-off contract?
It relates to a single purchase. A single purchase is not the same as a single item
What is a one-off purchase contract?
A contract for a single engagement - can be simple or complex, it may or may not have been tendered
For simple items, the reasons for using a one-off contract are - low value spends, urgent need and a lack of planning
For complex purchases the reasons for using a one-off approach are - lack of a full developed strategy for the spend area and/or the inability to predict future funding.
Although contracts for one-off purchases maybe simple, low value purchase they may still include?
Warranties and guarantees
Insurance requirements
Specification requirements
Minimum quality standards
Built-in change process
Ability to extend the scope of the contract
Ability to extend the duration of the contract
Data security protocols
What are the benefits of one-off contracts for the purchaser?
- The potential for speedy delivery for simple low-value purchase
- The ability to tap into falling market prices and/or special offers
- Ability to narrow down the terms
What are benefits of one-off contracts for the supplier?
- there may not be any competition, enabling the supplier to set their own price, if one-off contract is on a spot-purchase basis,
- the total spend may be significant even if the individual order values are low, if purchasers regularly use one-off contracts,
What are the risks of one-off contracts for the purchaser?
- Tied to on-the-day price, no market investigation and limited competition
- The contract will not allow for extensions should ‘more-of-the-same’ be required
- Limited ability to develop a relationship with the supplier
- When regulated can be viewed as avoiding the regulations by keeping values below financial thresholds
What are risks of one-off contracts for the supplier?
- Low value ad-hoc purchases make production planning difficult
- A failure to perform on this one contract could lose a potential client forever
What is an Ad-hoc purchase?
An item bought for a single and non-recurring use or purpose
What is an informal framework arrangement?
- A loose set-up, without any legal standing.
- No commonly agreed terms.
- Also referred to as an approved supplier list.
What are the advantages of an informal framework arrangement for the purchaser?
- Reduces tender process costs and speed to supply
- Ability to build trust through regular work
- Ability to include newly discovered potential providers
What are the advantages of an informal framework arrangement for the Supplier?
- Better chance of winning tenders when low number able to bid
- Potential for high turnover of low-value orders for known client
- Ability to build trust through regular work
- Ability to target potential customers without constraints of tender timescales
What are the disadvantages of an informal framework arrangement for the purchaser?
- Limits the number of potential providers so the best or most appropriate provider could be missed
- Resource intensive as all documentation needs to be checked
- Resource requirement for vetting new suppliers
- Risk of the lists becoming large and unmanageable
What are the disadvantages of an informal framework arrangement for the Supplier?
- No access if not on the list/framework
- This can be resource intensive as documentation may need to be provided separately for many databases
- Risk of lists becoming large and reducing likelihood of winning work
What is a formal framework agreement?
The agreement which set out the terms and conditions that will apply if a contract is created. It is not itself the contract because there is no consideration involved and does not commit either party to actually enter into a contract. It is intended to be legally binding on the parties from the point in time when the contract under the framework is created.
What will the formal framework agreement contain?
- 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 - a true framework agreement is a closed system
- Any limitations
- The main terms to be included in the contract
What are the types of Framework agreements?
- one-to-one
- one-to-many
- many-to-one
- many-to-many
What is Mini competition?
A limited tender exercise, usually only on price, under the rules set out in a framework agreement; only suppliers appointed to the framework can take part
What are the purposes of the mini competition?
- For price to be calculated based on the precise requirements
- To allow contract-specific terms to be refined
- To maintain an element of competition among the framework suppliers
What is a closed system?
A system or process that, once started, does not allow new entrants. A framework agreement might have multiple buyers and multiple suppliers, but once set up, no additional buyers or suppliers can be added to it
What is a Direct call off?
Placing an order under a framework agreement without having further competition
or
a contract placed without further competition, with the supplier with the highest ranking when the original evaluations for appointment to the framework were made
What is the advantage and disadvantage of a direct call off?
Advantage - it makes all suppliers receive a reasonable share of the available opportunities and retains competition among them
Disadvantage - if a supplier receives most or all of the work, suppliers may be reluctant to tender unless they are confident of being in that top slot
What is a call off or term contract?
A contract which exists for a fixed period of time, rather than for a specific purchase. They are used where the purchaser has a regular requirement for goods or services of similar nature which they want to be provided by a single supplier
List examples of call off contracts
- Servicing and maintaining equipment in buildings, fire alarms, lifts.
- Services which cannot be carried out on site, laundry
- Supply of goods which are regularly required but where the purchaser can only stock a limited amount
- For repetitive services which do not vary, price may be expressed as an annual or quarterly fee
- For goods or services which might be different from order to order, price will normally be described in a schedule of rates.
