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Summary - Fundamentals of Contract and Commercial Management
1.1 The relationship continuum
What are suppliers of a commodity?
- Product is viewed exactly the same as several other produces (same specifications, grade and quality)
- Price and availability are the traditional differentiating factors
- Examples are paper goods, heating oil, hardware
What are Suppliers of functioning equipment/systems?
- Meets the customer's minimum standards.
- Include suppliers of computer servers, large-scale copiers, or corporate vehicles.
What are Value-added products/systems and services?
- Viewed as a reliable and value-added supplier of products and services.
- Contractual arrangements are fulfilled on time
- products are provided conveniently
- additional services may be provided such as training) technical or financing support
- Price remains important, but may not be the main criterion.
- customer becomes less likely to shop around competitors and the cost of switching may be high.
- include suppliers of integrated technology, engineering or construction service
What are Consultant/critical business advisor?
Basedon providing value-addedproducts and systems and extra service
- Helping the customer to deal better with some of its important business issues.
- Understanding the customers business situation and objectives, by
generating workableideas for solving problems, advantage of opportunities, jointlyplanning with the customer, being sensitive to the customer's organzationalissues
What is a transactional buyer
- easily switch all parts of its purchasing from one supplier to another.
- low internal costs of switching between suppliers.
- easy for a new supplier penetrate the customer and harder for an incumbent to defend.
- Price, features, support, and delivery intervals are important cU criteria.
- Timeframes between purchasing decisions are usually short
- Maximize their negotiating power
- Comparisons between suppliers is easy
- buyers try to commoditize every purchas
What is a relationship
- customer faces high costs of switching
suppliersand changes suppliers
- Changes require substantial investment
- The perceived risk of changing is high due to the critical nature of the product
- Difficult to penetrate
- customer faces high costs of switching
Chart of how business relationships are changingEmerging needs of success
1.2 contracts to document commercial relationships
Which are agreements requiring contractual arrangements?
- Teaming and partnering agreements
- Franchises, distribution agreements
- Agency and representative agreements
- License and right to use agreements
- General sales agreements
- Service agreements
- Outsourcing agreements
- Engineer, build and install agreements
- Professional consulting agreements
- Standard purchase orders
Why is the importance of an agreement not reduced due to the fast moving business environmentAll of these types of business arrangements require specific understanding of the roles and responsibilities and the expectations from each party.
The extent of change and the need for speed increase the importance of a foundational agreement that accurately records the underlying business objectives and associated commitments.
What are benefits of effective contractmanagement?
- Improved quality of service and customer focus
- Greater value for money and cost control
- Reduced crisis management
- Decreased level of risk
- Effective implementation in relation to changes or development in the market
- Continued improvement through incentive based contracting and risk sharing
- Early identification and resolution of poor contract performance and associated problems and disputes
- Controls over performance, costs and standards
- Identification of things that worked well and not so well to inform and benefit future contracts
1.3 Choosing the best tool for the job
Why is involvement from the business important when creating a contract?The only way contract can effectively represent and support the desired relationship is if it is created with input from the business people involved.
The input from business professionals becomes critical and is often the difference between success and failure.
inaccurate or incomplete requirements and scope are the most frequent sources of contracts failing.
On which three needs shoulds customers focus according to sellers?
- Customers want to narrow their focus to the few things they do best and outsource the rest without the added overhead costs of supervising their suppliers.
- Customers want their sellers to know their business well enough to create products and services they wouldn't have been able to design or create themselves
- Customers want evidence that their supplier has added value in excess of price.
Factors affecting suitability of
partneringrelationshipFactors affecting suitability of partnering relationship
Latest added flashcards
- Is this change the result of an error or omission in the original contract?
- Is the change going to increase or decrease the price of the contract?
- Is the program duration changed?
- Will the quality of the project deliverable be affected?
- Is the service level changed?
- Is the scope of work increased or decreased?
- Who needs to initiate contract change?
- Who needs to approve a change?
- What is the change control procedure?
- Does the process use the available technology?
- Is the change control form easy to use?
- Is there a history of claims with this trading partner?
- Is there a dispute process specified in the contract?
- How can I reduce the chance of a claim or dispute?
Depending on the terms of the contract and the applicable legal system the arbitral decision may be final and binding or subject to possible subsequent litigation.