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Procurement in the Vanguard of Change

 'Our procurement is in the vanguard of change and we are highly respected in our business'.

This positive statement from the Director of Procurement in an international business caught our attention. What are the risks of being in the vanguard of change? Potentially, there are many, each requiring a unique approach and the ability to convince many stakeholders that they are part of the change.

Changing the source of supply is a challenge. We know this from personal experience. A good example was our retention to locate suppliers in Vietnam for a French organisation who required 'local content' when bidding in the Far East.

We found suppliers and arranged for items to be supplied for quality testing. The first objection was the Quality Manager who immediately said that anything from Vietnam would be rubbish, or words to that effect! Needless to say, the items were approved and the relationship was a success. In a related context there are powerful reasons why some people don't want to change suppliers.

One reason is fraudulent activity. This is an emotive subject in the context of procurement. Why? There are some organisations who delegate procurement decisions to the most unlikely people who are demotivated to manage the risks. Who monitors the delegated decisions?

It may rest with Internal Audit to do so. That may be unfortunate if Internal Audit don't know the 'tricks of the trade'. We have trained Internal Audit teams when they were contemplating audits of procurement. Our task has been to persuade them that procurement audits are far more than conducting a tick list. It is the interpretation of actions that will reveal good or poor practice. Our risk modelling tool PROCURISK is a tremendous asset for Internal Audit and procurement specialists. It will positively support change and assist in developing mitigation strategies.Why not try it for Free

Our Managing Director, Brian Farrington welcomes a discussion on this and related subjects. In the first instance please contact him by email at b.farrington@brianfarrington.com

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Dis-jointed Ventures

Are Local Authority Trading Companies or Joint Ventures as joined up as they should be?

We have been researching the background to public sector bodies who either have created or are in the process of creating Local Authority Trading Companies or Joint Ventures.

Because of the Freedom of Information Act there is a lot of data in the public domain. Some of this data includes Business Cases and Options Appraisals. It is not uncommon for procurement to be included in the plans for innovative thinking.

We have seen one business case where it was said in lay persons language that procurement had not performed.

THERE IS A RISK GONE UNNOTICED IN THE PAST!

It raises many questions, not least 'Why was it not known that procurement wasn't performing?' Did the Procurement Manager not know? Did those to whom they reported not know? Was there no reporting of actual performance? Were there no KPIs on Procurement?

Above all, it may be asked did anyone care? Harsh comments? We don't think so.

Procurement should be subjected to a rigorous and methodical risk assessment on a regular basis. We have the electronic tool to do this. It is PROCURISK.

There is an emphasis in many organisations on the cost of purchases, given that value for money is a prerequisite. Co-incidentally we are advising on a high-value project. When the tender prices are available it will cross our mind about the contingency provision included in the Contractor's price. Will it be visible? Not if it isn't requested, it won't.

What happens if the contingencies do not arise? The buyer will pay for the contingency provision and the Contractor's profit will be enhanced. That is what will happen. Procurement is in the risk business. It must identify the risks and find strategic and practical ways of mitigating those risks. Senior management should have the confidence that this is being done professionally and effectively. Is it where you are?

Our Managing Director welcomes a discussion on this and wider subjects. In the first instance please send an email to b.farrington@brianfarrington.com

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Caveat Emptor - watch this space?

We have predicted that the new 2015 Public Contracts Regulations will give rise to an embarrassment of claims for wrongful award of contracts by the public sector.

Meantime, another high profile case has been in the Technology and Construction Court.

The judgment is available on BAILII, see Bristol Missing Link Ltd v Bristol City Council [2015] EWHC 876 (TCC).

  • The claimant, BMLL, challenges the procurement of a significant contract for domestic violence and abuse support services in Bristol.
  • BMLL are the incumbent provider of the services.
  • The outcome of the tender process was that BMLL failed to win the contract and that the Council would award it to another tenderer, Refuge.
  • BMLL challenged under the Public Contracts Regulations 2006 and after a hearing in March 2015 the "automatic stay" would remain.
  • It's likely that a full trial will take place in June 2015. The case, once again, raises issues about the manner in which Councils conduct tender evaluation.

We've 3 comments to make. We've been selective and urge procurement colleagues to discuss the implications with stakeholders, internal audit and legal services.

A good starting point is a statement by McClosky J (Resource (NI):

“I interpose here the observation that, under the current statutory and jurisprudential regime, meetings of contract procurement evaluation panels are something considerably greater than merely formal events.

They are solemn exercises of critical importance to economic operators and the public and must be designed, constructed and transacted in such a manner to ensure that full effect is given to the overarching procurement rules and principles.” (Our emphasis)

The judgment includes:

‘Although the Council said that they would inform the tenderers of the result of the competition in early December 2014, it was not until 8 January 2015 that BMLL were informed that their tender had been unsuccessful’.

Comment #1

Experience suggests that it isn't an uncommon situation for a Council to be oblivious to the business implications of their delay. In the case being discussed there were massive TUPE implications.

There are tender evaluation and moderation issues in this case. The judgement includes:

‘Thus, for example, we know that the BMLL’s tender on sub-criteria 2.5 was the subject of scores from the individual evaluators of 4, 4, 4, 4, 4 and 3. These were subsequently moderated to an overall score of 3, but no explanation for that result has been provided’.

Comment #2

This raises a general point regarding scoring and moderation. There's nothing that wrong in different evaluators reaching different scores. It's what happens next in the process that's relevant.

There should be a discussion and this should be carefully documented as to why a final score was agreed. This may have happened in this case but it's not yet apparent.

The judgment includes the comment by Mr Justice Coulson:

‘I regard it as potentially unfair for the Council to pick and choose what documents they provide and when, as it suits them’.

Comment #3

No comment is needed!

The judgment also includes :

‘The second difficulty concerns the absence of any evidence from those involved in the tender evaluation process.

The Council’s principal evidence came from Mr Anderson, the Crime and Substance Misuse Service Manager, and the solicitor Ms Nugent.

Neither of them had any involvement at all in the process; certainly their statements do not suggest otherwise.

There were five evaluators, and a sixth person who was named and described as a procurement specialist, who was giving advice and guidance to the Council.

Surprisingly, there is no evidence from her………There has been no explanation as to why those actually involved in the process have not given evidence’.

The take-away:

This judgment should be mandatory reading for procurement specialists and those engaging in tender evaluation.

Our experience, when on the receiving end of tender evaluation decisions (when advising tenderers), is that asking a Council to provide debriefs is difficult.

Varied positions are taken such as:

‘We're too busy.’;

‘We'll write to you.’;

‘We're not obliged to provide the detailed scoring.’

We'll watch, with great interest, the outcome of the trial, assuming it gets to trial.

PS. It is unquestionable that risks potentially abound in the procurement detail.

I'm of the opinion that Procurement must be key decision makers and must have the skills to manage the whole process.

Within your current range of procurements is the potential for disaster.

Action: subject some strategic procurements to scrutiny, starting from the standpoint that if certain events were to materialise what are the implications.

Try the free trial of Procurisk®; there's a good starting point.

Procurisk® enables you to identify and manage all your procurement risks - to use as you see fit; for as long or a little as you want, when you want it, how you want it.

From as little as £75 per month.

I’d love you to try it. Head over there now and take a look.

You’ll see a ‘Try for free’ blue box where you can now access 10 free procurement risk metrics.

Let me know what you think. Does it work? Will it be of use to you? What can we do to make it better?

Your feedback is really welcomed.

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Yeah but no: what's it say in the contract?

This week one of our client’s contacted us with a problem concerning a lease they had with an office leasing organisation.

The questions we were asked included,

  • ‘How can we terminate the lease?’
  • ‘Will we have to pay any costs if we terminate?’
  • ‘How much notice will we have to give if we want to terminate?’

Our answer is predictable in this situation and many others where a contract requires interpretation.

What does it say in the contract?

A number of potential issues now arise.

  • Can our client find the contract?
  • Is there a written contract?
  • Who negotiated the contract?
  • Has it ever been changed and if so, were the changes documented?
  • Was procurement involved in that specific contract or, indeed, any others?
  • What was procurement’s influence, if any?

Here's another example: A marketing contract!

Marketing expenditure in some organisations is surrounded by mystique and is outside the scope of procurement’s influence.

Such was the situation with a pharmaceutical company who organised a product launch for varied VIP’s, including the media and medical profession.

IT WENT WRONG.

No surprises there then. Unfortunately, the entertainment services included a juggler but no one knew that the charges related to the items and number of items being juggled.

The stilt man worked on the height of the stilts!

Duckboards to walk on were extra but it was found out that they were essential when it poured with rain and the guests’ footwear was damaged beyond repair.

Would you want high quality tableware or would you have been happy with cardboard plates and beakers that were actually provided?

The event was an unmitigated disaster for all concerned.

What was in the contract?

It was the service provider’s standard terms and conditions of sale.

They were not read or negotiated, merely accepted on the basis that ‘we have used them before and never had a problem!’


The takeaway:


It is unquestionable that risks potentially abound in the contractual detail.

We are of the opinion that procurement must be key decision makers and must have the skills to draft contracts and negotiate them.

Within your current range of contracts is the potential for disaster.

Why not subject some strategic contracts to scrutiny, starting from the standpoint that if certain events were to materialise what are the contractual remedies provided for. Try the free trial of Procurisk; there's a good starting point.

Procurisk® enables you to identify and manage all your procurement risks - to use as you see fit; for as long or a little as you want, when you want it, how you want it.

From as little as £75 per month.

We’d love you to try it. Head over there now and take a look.

You’ll see a ‘Try for free’ blue box where you can now access 10 free procurement risk metrics.

Please let us know what you think. Does it work? Will it be of use to you? What can we do to make it better?

Your feedback is really welcomed.

Thanks

The Procurisk Customer Success Team

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PROCUREMENT RISK! MOBILISING A CONTRACT - WHO HAS THE RISK?

Why the risk is always with you


When a contract is agreed, most of the time, both parties have the best of intentions. There are potential risks that must be managed. It is procurement's job, with their colleagues in other disciplines to identify the risks and to have in place mitigation strategies. We were involved with an international airline who tendered the cleaning services required at an international airport to turn the aircraft around within a specified time. A new contractor was appointed and they had a brief time to start providing the services. TUPE was involved and, for whatever reason, a large proportion of the staff did not want to transfer to the new contractor. Two days after contract award the contractor was advertising, extensively in the local press ‘Staff urgently required.’ The associated risk now abound!

  • How will the new staff get trained?
  • How long will it take to get them security cleared to work 'air side'?
  • If the supervisory personnel does not transfer, how efficient will the new service be?
  • Who will pay if the aircraft are delayed because of a poor service?

No doubt all these issues were considered at the time the tender was being evaluated, and during any clarifications that took place.


We have a structured procurement risk management solution - Procurisk®. Click  here for a free trial. Contact us if you  wish us to present an in-house briefing on procurement risk management.

A Construction Sector Nightmare!


We accept that our involvement with some clients will always be on an exception basis, typically when there is or has been a major incident. On site construction works usually requires extensive mobilisation actions by the contractor. All these actions will, of course, be set out in the tender documents and will have been carefully assessed by procurement and their colleagues. That should be the plan. In the example we have in mind one of the actions was to procure a new IT system to control the construction works and to purchase the hardware.

Some of our readers will already be filled with dread.

  • Who will, from the buying organisation, interrogate the contractor’s procurement plans?
  • Will procurement be given access to the proposed contract for the contractor’s procurement of the system and hardware?

The nightmare continues with the implications of the contractor’s plant and equipment to site.

  • Does the contractor have the equipment available or, will they hire it?
  • If it is to be hired, who will have ownership of the plant and equipment whilst it is on site?

We ask because if the contractor goes into liquidation, the buying organisation will want ownership of the plant and equipment until the work is complete. We could go on for many pages with this nightmare, but suffice to say that the risks were not identified, mitigated or effectively managed.

Summary

Managing risk, from a procurement point of view, is a skilled task. It requires a structured approach and the logical application of thoughts rooted in dealing with the risks that may arise. Identifying these risks is not a simple matter. The two examples we have given are in specific sectors – where are your potential risks??????

Like to discuss this in more detail - please call +44 (0) 1744 20698 and ask for Ray Gambell. .

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The most dreaded question put to Procurement Professionals!

What to say when the CEO asks about how you manage Procurement Risk

Are our Procurement risks under control? asks the CEO.

How do you answer that?


Clearly, a “No” or “I don’t know” response is career limiting.


However answer “Yes” and you had better be prepared to back it up. The business world is littered with stories of contract disasters due to the failure to identify and manage risks that with a bit of thought could have been eliminated or at least mitigated.


Protect yourself, protect your organisation - invest in a Procurisk® solution. Identify those areas you need to concentrate on before a problem arises rather than have to explain afterwards why you didn’t.


So the next time the CEO asks “Are our Procurement risks under control?” you could answer:


“Yes, I use Procurisk® software which is specifically designed to assist in identifying and assessing procurement risks. It considers more than 400 potential risk areas and in using it I can establish where we are strong, and more importantly .where we need improvement. It also suggests ways forward that can be built into a formal plan.”


So don’t close the stable door after the horse has bolted. Bolt the door instead! Try Procurisk® at our expense. Just click here and press the "Try it for Free button". I would welcome your feedback.


Need to know more please email me, Ray Gambell at r.gambell@brianfarrington.com or give me a call on 01744 20698 to see how you and your organisation could benefit.

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When will the new Procurement Directives be applied in the UK?
There isn’t (yet) a firm date.  I can hear you groaning, but at least you know that as of 4 August 2014. ;)

However, the new Directives are now part of EU law and so it can already be applied in the UK. In applying it, no-one could be accused of breaching EU law. However, the UK -related 'laws' will include some extras such as preventing the use of PQQs (Pre-Qualification Questionnaires  - RFI's for our private sector readers) for tenders below the EU threshold.  A Directive is not legislation or statutory law (despite it often being referred to as such) It is just an order/directive, albeit binding on the Member States (all 28 of them) to transpose it into their respective legal systems.

What would you do?

Caution. It would suggest that the existing rules apply until the day Public Contract Regulations 2014 come in to effect under UK legislations. No doubt those pesky lawyers advising suppliers are watching carefully for anyone jumping the gun.

Our understanding *taps nose* is that it will not be transposed (until a Directive is transposed it is not legislation or statutory law - legislation will be the Public Contract Regulations 2014) by the end of this calendar year – you may have read that "sometime near Xmas" was the start date, which doesn’t now appear to be the case.

When will the new Procurement Directives be applied in the UK?

The 2014 EU Procurement Directives have been adopted by the EU institutions and were published in the Official Journal of the EU on 28 March 2014. They came into force on 17 April 2014. EU Member States now have 2 years to implement them in national legislation.

So, who would need convincing that every Member State will have done so by then?

Assuming the General Election would be May (?) that seems a likely date for the regs and associated timescales to have been formally applied in the UK. Where Scotland would fit into the timescales is also open to the influences of democracy. Case law  then follows as the legislation or outcomes intended under it get challenged through the courts This in itself gets complicated because you have binding precedents through cases heard under UK law and persuasive precedents cases heard through other European courts

Merely conjecture, of course!  Sign-up to our email newsletter, below, if you'd like more (I'll flag up when the legislation date actually kicks in).

Small print: As always, please do not take this as formal advice and consult your legal Counsel - just my opinion :)

Thanks

- Steve

Why Brian Farrington?

There are three themes that clients tell us over and over again.

First, they tell us they believe they are making a smarter investment working with Brian Farrington Ltd — bringing a thorough understanding of their procurement and supply chain issues and a proven track record of enabling excellent returns on their investment.

Second, our clients are confident that they are working with specialists that bring experience, expertise and stay focused on client success; not on our next income target.

Finally, people –people just like you – tell us they actually like working with us. They find us easy to work with and collaborative in solving issues that inevitably arise in procurement.
About Brian Farrington 

Brian Farrington is one of the world’s longest established procurement and supply chain consultancy and executive training specialists. 33 of the current FTSE100 have retained our services, as well as leading government organisations in the UK, North America, southern Africa and Asia. Established in 1978, we have proven expertise and experience in procurement, risk and negotiation.

Brian Farrington solutions and services are formed through consultancy, training & development and coaching – all underpinned by proprietary technology. Our four core areas of procurement capability are:

•Strategic review and commercial governance

•Performance delivery and transition

•Major project support including contract negotiations

•Learning & development in support of organisational aims.

Let’s connect on Twitter and LinkedIn  – or give me a call on 01744 20698 :)

Have you had a look at this innovative approach to managing procurement risk?

 

 
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A glossary of commercial terms for the switched on buyer

Here we go, alphabetical order:




Acquisition The process of requirement setting, procure, support management and disposal, implying a whole-life approach to acquiring defence capability. (Also see Cost of Ownership.)

Agreement in Principle This is another qualifying comment. It means that it is not formally accepted, thus leaving the door open to the seller to withdraw the agreement in principle if something arises in discussions or negotiations that impact on the provisional agreement.

Alliance A procurement strategy in which a Buyer selects and contracts with a number of suppliers, the aim being to include those best placed to introduce innovation and mitigate recognised risks. The Buyer and the other Alliance partners share risks and benefits. The Buyer will typically appoint an Integrator to lead project management across the Alliance.

Anchor Milestones The characteristics of Anchor Milestones are that they should be associated with those activities that are on a project's critical path and that their achievement should improve confidence that the intended project delivery will occur on time. Monitoring of Anchor Milestones will provide an early alert if the risk in delivering a programme within its approved time, cost and performance envelope increases.

At a price to be agreed This should not be accepted by the buyer. It leaves the buyer vulnerable to any price submitted by the seller. On the occasions when a price cannot be agreed prior to signing a contract an Instruction To Proceed may be placed with a financial cap attached to it, thus giving the buyer an opportunity to, later fix the price on a rational basis.

Breach This occurs when one party fails to perform one (or more) of its obligations under a contract.

Common Law Damages Common law damages are remedies available to any contracting party to compensate for the financial loss suffered as the result of a proven breach of contract. They require demonstration of the breach and, unlike Liquidated Damages (LDs), the loss incurred as a result of the breach. 

Consequential Loss Consequential loss is any loss that does not arise directly as a result of a breach of contract. Such losses are more ‘remote’ than those that were reasonably foreseeable by the parties to a contract and may not be recoverable.

Contingent Liability Contingent liability arises if The Buyer grants an indemnity to any other body, including a contractor, because it commits Parliament in advance to unpredictable expenditure. All contingent liabilities must be approved by the financial authority responsible for the acquisition requirement. Where the liability is substantial and/or cannot be categorised as ‘normal business’, Treasury should be consulted before proceeding further.

Contract Management Plan An important tool for ensuring that the client identifies and addresses all relevant issues through the life of the contract. It is a dynamic document which is created during the contract formation stage and modified throughout the life of the contract.

Contractual terms noted This is a qualification and is a meaningless statement. Noted in what regard? Do they have an objection? If so, what is it? What is the process to resolve any differences?  The buyer must not believe that the seller has accepted his contractual terms and conditions.

Copyright A form of statutory protection for original literary, musical, dramatic or artistic works, which terms include technical papers, drawings etc. and computer software. Copyright provides the right to protection against unauthorised copying, publication or performance of a protected work. Copyright comes into existence automatically when the work is created and therefore applies to unpublished as well as to published works.

Cost of Ownership An annualised representation of the resources consumed directly in the procurement, operation, training, support and maintenance of military equipment at all stages of its life. The Cost of Ownership statement is the costed element of the Through-Life Management Plan.

Direct Costs / Indirect Costs Costs that can be identified directly to a specific, contracted, task (e.g. labour and materials) including ‘bought out’ or sub-contract costs. Costs that are expended throughout the contractor’s business or cannot be attributed to a particular job are ‘overheads’ (e.g. the cost of running the contractor’s headquarters and buying utilities such as electricity, canteen staff, cleaning materials). These costs are usually expressed as a percentage of direct costs.

E&OE This means Errors and Omissions Excepted. This is a significant qualification and should not be accepted by the buyer. To accept the statement is leaving the door open to the seller to change any aspect of the quotation.

Estimate This is a price submitted by the seller but who may word it as subject to confirmation. The buyer needs to establish if it is a price capable of acceptance and whether it is ‘firm’ or ‘fixed.’ The danger of placing a contract on this basis is that the seller requires an uplift when he is in possession of further information.

Express Guarantee (or Express Warranty) An agreement whereby a Contractor agrees to repair or replace defective goods free of charge (or with certain limited fees - e.g. transport costs) where the defects are of a type covered by the guarantee and where they arise within the period specified within the guarantee. It normally excludes all other warranties and conditions implied by Common Law

Ex-Works A method of delivery. Goods are collected from the seller’s premises by the buyer or his agent or authorised representative at the time stated in the contract. Title to the goods delivered ex-works will usually pass at the time of collection.

Firm Price A contract price that is not subject to variation for a specific period of time.

Fixed Price A contract price that may be varied on an agreed basis to take account of inflationary and/or exchange rate movements

Force Majeure An unpredictable event or occurrence beyond the control of the contracting parties, and which is not attributable to any act or failure to take preventive action by the party concerned. A Force Majeure condition allows an extension to the contract duration or completion/delivery date should a Force Majeure event occur.

Gainsharing Where the Buyer encourages a supplier to propose cost or performance improvements that could be made providing the Buyer agrees to vary its specification and to share the gain with industry.

INCOTERMS A shorthand for the guidance on International Rules for the Interpretation of Trade Terms (‘Incoterms’). INCOTERMS describes the different methods by which delivery may be made.

Indemnity An arrangement where one party (the indemnifier) agrees to pay another (the indemnified) sums of money to compensate the indemnified for a loss in the circumstances described in the indemnity term.

Integrator Also referred to as a Physical or System Integrator. Typically used as part of an Alliance procurement strategy to build, manage and lead project management across the Alliance partners and is often a project management specialist. See also Alliance.

Interim Payments A generic term for payments made to a contractor before the work is completed. The preferred method is ‘stage’ or ‘milestone’ payments, which provide pre-determined advances of the contract price at predetermined stages or milestones of the work. The payments are made against achievement; if the stage or milestone is not achieved then the Buyer may take a view as to the amount to be paid. All these payments (advances) are recoverable in the event of non-performance of the contract.

Invitation to tender An invitation by the Buyer for suppliers or contractors to offer binding proposals to undertake work to a published specification; unconditional acceptance will lead to a contract.

KPI Key Performance Indicator. KPI’s are tools that help us to measure the performance of suppliers against their contractual obligations. KPI’s are normally detailed in the service specification

Letter of Intent When properly written this does not create legal relationships, it merely gives comfort to the other party that they may win a contract. In the USA they are called ‘comfort letters.’ For it to be a letter of intent it must not instruct the seller to take any actions, otherwise it becomes an Instruction to Proceed which does create legal relationships.

Limitation of liability An arrangement where a party to contract limits his liability to the other party; this may be for the value of a contract, or for damages in the event of breach of an obligation

Liquidated Damages A contractually pre-agreed sum payable by way of compensation in the event of a specific breach of contract (e.g. late delivery).

Maximum Price A term usually used in Target Cost Incentive Fee Price (TCIF) arrangements and is that price beyond which The Buyer is not required to pay. Costs incurred above the Maximum Price fall to the contractor alone. Exceptionally, a Maximum Price may be adopted until a Firm Price can be agreed

Objectives and Key Results Objectives and Key Results ("OKRs") ensures discipline thinking (the major goals will surface), you communicate accurately (lets everyone know what is important), establishes indicators for measuring progress (shows how far along we are) and focuses effort (keeps your firm in step with each other).

Offer and Acceptance Offer and acceptance – with any requisite detail – are essential elements of contract, but it may be very difficult to tell whether or when they have come into existence.  They do not usually require formal declarations by the parties.  They may result informally e.g., from a course of dealings, or even from silence (but note the Unsolicited goods and Services Act 1971).  Use of the words “offer?? and/or “acceptance?? is not usually conclusive.

Parent Company Guarantee A parent company guarantee binds the guarantor (the ‘parent company’) to fulfil and complete a subsidiary company’s obligations and liabilities in the event of a failure by that subsidiary to fulfil and complete its obligations and liabilities under a contract

Partnering An open, co-operative and interactive relationship between The Buyer and a Supplier, aimed at achieving common goals notwithstanding complex and volatile environments

Patent A monopoly right granted to protect an invention which can be an apparatus, process, product or substance. A valid Patent gives its owner (the Patentee) a right to stop other people using the invention that is the subject of the Patent. Provided renewal fees are paid, a patent will last for up to 20 years.

Prime Contractor. A contractor having responsibility for co-ordinating and integrating the activities of a number of sub-systems contractors to meet the overall system specification efficiently, economically and to time

Procurement The process of acquiring goods, works and services, covering acquisition from third parties and from in-house providers. The process spans the whole life cycle from identification of needs, through to the end of a services contract or the end of the useful life of an asset.

 Quotation It must be established if the quotation is an offer to sell or an invitation to treat. Often the supplier will couch it in terms of ‘This quotation is not an offer.’ The buyer must read the quotation for any qualifying comments that seek to place risk with the buyer.

Request for Proposals A request by the Buyer for a contractor or contractors to supply non-binding proposals on how it or they would meet the requirement.

Reasonable price There is no such thing as a reasonable price! The price will be set according to many things including the market conditions; seller’s pricing strategy, risk profile of the contract, liabilities, etc. This term is best avoided by the buyer.

Risk The probability of an unwanted event occurring and its subsequent impact. See Procurisk

Specification A description of requirements and standards to which the goods, works or services should conform. Also known as a statement of needs, a statement of requirement, an operational requirement, or a brief. Its purpose is to present prospective suppliers with a clear, accurate and full description of the organisation’s needs, to enable them to propose a solution to meet them

Stakeholder An individual or organisation that has an active interest or a stake in a particular organisation or issue. For example, funders, members, contractors, purchasers, trustees, beneficiaries, volunteers and paid staff are all stakeholders in a voluntary organisation

Standard Forms The forms (of contract) may be drafted by the economically stronger party, or based on trade association rules, or the Incoterms published by the International Chamber of Commerce, codes approved by the Office of Fair Trading, or other such rules of practice.  Typically the forms seeks to limit liability for breach, allocate risk, provide for payments, settlement of disputes, etc.

Subject to Contract The use of these words is not a valid acceptance of a contract. An acceptance made subject to any variation is treated as a counter offer. The buyer must know the rules of offer and acceptance.

Subject to Negotiation This is a further qualification and cannot be treated as acceptance. Until the negotiations are complete and the outcomes documented and agreed by both sides there is not an offer that can be accepted by the buyer.

Target Cost Incentive Fee A method of pricing used when there is insufficient confidence to agree a Firm or Fixed Price. A ‘target cost’ is agreed (i.e. the cost at which both parties believe the work can be done). If the contractor’s costs are below the target cost he will share the underrun with the Buyer in line with a pre-determined ratio. If his costs are greater than the target cost the Buyer will share the overrun also in line with a pre-determined ratio. It is usual for the Buyer to include in a TCIF arrangement a cost ceiling figure (i.e. Maximum Price) above which the contractor will take full responsibility for any overrun.

Through-Life Management Plan The Through-Life Management Plan should bring together key themes of Integrated Project Teams, Systems Engineering and improved commercial practices. An outline Through-Life Management Plan should be produced in the concept stage and maintained throughout the procurement cycle. It will show the full resources needed to meet the objectives of the project and is recognised by all stakeholders.

Trade Mark Trade marks consist of words or symbols that distinguish one set of goods from another or the services provided by A from those provided by B. Even colours or sounds (i.e. jingles) can act as Trade Marks. Trade Marks can be registered or unregistered; wider rights of action being granted to the owner by registration.

TUPE Transfer of Undertakings (Protection of Employment) Regulations 1981. The aim of TUPE is to protect employee rights (in particular terms and conditions) on the transfer of the business in which they work (the ‘undertaking’) from one employer to another. Government policy on Public Sector transfers is that TUPE will apply to contracting out except in genuinely exceptional circumstances

Unregistered Design Unregistered design rights are automatic and apply to any original design excluding those features of a design applied to an Article that are made to ensure that it fits or matches with another part. Protection for an unregistered design lasts for 10 years from first commercialisation of the design

Valuable Consideration English law (but not Scots law) sees a contract as involving enforcement of a bargain rather than enforcement of a promise by one party only.  As a rule, one side’s promise cannot be enforced by the other unless he has “bought?? it.  This requirement of mutuality or reciprocity, the quid pro quo, is called “valuable consideration??.  It means that the promise must give or do or promise to give or do something of economic value (not necessarily equivalent to the promise) in return for the other’s promise before he can enforce it.  Alternatively the promise may show the promisor has received a benefit as a result of his promise.  A promise given in return for an act or promise which was undertaken without contractual intent is given for past consideration, which is of no legal effect.  A promise to accept part payment in full settlement is also generally unenforceable.

Value for Money The provision of the right goods and services from the right source, of the right quality, at the right time, delivered to the right place and at the right price (judged on whole life costs and not simply initial costs).

Variation of Price A mechanism by which the risk of inflation in a contract price is reduced (or removed) through the application of a formula which provides for a periodic adjustment of the Fixed Price in the contract

Whole-Life Costs The aggregation of the annual Cost of Ownership statements covering the total resource required to assemble, equip, sustain, operate, and dispose of a specified military capability at agreed levels of readiness, performance and safety.

Without prejudice This is a phrase used to enable parties to negotiate settlement of a claim without implying any admission of liability. Letters and other documents headed ‘without prejudice’ cannot be adduced as evidence in any court action without the consent of both parties.

 

That's it!

A glossary of commercial terms for the switched on buyer. What have we missed? Please drop me a note, with your suggestions and additions it would be great to grow this into a really useful resource - and as always your help and support is appreciated.

 

Why Brian Farrington?

There are three themes that clients tell us over and over again.

First, they tell us they believe they are making a smarter investment working with Brian Farrington Ltd — bringing a thorough understanding of their procurement and supply chain issues and a proven track record of enabling excellent returns on their investment.

Second, our clients are confident that they are working with specialists that bring experience, expertise and stay focused on client success; not on our next income target.

Finally, people –people just like you – tell us they actually like working with us. They find us easy to work with and collaborative in solving issues that inevitably arise in procurement.
About Brian Farrington 

Brian Farrington is one of the world’s longest established procurement and supply chain consultancy and executive training specialists. 33 of the current FTSE100 have retained our services, as well as leading organisations in the UK, North America, southern Africa and Asia. Established in 1978, we have proven expertise and experience in procurement, risk and negotiation.

Brian Farrington solutions and services are formed through consultancy, training & development and coaching – all underpinned by proprietary technology. Our four core areas of procurement capability are:

•Strategic review and commercial governance

•Performance delivery and transition

•Major project support including contract negotiations

•Learning & development in support of organisational aims.

Let’s connect on Twitter and LinkedIn  - or give me a call on 01744 20698 :)

Thanks

- Steve

 

 

 
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