Describe the difference between a condition and a warranty.

Transcription

1 Additional Questions Syllabus Section 1: Legal Aspects Q1 11/03 Describe the difference between a condition and a warranty. Q10 5/04 In contracts, describe the difference between a condition and a warranty. (Note that this is the same question as in the November 2003 paper above, repeated here for completeness only.) Q4 11/03 Identify four essential elements that must be present for a contract to be legally valid. Q6 11/03 State two binding methods of contractual dispute resolution. Q8 11/03 What is a Romalpa clause and which party to a contract is likely to rely on it? Q3 5/04 What method do most suppliers use to ensure that their terms and conditions govern any contracts entered into when offering goods for sale online through the internet? Q4 5/04 Distinguish between common law remedies and equitable remedies. Q5 5/04 What are the implications of the principle of privity of contract to buyers? Q6 5/04 Explain two vitiating factors (circumstances) which can make a contract void or voidable. Q9 5/04 What are the legal reasons that explain why an agreement to meet a friend for lunch cannot be viewed as a contract? 1

2 Developing Contracts in Purchasing and Supply Q1 11/04 Explain the principle of privity of contract, using an example. Q2 11/04 Distinguish between an offer and an invitation to treat. Q3 11/04 Distinguish between a void and a voidable contract. Q6 11/04 Briefly explain the concept of judicial precedent. Q7 11/04 Identify two potential advantages of arbitration over litigation in dispute resolution. 2

3 Additional Questions Syllabus Section 2: Analysing the need Q2 11/03 What is the difference between a performance and a conformance specification? Q8 5/04 Distinguish between a conformance and a performance specification. (Note that this is the same question as in the November 2003 paper above, repeated here for completeness only.) Q3 11/03 What are the four costs of quality? Q7 11/03 Give two reasons why procurement staff need to provide good internal customer service. Q16 11/03 Examine the role of the purchasing function in preparing and developing specifications. Briefly outline the problems and risks that may result if specifications are developed by users alone. Q1 5/04 Suggest two ways in which the purchasing function can add value for internal customers beyond merely placing and processing orders. Q16 5/04 Identify and briefly discuss the application of some of the online (post-production) and offline (pre-production) quality tools that can be used to improve and maintain quality standards from suppliers. Provide two examples, of each of the three costs associated with quality, in the areas of prevention, inspection/appraisal and failure. Q8 11/04 Describe the difference between offline and online quality control. Q10 11/04 Identify two different perspectives or definitions of quality. 3

4 Developing Contracts in Purchasing and Supply Q15 11/04 It is often said that the greatest opportunity for reducing costs is at the specification stage. Discuss the role of the procurement function at the specification stage and identify methods that can be used to ensure value for money is achieved and/or costs reduced. 4

5 Additional Questions Syllabus section 3: Costing the need Q5 11/03 Suggest two benefits of e-sourcing prior to award of contract. Q17 11/03 (c) Explain the concept of lifecycle costing. Briefly outline the types of information regarding a potential new supplier of capital equipment that should be obtained by a buyer prior to the negotiation for the purchase of this equipment. Give five variables or tradables that a buyer could use in a negotiation with a supplier for the purchase of a major item of capital equipment. Q7 5/04 Suggest two procedures that are appropriate for dealing with low-value orders. Q17 5/04 Many organisations see major potential benefits from the exploitation of internet technologies for purchasing and supply. However, these benefits are not guaranteed. Discuss the questions regarding supply markets that should be asked before a decision to use e-procurement tools is made. Explain how an online reverse auction works and identify the purchases for which it is most often used. Q18 5/04 Define lifecycle costing and explain how it can assist in making capital expenditure purchasing decisions. Q4 11/04 Suggest two conditions for successful use of competitive tendering as a sourcing option. Q9 11/04 Who must abide by EU procurement directives, and when do they apply? 5

6 Developing Contracts in Purchasing and Supply Q18 11/04 Preston Bank plc requires new air conditioning for each of its forty branches all located in the same region in the UK. The following are details of the requirement: Required: Expected/average usage: Expected life: Forty 80,000 BTU Output Automatic Air Conditioners installed within six months 2,500 hours per year per AC unit 4 years before compulsory replacement for health and safety reasons Following a request for quotations from pre-qualified suppliers three quotes have been received, the details of which are outlined in the table below. Price Polar Cool Ltd Heat Systems Ltd Jones Electrical Ltd 1,400 per unit including installation 1,600 per unit including installation 600 per unit. Installation cost 6,000 for all sites Running cost: 3kw per hour 2kw per hour 1kw per hour electrical usage Expected useful life 20,000 hours 10,000 hours 10,000 hours Average interval between service/ breakdown 1,500 hours 1,000 hours 500 hours Maintenance costs Warranty period Cost of 1kw electricity = 10p After warranty expires 300 per machine per year (parts & labour) 1st year all servicing/parts free 100 for each service visit (parts & labour) 1st year all servicing/parts free 100 for each service visit (parts & labour) None. All service visits payable (c) Calculate the estimated total life cost over four years of each quotation received and present your results in a clear table making clear which quotation is the lowest and which is the highest. What would the effect of a decrease in the cost of electricity of 50% be to your analysis? What would the effect of an increase in the cost of electricity of 100% be to your analysis? 6

7 Additional Questions Syllabus Section 4: Providing the need Q10 11/03 Give two reasons why ethical sourcing has become more important in recent years. Q15 11/03 Explain how the nature of procurement processes and activities varies between primary, secondary and tertiary organisations. Q18 11/03 Discuss the purpose of supplier appraisal. Choose and justify four key areas against which you would appraise suppliers before approving them as potential suppliers to an organisation type of your choice. Q2 5/04 Identify two areas where the purchasing function can contribute to the achievement of corporate social responsibility objectives. Q15 5/04 It has been said that many negotiations are won at the preparation stage. Write out a short set of notes with headings about what should be done in terms of preparation for a negotiation with a prospective supplier for a high-value contract. Q5 11/04 Suggest two factors that should be considered at the specification stage, in order to reduce the harmful environmental impacts of bought-in products. Q16 11/04 Discuss the role that procurement can play in supporting corporate social responsibility (CSR) objectives for a large multinational corporation operating in the extractive sector. Q17 11/04 Explain the concept of supplier positioning and the implications of the classifications: bottleneck, routine, leverage and strategic. 7

8 Developing Contracts in Purchasing and Supply Scenario 1 (11/03) Sinai Clinic Sinai Clinic is a small private hospital located in London. The hospital specialises in the treatment of spinal injuries and has an excellent reputation in its field. It is difficult to say exactly how many suppliers Sinai Clinic has, as no count has ever been conducted. However, it is estimated that there are more than 400. All purchasing is undertaken by individual clinicians and administrative staff under the direction of newly appointed clinical director, Dr King. An audit shows that most of these suppliers approximately 400 provide low-value supplies and services such as disposables, linen, janitorial supplies, dressings, maintenance and specialist medical services and testing. The annual spend on these suppliers totals approximately 10m. The remaining 20 or so suppliers provide supplies and medical services totalling over 50m. These high-spend suppliers include drug companies and medical suppliers, some of which supply specialist medicines and high-technology products, and some who supply standard equipment and generic, easily available drugs. Dr King has a number of concerns regarding legal and procurement processes and has hired you as a consultant to make recommendations. Your preliminary findings show the following. Almost all supply contracts are on suppliers terms and conditions. There are too many suppliers, particularly of low-value items, and keeping track of them takes up valuable time of clinical staff who have to chase up suppliers for deliveries. No formal supplier appraisal or performance measurement is carried out. Prices paid for supplies appear higher than other similar-sized hospitals. In a recent major contract for medical equipment agreed on standard terms and conditions, Sinai has agreed to pay a large additional amount of money to a supplier, Medquick Limited, due to a mistake the supplier said it made in its quotation. The supplier refused to install the equipment unless Sinai signed a new contract, which Sinai reluctantly did. 1 Contracting on suppliers terms and conditions means that Sinai Clinic is exposed to many potential legal and contractual risks. Identify three likely suppliers contractual terms/clauses that will need to be reexamined by Sinai and explain why the clauses you identify could work to the disadvantage of Sinai. Explain two contractual terms/clauses that, if incorporated, could protect and reduce risk for Sinai in their contracts with suppliers. 8

9 2 Identify the risks and costs associated with having too many suppliers. Additional Questions Make recommendations as to how Sinai should establish and maintain appropriate commercial relationships with its different categories of suppliers. 3 If the Sinai Clinic were in the public sector, what key differences in its procurement processes would you expect to see? 4 If Sinai refuses to pay Medquick Limited the additional monies due under the new agreement, what is the likelihood of success if Medquick make a claim against Sinai? 9

10 Developing Contracts in Purchasing and Supply Scenario 2 (5/04) Department of Labour A central government agency, the Department of Labour urgently needs to replace the air conditioning (AC) units in all its buildings in London. This will be a major piece of work involving the supply, installation and commissioning of more than 1,000 units in all areas of the building including the public areas. The old AC units will need to be removed and disposed of responsibly. Your experts estimate the cost of this work should be about 5m. This would include a modest but reasonable profit for the winning contractor. In response to your invitation to tender (ITT) advertised in a local London newspaper you received four bids from local suppliers which were received before the due date. Due to time constraints only the first three bids were considered. The details of these bids are outlined below. Supplier XYZ Construction Volta Electric Flash Electrical Commercial details General building and construction company 1,000 employees Established 15 years Busy at present time Electrical contractor 100 employees Established 5 years Very busy at present Electrical contractor 20 employees Established 2 years Not busy at present Temporary staff used for projects Price quoted 4.5m 6.5m 3.5m Financial information Sales 50m Profits 5m Debts 1m Sales 5m Profits 1m Debts 0.5m Sales 20m Profits 0.5m Debts 2m Health and safety record Warranty Delivery record Buyer s notes on terms and conditions 1 worker injury every 500 working hours 1 year for AC units, parts only 70% on-time completion of work XYZ will not accept liquidated damages clauses 1 worker injury every 2,000 working hours 2 years, parts and labour 90% on-time completion of work Compulsory arbitration by Royal Society of Electrical Engineers in event of dispute No health and safety data supplied despite requests 3 years, parts and labour 80% on-time completion of work Too many exclusion clauses 1 There is quite a large difference between the suppliers bids for this work, considering that 5m is a realistic and objective estimate for the price of this work. Based on the information in the table: (c) Suggest three reasons why XYZ has bid below your estimate. Suggest three reasons why Volta has bid well above your estimate. Suggest three reasons why Flash has bid below your estimate. 10

11 Additional Questions 2 Identify one procurement risk to consider if the contract is awarded to XYZ. (c) Identify one procurement risk to consider if the contract is awarded to Volta Identify one procurement risk to consider if the contract is awarded to Flash. 3 Explain, in brief, the purpose of the EU Public Procurement Directives and discuss whether they apply in this case. In brief, identify the key mistakes that were made in the tendering process that could lead to it being challenged in the courts or by suppliers. 4 Explain the implications of each of the three contractual risks identified in the buyer s notes (last row of table) associated with each supplier s bid. 11

12 Developing Contracts in Purchasing and Supply Scenario 3 (11/04) Rica Coffee Ltd Rica Coffee Ltd (Rica) is a successful UK chain of cafés, with outlets in most UK cities and large towns. The company has Italian roots and started out in 1975 with one café in Central London and now numbers over 200 outlets. Although a wide range of snacks and beverages are provided, over 50% of revenues are still based on coffee sales. The expensive high specification coffee machines used to make the beverages are sourced from three manufacturers in Italy and, if maintained well, are extremely reliable and durable. Recently it has become apparent that the present maintenance service provider, Automation Ltd, is becoming less responsive to call outs and there is evidence that routine maintenance is not being carried out to the manufacturer s recommended maintenance schedule (MRMS). This has led to increasing rates of machine breakdown and consequential loss of sales in the cafés. The initial annual contract for maintenance, agreed three years ago, was on Rica s terms and conditions and required Automation Ltd to fully abide by the MRMS. Over the years, Automation Ltd has made amendments to the contract, which were never officially agreed by Rica. These amendments included the following new clauses, which are printed on the latest versions of the contracts kept on file by Rica. 1 Automation Ltd will determine the most appropriate maintenance schedule and procedures for all coffee machines regardless of any MRMS. 2 Automation Ltd cannot be held liable for any claims that arise from coffee machine malfunction for any reason during the period of contract. You have been hired by Rica to advise it on a number of areas related to this contract as it is up for renewal or re-negotiation shortly. 1 Based on the information in the case study, advise Rica on whether Automation Ltd s amendments to the contract are valid and enforceable in a court of law. 2 How can Rica ensure that all contracts are let on its own terms and conditions, and that any changes are agreed explicitly before incorporation? 3 In preparation for negotiations with a potential new maintenance supplier, outline specific information headings that would be helpful to Rica in negotiations for an improved offer. Draft a short list of potential negotiation tradeables Rica could use in this negotiation. 4 Explain what a service level agreement (SLA) is and suggest what features should be included in a SLA between Rica and any new maintenance provider so as to ensure improved customer service. 12