Assignment 2 : Contacts in Procurement And Supply

CORPORATE AWARD PROGRAMME

ASSIGNMENT FRONT SHEET

STUDENT MEMBERSHIP NUMBER
COHORT NAME and NUMBER	Cohort 6
ASSESSMENT Code / Number	AS2
MODULE TITLE	Developing Contracts in Procurement and Supply
SUBMISSION DEADLINE DATE	Second Submission
WORD COUNT	3184

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Table of Content

1. Executive summary

2. Question one……………………………………………………………………….

3. Question two ………………………………………………………………………

4. Question three ……………………………………………………………………

5. Conclusion

Introduction:

Terms and conditions is a set of regulations, which supplier and customer must agree to follow in order to create a contract. They will have to agree on terms and conditions of the contract as well as any possible liabilities in case of a breach of the contract. As one of the major companies in the world, SABIC has a set of detailed terms and conditions referred to as Standard Terms and Conditions in which supplier accepts and aware of before registering in SABIC as an approved supplier. Certainly, it is open for negotiation before the creation of the contract. The standard terms and conditions is very comprehensive to accommodate all type of contracts and types of suppliers. For instance, there is a special terms and contract for internal and external of KSA.

Executive summary

Subject matter

This report evaluates and provides an analysis of the opportunities for the supply and procurement function, explains how the terms and conditions can be improved and how collaboration can be created with stakeholders to increase early engagement. The report also gives a general overview of the need for organizational policies and procurement in order to implement effective procurement supply.

Key findings

· After doing an extensive research, I drew attention to the fact that the company should identify and allocate purchasing activities to achieve the best value for money. I found out that it can be done by applying the five rights of acquisition and value for money criteria to any purchase of good and services similarly assessing the acquisition of possessions and amenities based on total cost of ownership is an important step. Furthermore, creating savings and improve efficiency requires the company to negotiate with the suppliers.

· To improve the procurement and supply function, it should be taken into consideration the fact that our procurement and supply function is much more than the cost of getting products into the hands of our customers.

In the report some partnership principles have been outlined that will help in the creation of collaboration with stakeholders. Undertaking stakeholder engagement in a collaborative manner will allow a substantial relationship to be built between the stakeholders and the company. In our case, we shall have to give consideration to the development of stakeholder engagement process to test knowledge and assumption.

· Based on the fact that this report is a one-person’s point of view, there is need for improvement for highest results. Similarly, some of the recommended approaches may take time to accomplish but they are very effective once they are well implemented. The report did not discuss in detail how to ensure compliance with a low level of procurement regulation, reduce application of poor procurement and supply policies, and ensure enough support from top management. However, tit is evident in our company that the management of the company has the right measures in place

Question One: How your Terms and conditions ensure that you manage the risks of poor quality, extension of time, increased costs and unethical practice

SABIC is one of the greatest companies in Saudi Arabia. SABIC has grown over time and has diversified to produce various commodities. The growth can be attributed to various strategies that have been put in place by the company. The company has put in place various terms and conditions that are aimed at managing poor quality, extension time, increased costs and unethical practice.

a. Risks of Poor Quality

Supplies must deliver the product or service to the agreed place of delivery and receive an Acceptance Certificate and within thirty days the End User and Warehouse evaluate the materials and then supplier would be informed if either; the products or services supplied were accepted or it did not comply with the purchase agreement and that they have been rejected

In case the supplied materials or services were rejected, it will be swiftly returned to the supplier at its sole risk and cost. In case the supplier had been paid fully or partly there before, for the rejected work, then the suppliers will be forced to replace the rejected work and credit not should be issued in respect thereof under Clause 1.9.2 of the Sabic Standard Terms and Conditions.

In all respects, the work will conform to the quality specifications and requirement set in PO. If these requirements and specifications are not specified to customary and normal specifications or goods quality then this should be done in accordance to the accepted industry practices and applicable professional codes and standards. However, supplier cannot change the specifications, manufacturing or material processes without first seeking the consent from SABIC.

Supplier guarantees and warrants that the work to be completed or delivered is free from defects, fault designs in workmanship and in material and so fit for the intended work for a period of one year from use, commissioning or installation. SABIC will notify supplier in accordance on discovery of failures or defects within the time in which warrant is still active. In addition, the supplier will compensate SABIC for all the expenses and losses it has reasonably suffered in relation to defect hence replacement and repairs under the warranty under Clause 1.10.3 of the Sabic Standard Terms and Conditions.

b. Extension of Time:

According to SABIC Standard Terms and Conditions, the supplier is ought to deliver the goods and services in the quantity states in purchase order to the point of delivering on the corresponding date of delivery. The date of delivery shall remain firm and should not be different except through a Change Order. Supplier must inform the stakeholders in writing if he expects there will be a delay in delivery.

In the eventuality that the supplier fails to perform or deliver the work according to agreed date set in the PO, supplier will pay the buyer liquidated damages that equal two percent of the price for every week after the delivery date.

c. Increased Costs

The prices outlined in PO will be an all-inclusive and fixed. The price will not be varied without direct consent of SABIC shareholders given by the means of a written Change order as per Clause 1.3.2 of the Standard Terms and conditions.

Payment has to be made to the supplier after sixty business days from the date of the invoice issuance. The price of the goods is all-inclusive of all and any taxes payable related to the purchase agreement. Moreover, payment will be in the currency that is specified in purchase order and has to be made directly by bank transfer to the bank account the supplier indicated in the database of SABIC during the process of supplier registration. Supplier must pay all related charges related to bank.

The invoices ought to contain the PO number, quantities and work description and it will be supported by documentary proof of delivery or completion and also acceptance of work.

According to SABIC policy and procedures, the change order in term of the price is only allowed within 10% of the total price of the goods and services and after acceptance of the stakeholders.

d. Unethical Practice:

According to SABIC standard terms and conditions, Supplier is expected to comply with SABIC code of ethics and conform to all applicable safety, environmental and health regulations and standards under United Kingdom laws as well as that of international standards. During supplier registration, supplier is introduced to SABIC code of ethics and its EHSS and must accept in order to complete registration as an approved supplier in SABIC.

Suppliers should not commence any good, equipment or materials shipment or commence any other work or services until the insurance in effected or in force. In addition, supplier shall maintain, procure and carry comprehensive general liability insurance, which provides coverage for all damage due to bodily injury, which includes death at any time, and personal injury occurs to any person and for the damage to or loss of property caused by accident resulting from operations in relation to execution of the Purchase Agreement.

Supplier must provide a healthy and safe workplace for his personnel, and protect the environment while carrying out any activities.

As per SABIC Terms and Conditions, supplier must not to promise to pay, or pay, or authorize any form of payment for anything of value or money to any entity or person for the purpose of obtaining, inducing a decision, or retaining business, or any advantage related to the purchase agreement. The supplier has to, and shall ensure that all personnel complies with all laws applicable to anti-money laundering, anti-corruption, or anti-bribery.

Question Two: Explain the concept of the “battle of the forms” and demonstrate how you could ensure that any agreement is carried out under your terms and conditions

A contract is actually formed where an offer made by one of the parties is accepted by the other. There are intentions and considerations that are vital when forming a contract. When two commercial or business entities with equal bargaining power are in negotiation over transaction terms, each party would wish and want to use their standard terms in governance of the contract.

That provision of standard terms by one party to another mostly constitutes an offer, which can be accepted. However, it comes a time when the other party does not unequivocally accept the other’s offer in such that they seek to vary the standard terms or they end up putting forward their own. This is deemed to be counter offer and leads to rejection of original part’s offer.

According to the mirror-image rule of the common law, an acceptance that is different from the terms of a contract becoming a counter-offer (Carter, and Ketchum, 28-33). This serves as a rejection of the original contract.

However, the common law rule has with time been replaced by statute in several jurisdictions to achieve fairness among parties. The only requirement currently is that the responding form has to contain a reasonable and definite acceptance expression. The responding form terms that correspond to the offer makes up the contract (Carter, and Ketchum, 28-33)

In other cases, a situation may arise where two parties in attempt to incorporate their own standards term will usually bury themselves into question on to which terms will govern the contract and in some cases whether a contract is in existence at all. This situation of not coming into an agreement on whose contract to be used is known as battle of forms. The situation often occurs unwittingly and it mostly occurs when dispute arises and the parties involved seek to rely on a particular contractual term and so operative comes into question.

I can ensure that any agreement is carried under my own terms and conditions by:

· Making sure that the supplier is an independent contractor.

· The purchase agreement together with master agreement incorporates the entire agreement between the parties involved. The agreement goes in line with respect to the matter pertaining purchase agreement and supersedes all prior representations, arrangements, negotiations, communications, agreement and contracts entered or made between the both parties. Consequently, I will ensure that the purchase is not bound by any standard or printed terms presented by supplier in quotation or any other document unless the purchaser is incorporated in the purchase Agreement.

· Shan from making modifications of the Purchase Agreement will be effective with purchaser unless it is a written amendment, expressly stated as such and where both parties have signed.

· Ensuring that before I enter into any contract with business, which is equally yoked. I will purpose to seek legal advice so that I do not enter into agreement that can mess me around. The legal advice will offer the bearing on when to call the shots. The legal advice explains the terms of the contract and outlines the rights and obligations under that contracts, negotiate more favorable terms in the contract, prepares a contract for me to enter into with another party.

· As in any negotiation process, information is key such as the supplier place in the market and how much power they hold and the type of material as we can see below in the figure , as a buyer in SABIC I’d focus on the strategic items trying to establish a partnership relationship. In addition, for the leverage items I would have more power in the negotiation.

For SABIC, it is important that the organization gets the best possible deal during the negotiation process. This does not mean that everything has to go according to what the supplier or the organization wants. It implies that the supplier and the organization need to understand the most important things that they have to agree upon during the negotiation process. Lack of clarity is the main cause of misunderstanding and disputes in contracts.

The parties involved in the contract need to discuss every aspect of the contract carefully and ensure that the objectives of both sides are well as acknowledged and met. In any negotiation process, the organization should always settle for a win-win solution that will benefit both the parties. The other aspect that needs negotiation in the procurement/supply process is negotiating to have the objectives of the organization met.

During the procurement/supply process, the organization should always negotiate to have a long-term relationship with the suppliers. This will enable the organization to come up with alliance parties networks, which are very important. The short-term benefits are not the most important thing in any contract but a relationship that will last for long even after the sourcing process has been completed.

It is also important for the company to be conversant with the law as this helps to minimize environmental and business risks. More often than not, the legal system governing both the purchaser and supplier can have an impact on their contractual agreements. For example, countries such as the United States often have a common-law system that tends to make contracts longer. Therefore, the company ought to ensure that the contract is in tandem with the environmental and business laws depending on the supplier’s country of origin.

Question three: How your terms and conditions ensure that the relevant performance measures are monitored and managed

The terms and conditions ensure that the relevant performance measures are monitored and managed by. According to SABIC Terms and Conditions, it allow for the regular checking of supplier’s progress to make sure that contractual obligations are met. The terms also spell out the need for checking all clauses and conditions in the contract are acted upon by evaluating on any case of bleaching and taking action after seeking legal advice especially if non-conformance with the contractor occurs.

The terms allow for regular and random inspections of the goods and services that have been supplied during the contract period to make sure that they are of suitable standard and they meet the specified specifications. In addition, the terms spell out how the suppliers could offer advice especially in writing if they are not satisfied with aspects of performance under the acting contract.

As per SABIC Terms and Conditions, it point to the need for immediate action if problem occurs and also involving senior representatives of both supplier and procurer to solve the identified problems as soon as it can be done. The terms allow for the obtaining and developing mechanisms, which are effective when it comes to obtaining feedback from stakeholders on procurement.

Moreover, the need for keeping adequate written records of all deals that supplier and that of the administration of contract. This can be through file notes of inspection, records of meetings, telephone conversations and documented invoice processing.

The terms allow for the performing regular inspections of work to make sure that compliance with each and every applicable legislation, quality provisions, contract conditions and workplace safety and health is dependent on the nature of procurement, its associated risks and complexity and this could be on daily, weekly or monthly basis.

SABIC holds records for every supplier monthly and yearly performance in term of quality and delivery. If supplier performance decreased below a certain percentage for a period of time, SABIC has the right to deactivate the supplier temporarily or permanently in SABIC which they would not have any new business with SABIC.

The Saudi Basic Industries Corporation (SABIC) have a detailed and well-structured terms and conditions required in any procurement contracts between a seller and buyer to ensure a smooth and continuous operation be fully engaged in their obligations and responsibilities.

Conclusion

Setting terms and conditions in every organization especially those strikes deal on contract is very important. A contract, which is between two parties, is signed to do something or not to do something in return for a very valuable consideration. Actually, a contract cannot be done by one person. This means that, it is terms and conditions that are set in any contract that prevents parties in one organization from violating parties in the other organization in case of making business or other deals. It also regulates how employees, employers and stakeholder handle themselves and make them aware of the consequences if they do not follow terms and conditions. Additionally, for best results to be achieved, contract manager must monitor and manage the relevant performances as stated out in the contract. A contract should be updated to reflect all the changes in the organization, market and the world in general and this is one of the important factor for contracts.

As a buyer for SABIC, I would recommend the following: for strategic items to have the inspection in the site of the supplier by an appointed SABIC representative before shipment to ensure the quality of the goods purchased. Another recommendation, is to have the records of the yearly performance of suppliers with SABIC visible to all buyers in which they can make their decisions before include the supplier the bidding process.

References:

Huang, H., X. Shen and H. Xu., Procurement contracts in the presence of endogenous disruption risk. Decision Sciences 

Volman, Thomas E, and Carlos Gordon. Building Successful customer-supplier Alliances. Long range planning

Techer Comments to fix :

You have made some major changes to your work. Your report began with a revised executive summary; however, this did not provide a summary of the key parts of your report or a summary of your findings.

Instead it covered issues including total cost of ownership and partnerships which were not the

subject of the assignment or covered in any depth within your main body. Your recommendations

were also very generic and not focused on the assignment tasks. See the Candidate Assignment

Guidance document for more information on the requirements of the executive summary. �

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Techer Comments to fix :

In terms of task one you did cover the risks highlighted in the question and did provide some discussion on your terms and conditions. However, this was very general and could have been supported by the inclusion of extracts from your organisation’s terms and conditions. You also could have referred to external sources in this section to support your discussion, as well as to elements from the syllabus. The lack of any inclusion of external sources or elements of the syllabus in this section resulted in it being very descriptive rather than analytical in approach.

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Techer Comments to fix :

You did provide a discussion on the Battle of the Forms which did include some reference to external sources, but you could also have included some reference to case law. However, whilst you briefly discussed how your organisation deals with the Battle of the Forms, this could have been expanded upon to include other approaches that could be adopted to avoid the Battle of the Forms. However, you did consider the consequences to your organisation of losing the battle

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Bottleneck Items

Strategic Items

Supply Risk

Non- Critical Items Items

Leverage Items

Impact on Results

Techer Comments to fix :

Your section on contract management did cover the issue of inspections during the contract’s duration. However, you could also have discussed the development and use of KPIs. This section could have been enhanced had you provided some specific examples of KPIs used within your organisation’s contracts and had you included some references to external sources to support your discussion.

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Techer Comments to fix :

You also provided a very brief conclusion section which did provide very brief a summary of your main findings and this could have been expanded. You did include some recommendations; however, these were very brief and could have been both better linked to the findings within the main body and expanded upon. Also, you could have considered the implementation challenges of your recommendations.

You could have expanded your research in connection with this topic and also made more use of your external research within the main body of your report to support your discussions.

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Techer Comments to fix : Your reference list consisted of only two sources.

Areas for Improvement:

Application and Insight

• You should apply more of the content of the syllabus throughout your report to improve your analysis.

• Produce an implementation plan showing how your recommendations could be implemented.

• Include an enhanced conclusions section at the end of the report as well as developing some of your recommendations in more detail.

Knowledge and Approach

• Provide a more of a discussion covering managing contract performance.

• Include more of the concepts taught on the syllabus within your report to support your discussion.

• Cover the development and use of KPIs in the section covering contract performance.

Research

• Refer to the Candidate Assignment Guidance document that was issued for advice on referencing and on structuring your references and bibliography.

• Try to make use of articles drawn from Supply Management and content from the CIPS website, as there are useful materials on these on aspects of contracting, such as the Battle of the Forms, KPIs, contract terms etc.

• Include more external sources within the main body of your report to improve and support your discussion.

Structure and Presentation

• Ensure your executive summary provides an effective summary of your report - see the Candidate Assignment Guidance document for advice on this.

• Include expanded conclusions and recommendations sections.