need a response to 3 post

LG424DLF2A2020 Purchasing & Vendor Management

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1.  Where do you believe buyers spend most of their time in negotiations?

I believe buyers focus most of their time and effort on preparing for the negotiation instead of the scheduled phases. Failing to prepare for the negotiation is a common mistake made by many buyers, which resulted in an undesirable outcome. I believe it is the most crucial stage of the negotiating process. To prepare, the buyer should research both sides of the discussion, identify any possible trade-offs, determine their most-desired, and least-desired possible outcomes. Negotiation preparation also includes defining the ground rules: determining where, when, with whom, and under what time constraints the negotiations will take place. (MasterClass, 2020).

 

2.  What are risks to buyers associated with each of the different types of contracts (fixed price, incentive, and cost-based contracts)?

Fixed-price contracts

· With a fixed-price contract, the buyer (that's you) doesn't take on much risk. This is great for the project's risk register but not so great for the project budget. As the seller adopts all the risks, they usually add a bit to the price to allow for any risks.

 

Cost-reimbursable contracts

· With a cost-reimbursable contract, the purchasing agency pays the vendor for the actual cost of the work. This could be materials, equipment, and whatever and generally include direct (e.g., raw materials or labor cost) and indirect costs (e.g., Quality Control Cost).

· There is a high level of uncertainty. The buyer assumes the contract's risks, benefiting if the actual cost is lower than the expected cost, while losing if the work cannot be completed within the anticipated cost of performance.

· Another risk is that the contractor may be less efficient since they will profit either way.

 

Incentive Contracts

· It creates additional administrative costs for the buyer because these types of contracts have more oversight responsibilities.

· It requires extra negotiation time.

· It can change the priority of the contract. The vendor may focus more on the incentive rather than the contract requirements and costs.

· It increases the risk that a dispute will occur. (For Government)

 

10.  Suppose a supplier gives you a price on a contract and then later comes back and claims that he mistakenly wrote down the wrong price. Do you have right to sue the supplier over breach of contract? What conditions are important here?

The question to ask here is if there a contract established? If the essential elements for this agreement are present, then legally, yes, you can sue. Once a contract has formed, both parties are expected to uphold their end of the terms. When one party fails to fulfill any of its contractual obligations, it is known as a breach of the contract. In this scenario, the supplier claims that he mistakenly wrote down the wrong price, and if they attempt to terminate this contract, it will be a breach.

However, business ethics should be practiced when establishing relationships with contractors. I.e., if the error was an apparent mistake, and there is no significant setback, then the vendor should be allowed to correct this mistake.

 

References:

FAR16.2, FAR 16.3, and FAR 16.4

MasterClass. (2020, November 08). How to Negotiate: The 5 Stages of the Negotiation Process - 2020. Retrieved November 10, 2020, from https://www.masterclass.com/articles/how-to-negotiate

Tjan, A. K. (2014, July 23). Four Rules for Effective Negotiations. Retrieved November 10, 2020, from https://hbr.org/2009/07/four-rules-for-effective-negot

M E

Why do many firms attempt to avoid litigation in settling contract disputes?

Litigation can bring many challenges to firms, avoiding litigations can only help the firms out. There are many reasons that firms avoid litigations, the following are all reasons why firms try to avoid litigation: Litigation creates a financial burden where budget constraints and cost controls are affected. Unfortunately, there isn’t a high chance of a litigation being granted to firms, most instances its only 50% chance. In instances when things don’t go according to plan, the overall productivity will decrease, people will show resentment and relationships will shatter. The business relationships between the firms would also be affected and at times prove costly. Going into litigation can also cause a hit on the firm’s reputation.

Under what conditions can purchasing agents be held personally responsible for abusing their position?

There is a fine line that must be observed whenever purchasing agents are at work. In certain situations when the purchasing agents acts beyond his/her authority then there are consequences. The agent should be well aware of their limitations and apparent authority. Whenever these limitations are broken then the employer could seek legal actions against him/her and they will be held accountable. Any activities that are performed by the purchasing manager without the authority of the firm automatically makes them liable. If there are issues that arise as a result of the activities performed beyond the scope of authority the agents are held responsible. Another incense is if any activities performed with an intention to gain personal interest, and violation of laws or misuse of company information will cause the purchasing agent to be held personally responsible.

What are risks to buyers associated with each of the different types of contracts (fixed price, incentive and cost-based contracts)?

All contracts have different risk associated with them. In the fixed price contract, the buyer must be aware that even if the supplier cost decreases due to the fact that the price is fixed, they will still have to pay the allotted amount. Under the incentive and cost-based contracts there are different risks that the buyer must also take into consideration. Under the incentive there is a 50/50 split, whenever the suppliers cost increases the buyers cost will also increase as well. Cost-based is very unfortunate for the buyer because they are the ones that usually bares all the cost. All fees associated are based on a fixed amount and the buyer will have to pay the price.

Lee

What are risks to suppliers associated with each of the different types of contracts (fixed price, incentive and cost-based contracts)?

 

Fixed – If market price of a good or service rises then the supplier will lose money from sales. Each item sold at the agreed upon price could have been sold for more.

Incentive – Fixed price with incentives is similar to a fixed price contract, however when there is a savings that is found due to materials or other cost saving measures they must split that the buyer. A part that they used to make ten dollars on that is now 5 dollars cheaper to make would usually now make them 15 dollars. After splitting the saving with the buyer it will only make them 7 dollars and 50 cents.

Cost-based – Cost based contracts have very little risk for the supplier as all the cost of manufacturing is passed on to the buyer.

 

Why do many firms attempt to avoid litigation in settling contract disputes?

Litigation is settling contract disputes is one of the last things that both buyers and sellers would like to see happen. This is mainly because of the uncertainty when it comes to both the times and the cost of the process itself. This is the reason that most firms attempt to avoid this process when at all possible.

 

 

Discuss the concept of ethics. Why is the purchasing profession particularly sensitive to this topic?

 Ethics is something we encounter all day in normal life it could be as simple as what to do after noticing you didn’t get charged for the extra fries you got in your bag of fast food, or it could be making a purchase for a company that you have stock in. Ethics is something that we could use a little more of in our world. Three reasons that a purchasing profession would encounter ethics is ensuring the organizations benefit is the priority and not their own personal gain. They must also have ethical relations with both suppliers and future buyers. These professionals must also uphold the ethics set forth by the organization as well as the purchasing profession. 

Thanks