LEVEL 4. Foundation Diploma in Purchasing and Supply. Senior Assessor s Examination Report. May 2010 Series

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1 Foundation Diploma in Purchasing and Supply Developing Contracts in Purchasing and Supply L4-02 LEVEL 4 Senior Assessor s Eamination Report May 2010 Series

2 SECTION A Q1 (a) Q1 (b) Outline Lacys contractual position in the matter of this glasswork. Eplain THREE ways in which the dispute between Lacys and GG might be resolved. (10 marks) (15 marks) This question tested the candidates ability to analyse the commercial and legal implications of a commercial dispute and what processes could be used to resolve this. In part (a), candidates were required to give an outline of the contractual position in which Lacys found itself. Stronger responses should have covered both the legal and the commercial positions. Candidates should have identified that there was a signed document covering the terms of the deal, that the terms which Candida signed up to were wholly those of the supplier, GG and therefore a legally binding contract was in place. In addition there had been discussions and meetings and agreement to plans and designs, plus there was an acknowledgment from Candida that the work should start. There was therefore little if any room for Candida to argue that the deal was not clearly made and defined and moreover made on GG s terms. Candidates could have epanded on this conclusion by predicting the possible outcomes of any court action. This could have included the affects on Lacys statutory protection under any Sale of Goods and Services legislation in terms of defects found in the work of GG or whether any of the documented terms could be said by the Courts to apply in accordance with the Unfair Contract Terms Act. It is also possible that GG may have made misrepresentations during the initial discussions. In part (b), candidates were required to eplain three different ways in which the contractual dispute might be resolved. Such responses would normally be centred on the well-known types of Alternative Dispute Resolution (negotiation, mediation, adjudication and arbitration) and the option of litigation. It was important that the responses specifically referred to the case study with practical and workable actions taking account of the commercial realities and the practicality and costs of going to arbitration or court. Stronger responses would have taken account of the objectives of both parties. Lacys have received something like what they wanted, but would clearly prefer much more of the work to be re-done. GG, on the other hand, have clearly delivered below epectation, and they will not want a reputation-damaging, high-profile failure to deliver made public, though they want to be paid. L4-02/SA Report/May10 2

3 As a general point, there were some good and well thought out responses, though a significant number merely gave tetbook answers on both parts of the question, rather than referring specifically to the case study. In part (a), most candidates were able to describe why Lacy s contractual position was weak and that the conditions of contract that Candida had signed up to were likely to be in GG s favour, with the potential eistence of eclusion clauses on quality and price variation arrangements. Many candidates also correctly indentified that Lacys may have recourse to Sale of Goods and Services legislation concerning fitness for purpose and quality of workmanship, though fewer identified any potential recourse under the Unfair Contract Terms Act. Other weaknesses included giving long descriptions about the formation of contracts including largely irrelevant discussions on matters such as Consideration and answering the question in the form of a Lessons Learned eercise, rather than looking at the current situation or even just repeating case material. In part (b), most candidates displayed a good knowledge of the different types of dispute resolution, though many concentrated on arbitration and litigation too much as these would be unlikely to be used for a dispute of this nature. Stronger answers detailed how the different ways of achieving resolution to this dispute could be used (or conversely were inappropriate to this particular case). Q2 Propose FIVE improvements to the procedures for developing contracts at Lacys. (25 marks) This question tested the candidates ability to propose relevant improvements to procedures at Lacys based on understanding of weaknesses highlighted in the case study Candidates were required to consider the situation presented in the case and use this as evidence of what has gone wrong with that particular procurement. This then should have formed the background for the five improvements to the process which candidates then propose. Whilst there were no specific topics needing to be covered, candidates could have chosen areas such as: good planning a team approach including procurement and legal professionals careful risk identification and mitigation identification of need writing of specifications L4-02/SA Report/May10 3

4 selection and appraisal of suppliers formal tendering use of model forms of contract getting Lacys own terms and conditions to apply financial control and due diligence including authority for ependiture good contract management including oversight and managing delivery whole life costing. It was important that such proposals should not be merely generic, but should be rooted in the case study. This question allowed candidates to select from a wide range of topics and there were many good, detailed answers. There were however several significant weaknesses such as: proposed improvements were not related to the case study or too generic (e.g. an ethics policy) over-reliance on discussion of actual terms and conditions rather than processes too great a concentration on tendering at the epense of discussion of the rest of the purchasing cycle treating the question as an action plan for the panelling contract, rather than a proposed new way of working for Lacys assuming that EU Public Procurement rules apply to the private sector answers being too short and superficial. SECTION B Q3 Describe FIVE circumstances under which an offer, once made, may cease to eist. (25 marks) This question tested the candidates knowledge of a key aspect of contract law. This was a tetbook contract law question around an important and significant aspect of developing contracts: the making of offers and specifically the circumstances in which offers cease to eist. Candidates could have chosen to describe their choice of any five from all of the recognised and accepted ways in which offers cease to eist. These include: on liquidation, if the offeror is a limited company or organisation on acceptance after a reasonable time, if no time is specified (and reasonable is to be determined by the Courts, taking due account of the nature of the transaction) L4-02/SA Report/May10 4

5 on epiry of the offer, if the offer contained a specific epiry date/time on refusal of the offer by the offeree on receipt of a counter-offer on revocation (withdrawal) of the offer by the offeror before acceptance on death of offeror, in some circumstances, if the offeror is an individual person. Additional credit was given for good descriptions, eamples or quoting of relevant case law. This was a popular question and almost all candidates choosing it did very well, demonstrating good knowledge of the topic and the relevant case law. Some weaknesses included: unnecessarily long introductions, describing all five elements of legally binding contract descriptions covering termination of a contract rather than an offer some responses being very short (as little as one sentence per point made). Q4 (a) Describe TWO types of specification. (10 marks) Q4 (b) Eplain when, and why, purchasing and supply specialists should get involved in preparing specifications. (15 marks) This question tested candidates knowledge and application of specifications. In part (a), candidates should have chosen two different types to answer this question. Conformance (also known as Technical or Input) are those specifications which are the rigid, very specific, descriptions of all that the supplier must do and provide. They are common in e.g. engineering, defence, construction and pharmaceuticals. They may include brand names, formulae, technical drawings, patent numbers etc Performance (also known as Output or Outcome) are those specifications which describe only what should happen as a result of awarding and delivering the contract and which therefore do not in any way tie down the supplier as to what they are to do in order to achieve that desired result. Stronger answers to part (a) should describe one of each type, and could include discussion of issues such as who bears the burden of risk in the event of the supplier failing to meet the specification. L4-02/SA Report/May10 5

6 In part (b), candidates should have eplained that early involvement of Purchasing and Supply specialists will lead to a better specification which; is more likely to generate good response from a competitive market will be free of trade names and IPR issues which could hamper competitiveness is not over-specified, leading to unnecessary costs is not under-specified leading to disputes is clear and concise; will provide good criteria against which to evaluate tenders. This was a popular question with almost all candidates answering part (a) satisfactorily and many with distinction. Answers to part (b) were more variable. Some candidates gave highly relevant eamples based on personal eperience, but others were less well answered in that: the discussion often centred around purchasing and supply specialists contribution to the purchasing cycle rather than just specifications some candidates assumed "purchasing and supply specialists meant "purchasers" and "suppliers" and consequently some of their points on early supplier involvement were not strictly relevant there was often discussion about the part played by other stakeholders, which was not required the answers were often much shorter than part (a), which carried fewer marks, which may reflect that this was often the last question attempted. Q5 Eplain FIVE contractual areas that an organisation should address when developing a contract with a potential supplier of services. (25 marks) This question required the candidate to demonstrate an understanding of key contractual issues on a services contract. Candidates were required to describe five areas of contract that would be important and significant in the circumstances described. Few marks could be given for merely generic suggestions of contractual areas that would not fit these circumstances, such as contracts for the purchase of goods. L4-02/SA Report/May10 6

7 Whilst there were no specific topics needing to be covered, candidates could have chosen areas such as: the nature of service specifications defining acceptance Service Level Agreements Key Performance Indicators Transfer of Undertakings (Protection of Employment) Regulations change control contract management cost savings contract termination and renewal. Or more generic areas such as liquidated damages, intellectual property and payment terms, if the answer specifically related them to services. This was a very unpopular question and was generally only moderately well answered. Most candidates picked any five topics and did not specifically relate them to services, with discussions around areas relevant only to goods such as retention of title. Q6 Describe all the stages of a typical electronic tendering eercise. (25 marks) This question tested the candidates understanding of electronic tendering. Candidates were required to identify and describe all of the stages that would go into an electronic tendering eercise from identification of need, through specifying and possible advertising, receiving and evaluating responses, to making the award, and post-award activities. Stronger responses should include specific reference to unique features of electronic tendering such as: non-paper communication through use of a portal or security of receipt of tenders and electronic closing times and dates use of analytical tools such as spreadsheets to assist in prequalification and tender evaluation instant responses to tender questions by either party. This was a very unpopular question and was generally only moderately well answered. Many candidates described a full tendering process with either no mention of e-tendering or with brief references to it such as tenders sent by or via the internet. There L4-02/SA Report/May10 7

8 were also eamples of the assumption that EU Public Procurement rules apply to the private sector, leading to irrelevant detailed descriptions of open and restricted tendering as well as the Standstill Period. OVERALL SUMMARY The range and quality of scripts for this particular eamination varied from low to distinction. Generally a good knowledge of contract law, dispute resolution, terms and conditions and specifications was demonstrated. However, answers failed to gain marks where: Answers having a poor structure, with either no clear basis of argument or where a number of points are asked for, no clear separation between them Overlong and irrelevant introductions Failure to take account of the maimum amount of marks available to a part question in the length of the response (e.g. 10 mark part question responses being twice as long as those with 15 marks) Candidates eplaining more points than the question actually required (e.g. si where the question only required five) Ecessive use of generic answers to questions, when there should be clear references to a case study Repeating case study material Irrelevant use of elementary concepts such as the five rights A mistaken belief that EU Public procurement regulations apply to all of the private sector Answers often too short, with not enough detail or eamples where appropriate Poorly planned work, with few candidates writing a rough plan beforehand Misreading the question. APPENDIX: Syllabus matri indicating the learning objectives of the syllabus unit content that each question is testing L4-02/SA Report/May10 8

9 Question SECTION A SECTION B No Learning Ob a b c a b c a b c a b c a b c a b c 1 The development of commercial agreements The formation of contracts Contractual terms Letting contracts L4-02/SA Report/May10 9