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

Transcription

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

2 SECTION A Q1 (a) Discuss FIVE weaknesses of the purchasing process that HH followed to acquire the caravans. (15 marks) This question tested the candidates ability to identify failings in a given scenario of procurement of high-value capital items. Candidates had a wide range of choice here of weaknesses to select and to discuss, where things were not done sensibly in this purchase of important capital items. Some examples of aspects that candidates selected were: Poor planning Poor approvals Paying 100,000 upfront before any delivery and with no guarantee of performance/quality Poor market research Poor market testing/competition Too large an initial order from an untested supplier Poor contract drafting Poor control of contract documentation, allowing a battle of the forms to develop. Because candidates had a wide range of choice here of weaknesses to select and to discuss, they were almost without exception very good at identifying where things had not gone as well as they might have been in this purchase of substantial capital items, and where avoidable risks had been taken. Most candidates scored highly here, and most presented five separate good ideas for weaknesses, that were fully relevant to the case. There were many full marks given to candidates for this part of the question. Q1 (b) Propose how HH should have conducted this capital purchase in order to limit the risks of an unsatisfactory outcome. (10 marks) This question tested the candidates understanding of the planned acquisition of largespend business-critical capital items. Candidates should here have outlined the whole procedure for sound, planned purchases of capital items, and they could do this by listing, description, table or chart. Pages 5 and 6 of the CIPS course book set out a good plan for capital spending, as do many other L4-02 SA report March 2010 series 2

3 sources and texts. The paramount needs are good planning, a team approach, careful risk identification and mitigation, whole life costing, and careful and comprehensive contracting. These should all have been specifically included in stronger responses. Again, candidates generally fared very well with this part of the question, and proposed a process for sound, planned purchases of capital items. Many candidates did this by listing and describing various stages of a process; some gave a table or chart. All formats were equally acceptable. Many candidates used recognised models of purchasing cycles from the CIPS course book and elsewhere as a basis for their responses. These generic plans needed to be adjusted to the specific circumstances of the case, and stronger responses did this. A few candidates proposed a public sector procurement route, including OJEU adverts; this was clearly inappropriate to the case study organisation, which was a small private sector leisure company. Stronger responses identified all the needs for a sound process, including good planning, a team approach, careful risk identification and mitigation, whole life costing, and careful and comprehensive competitive contracting. Again most candidates scored highly here, and total marks for Question One in the high teens and low twenties were common. Q2 Discuss FIVE possible actions that Georgia could now take in order to resolve the situation in the short term. (25 marks) This question tested candidates understanding of how to quickly resolve a challenging but realistic contractual difficulty as presented in a case study, offering and discussing five possible remedial actions that would be effective in the short term. There were several immediate and short-term problems presented in the case study, and candidates should have identified five separate actions to address their choice of five of those problems. Areas that could have been addressed included: The caravans are now on-site and ready to use but they should be checked to ensure that they are truly satisfactory. The case gave only the information that The caravans appeared acceptable in terms of quality and usability. Having established that they were indeed satisfactory, then the next issue was how much to pay for them! Georgia had already paid across 100,000. The full contracted price was originally 200,000, reducing to 190,000 for prompt payment. The issue then arose of how to take account of the long delay by VV in delivering to HH. Then the issues were what to do about it, at a reasonable and proportionate cost, bearing in mind that all looks set fair for the future, and that only an historical loss of notional (maybe demonstrable?) profits was at stake. Stronger responses would set out the alternative courses of action available to Georgia, ranging from pay in full a further 100,000 to pay nothing further and see if VV dare sue. Candidates should have discussed the middle ground, of paying over some amount, but probably not the full amount. In order to reason this correctly and convincingly, candidates should have discussed the issues of liability, indemnity and damages under English Law; and, in so doing, they should have demonstrated their understanding of the relevant Learning Outcomes from the Developing Contracts L4-02 SA report March 2010 series 3

4 syllabus. Stronger responses would also explore the issues around the documentation and the battle of the forms covering the deal, which had been deliberately left unspecified in the case study. Candidates could also have discussed which methods of dispute resolution might have been the most appropriate for resolving the issues at dispute. Candidates could have identified that the key issues here were: whether or not time was of the essence to the deal; what the contract had to say about damages in the event of delay; and the extent to which lost profits can legitimately be claimed as being directly attributable to the delay. Candidates should have clearly considered all proposed actions in the light of their costs, vis-à-vis the amount of money and potential losses at stake. The sums of losses involved are not enormous, and could quickly be overshadowed by legal fees and other costs if a large-scale adjudication or court case were contemplated. As previously agreed, within the Level 4-02 syllabus candidates did not need to cite any caselaw precedents at all in order to achieve high marks. However, those who do can attain extra marks. Appropriate cases that could have been cited in this response could include the historical Vic Mill case (1913) and Hill and Sons v Edwin Showell and Sons Ltd (1918); and/or the more recent Charter v Sullivan (1957); or the very latest Sony Computer Entertainment UK Ltd v Cinram Logistics UK Ltd (2008). Most candidates, having successfully identified what had gone wrong, and how to avoid it in future, generally fared much less well in suggesting short term solutions for the case study organisation to try and extricate itself from the difficult situation it was in. There were several different immediate short-term problems presented in the case study, and not all candidates addressed five; some stopped at two or three. Candidates usually identified that negotiation would be needed; but not many specified what that negotiation might address, and what the parties might hope to gain, and what tradeables they might negotiate with. Many candidates proposed various types of ADR; but several of these (such as arbitration) take time and money to prepare and carry out, so could not really be regarded as short term actions. Stronger responses addressed issues such as: the quality of the caravans, and how they might be exploited/leased/sold on/returned to seller; whether to pay any more now, or withhold some/all of the payment; how to align payment and negotiation/resolution hopes; contractual issues around different terms and conditions applying; reputational issues and risks. The command word here was discuss, so absolute guidance was not necessary just a discussion of the issues. So, for example, on the issue of payment, discussions could range from pay in full quickly, to secure the discount offered for prompt payment to pay nothing further, and see if the other party dare sue us. Stronger responses discussed the issues of liability, indemnity and damages under English Law as they applied to the case study, and gave recommendations where appropriate. Candidates should have clearly considered the issues in the light of costs vs. the amount of money and potential losses at stake. Stronger responses correctly identified that legal fees and other costs could quickly outweigh any amount that could realistically be recovered from the other party. L4-02 SA report March 2010 series 4

5 SECTION B Q3 Explain the use of FIVE different Incoterms. (25 marks) This question tested candidates understanding of the usage of Incoterms. This question sought explanation of the use of any five different Incoterms. Stronger responses would clearly explain any five different Incoterms, in a structured response that made it explicit where each of the five explanations began and ended. Stronger responses would explain the history and evolution of the chosen Incoterms, describe the categories and the various subtypes of Incoterm, and would explain when and how each chosen Incoterm is most likely to be used. Candidates could illustrate this with the now traditional arrowed pictures of factories, docks, ships and lorries. Stronger responses would mention that much freight is now carried by air, and the consequences of that change on Incoterms; and candidates may mention some of the shortcomings of Incoterms. Any examples provided of the use of Incoterms which add to the explanations could also gain marks. This question was done consistently very well by the many candidates who attempted it; and presumably it was only chosen as an option by those candidates with a good knowledge of Incoterms. Stronger responses gave full explanations of how five different Incoterms are used, often illustrated and amplified with relevant examples from candidates own work and knowledge. Weaker responses only gave descriptions of five Incoterms, without explaining their usage. These gained some marks, but not full marks, as the question sought an explanation of the use of Incoterms. Q4 Goods and services should be acquired through competition unless there are convincing reasons to the contrary. HM Treasury, Managing Public Money (2008). Discuss FIVE circumstances in which there might be convincing reasons against the use of competition to acquire goods and services for a public sector body. (25 marks) This question tested candidates understanding of the circumstances in which competitive tendering might not be appropriate for a public sector organisation. L4-02 SA report March 2010 series 5

6 Acceptable examples of circumstances (there may perhaps be others) were: 1. National Security 2. Only one supplier 3. IPR 4. Matching a pre-existing (much larger) purchase 5. Recent market test still valid 6. Very low value item 7. Existing contractual obligations 8. Urgency 9. Standardisation Responses should have discussed the impacts of any five of these circumstances, and what the consequences could be of not undertaking competition. Again this was an optional question that was likely to be selected most by those candidates with knowledge and experience of the subject, in this case those with a good knowledge of competitive tendering and/or public sector purchasing. The relatively few candidates who chose this question almost all did very well indeed. Almost all candidates identified situations such as low-value of purchase, emergency, and monopoly market as being circumstances where competition would be impossible or pointless. Various other circumstances were proposed, such as national security, IPR, matching pre-existing equipment, meeting existing contractual obligations, and using existing frameworks. All were acceptable. Stronger responses went beyond just identifying five different such circumstances, and also properly discussed the convincing reasons and their impact; and what if anything could be done to introduce some elements of competition in such circumstances. Q5 (a) Explain THREE areas that might be addressed in contractual clauses covering the use of sub-contractors. (15 marks) This question tested candidates understanding of the areas that might be addressed in contractual clauses covering the use of sub-contractors. Candidates could have explained any three areas that might be addressed in contractual clauses covering the use of sub-contractors. This gave a wide range of choice, including rights of veto, payment obligations, and standards which the subcontractor is to adhere to: for example, requirements that the subcontractor belongs to a certain trade body, has certain insurance cover, or has certain professional qualifications. Candidates could explain how adherence to such contractual clauses could be policed; and what the consequences of failure to adhere to them might be. Candidates could refer briefly here to the doctrine of privity of contract and explain how this can make it difficult for the L4-02 SA report March 2010 series 6

7 buyer to enforce requirements on a subcontractor, when the buyer has no direct contractual relationship with that subcontractor. This was not a popular question at all, and it was not done particularly well by those few candidates who chose it. Some answers were accurate but gave an unnecessarily lengthy explanation of the doctrine of privity of contract the question did not seek this. The few strong responses explained three relevant aspects that might be addressed in contractual clauses covering the use of sub-contractors. Examples included the retention by the buyer of a right of veto over the appointment of any subcontractors; and various obligations on the sub-contractor to meet requirements of the contractor (Health and Safety, payment terms, ISO approvals, etc). Q5 (b) Explain when standard model form contracts might be used. (10 marks) This question tested candidates understanding of standard model form contracts. This question sought explanation of when standard model form (SMF) contracts might be an appropriate contractual mechanism to use. Candidates should have set out the appropriate circumstances; and given good explanations. They should have included specifically explanation that SMF are appropriate to low-value, regularly-purchased items, where there is no bespoking or specialised one-off elements. Candidates could explain that SMF are a good, quick way of getting a contract or tender exercise started (even if they need subsequent additions/amendment to fully fit the case); that SMF will ideally be already familiar to both parties and therefore readily understood; and that SMF can save considerable time and money. Candidates could explain that SMF are often made available by trade bodies and professional bodies, and they may mention examples, such as the New Engineering Contract (NEC3), various of the CBI s SMFs; and the CIPS SMFs. Session 14 of the CIPS Course Book has good lists and information, as do many other sources and texts. This part of this question also was not answered particularly well, as many candidates appeared to confuse standard model form (SMF) contracts with an organisation s own Standard Terms and Conditions ( Standard Ts and Cs ). There is some overlap in when these might be used, so full benefit was given to candidates providing accurate information, even if it was set in the wrong context. As a result, even the fairly low marks achieved for this part of the question still tended to be higher than those very low marks typically achieved for the first part of the question. Most candidates identified that SMF are appropriate to low-value, regularly-purchased items, where there is no bespoking or specialised one-off elements, and that they can be a good, quick way of getting a contract or tender exercise started, even if they need subsequent additions/amendment to fully fit L4-02 SA report March 2010 series 7

8 the case. This is largely true also of Standard Ts and Cs. Some candidates also explained some sources of SMFs, typically mentioning NEC3 and construction SMFs. Q6 Explain FIVE advantages for the buyer that a performance specification might have over a conformance specification. (25 marks) This question tested candidates understanding of the advantages (for a buyer) that a performance specification might have over a conformance specification. Candidates had a wide range of advantages here from which to choose, as there are many claimed advantages of performance specifications over conformance specifications. Some illustrative examples are: It is much quicker to write a performance specification than a conformance specification; this saves the buyer time and money. A performance specification can be a very much shorter document than a conformance specification; this makes it much easier and cheaper to handle, amend, read and understand, for all interested parties including the buyer. A performance specification places all risks of non-achievement of performance squarely with the supplier, not with the buyer. If the performance spec isn t met, then the supplier must remedy the situation, wholly at his time and cost. A performance specification allows for innovation and new approaches to achieving desired/required performance results, and to dealing with any problems along the way. This encourages flexibility and innovation in the marketplace, and encourages new startups. The buyer gains better value for money. Performance specifications are much less likely to use brand names, trade names and specialist jargon, making them more open and easier to read and interpret for the buyer. Performance specifications require no expert knowledge on the part of the buyer. This was, by a considerable margin, the most popular of all of the optional questions in Section B; and it was done very well by many of the candidates who chose it. Marks in the high teens and low twenties were commonly achieved. Most candidates explained aspects such as speed to write a performance specification; ease of handling a performance specification; risk allocation under a performance specification; scope for innovation and new approaches; performance specifications require no expert knowledge on the part of the buyer; and wider competition is encouraged by their use. Some answers gave over-long definitions and explanations of the differences between performance and conformance specs this wasn t wrong at all, but they gained no marks as it wasn t sought by the question. And a few other answers also covered the disadvantages of performance specs - this too wasn t wrong at all, but again gained no marks as it wasn t sought by the question. L4-02 SA report March 2010 series 8

9 OVERALL SUMMARY General Remarks There were relatively few scripts for this UK-only examination, and the quality of responses overall was noticeably higher than the average from recent exams. Candidates generally demonstrated a very good knowledge of the processes by which contracts are developed, English contract law, Incoterms, and specifications. But there were some areas where opportunities were missed to gain further marks. These included: Failure to respond to the command word in the question, such as Discuss ; Answers having a poor structure, with no clear basis of argument; Where a number of points are asked for (e.g. Describe FIVE ), no clear separation made between each of the five aspects in the response, or only three or four aspects given; Failure to take account of the maximum amount of marks available to a part question in the length of the response (e.g. 10-mark part question responses being longer than those to a 15-mark part question); Excessive use of generic answers to questions, when there should be clear relevance to the case study organisation; Irrelevant use of elementary concepts such as the five rights ; Answers too short, with not enough detail. APPENDI: Syllabus matrix indicating the learning objectives of the syllabus unit content that each question is testing L4-02 SA report March 2010 series 9

10 Question SECTION A SECTION B No Learning Objective 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 March 2010 series 10