Developing Contracts in Procurement and Supply

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Introduction

Contracts have continued to define every part of our lives. Whether formal or informal, it is now imperative that nearly all the relations that humans have are contractual in nature, with the main aim being successful. Within the realm of procurement, well-defied contracts and obligations are essential requirements. The process that is to be followed must however take into account the rules that will be guiding and governing how the parties relate to each other. Parties must be able to know what is expected of them when to perform such obligations, the quality of performance, and the time when such are explored. These are essential elements that must often accompany the formation of a contractual relationship in a procurement setup within any given organization. This is done by fixing obligations and promises that are binding to all involved and making sure that each party is protected from risks that may arise due to unexpected changes in the performance of the contract. The United Nations, as an organization has a number of contractors and suppliers who are contracted to provide essential products and services. These relations are guided by existing laws, created through contracts and they make sure that the performance of these duties is not breached. Contractual obligations and contract formation must now be capable of putting into consideration the needs of the people who enter into it. The contractors have a duty that is imposed upon them, to be honest, helpful, and with the interests of the client at heart. With these contractual and performance obligations at hand, the report argues that the United Nations Organization need to have a wider array of terms and conditions that are going to protect it amid the need for management of poor quality, increased costs of products and supplies as well as unethical practices that have made it difficult for obligations to be performed and make the procumbent process run smoothly. Incentives that increase performance, increase quality, and minimize the risks that are faced by the various parties is the best approach wards the developing contracts in procurement and supply. However, while doing this, the intentions of the parties must be put into consideration.

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The Choice of Procurement Contract

Whereas most of the obligations may be deemed to be well captured within the contracts, parties must be aware of the choices that they are king in as far as contract formation is concerned. The choice of a contract during the formation of obligations is what guides the parties on what is expected of them, and helps in the general risk mitigation. Consequently, and while drawing examples from the United Nations as an organization. In procurement contracts, the capability of insuring oneself and in particular the contractor against all the risks remain minimal (Jie, 2014). This means that there is a need to have several avenues put into place that will ensure that the risks are well-identified, even if they are futuristic. The choice of contract which is used in defining these obligations remains at the core of shielding the organization contracting for supply against all forms of foreseeable risks. The assessment dwells on the existing contractual relationships between the organization and its suppliers, and how the organization has been able to maintain a plausible relationship with the suppliers.

This calls for the United Nations as an organization to be conservative with the types of goods and services that are being supplied by the people they are contracting with. The identification is critical in making sure there is a continuity of the operations of the organization. Notably, through its procurement department, the organization indeed has its inspection units within the entity, and it is majorly tasked with inspecting the products and services that are supplied to the entity. The body must however have a keen interest on the contract formatioinand the manner in which the contracts formed are capable of minimizing the risks (Glas & Kleeman, 2016). The choice of a procurement contract therefore remains at the core of any company’s success story in as far as procurement and supply are concerned. The direction to be determined by the organization is determined.

The United States, as an example of a success procumbent story is a case in question. With good rules that have been developed over the years, the procurement process in most government entities have now understood and learnt through time what is ideal for their operations. The approach that is selected in creating these entities contracts is what could be considered the most appropriate one for the United Nations Organization. The U.S. Federal Acquisition Regulation has a number of provisions that could provide considerable attention to issues contracting. The FARs state guidelines that have to be followed when it comes to formation of contracts that are to be used in defining relations of the parties. On the other hand, the Department of Trade and Industry in the United Kingdom (DTI) has a number of contracting choices for those contracts that are more than $ 10,000 in value (Glas & Kleeman, 2016). As a result, there are three broad choices of contracts from which the contracting parties can often choose from. These are fixed price contracts, cost reimbursing or plus, and incentive contracts. In a bid to ensuring that the Organization maintains a healthy relationship with the suppliers, the assessment reviews and gets into the need to have good contracts drawn with a futuristic approach.

Cost Reimbursement Contracts

Such contracts are that the buyer, or the contracting party agrees to reimburse all the production, supply or construction fees, as well as all the related expenses in as far as the supervision is concerned. In its risk mitigation, this form of contract strives to shield the buyer or the procuring party from any firms of variations that may have accompanied the entire process of coming up with the costs of the procured products and goods. However, in reimbursing such costs, there must be documentation of the expenses. This means that the expenses that are claimed must have to be part and parcel of the records that accompany the invoice to be settled. The contract does not end here. There are various terns that are used when it comes to defining the obligations of the parties and the players, as to what is expected of them. The contracting parties must thus be able to know the number of days that the contract will take, and the nature of operations that are expected in line with the performance of the contract (Pelton & Smith, 2015). The completion of these duties will be the best approach when it comes to establishing the best forms of relations where each part feels that the obligations were well performed. The United Nations Organization has several of these contracts needed in the determination of the rights of each party as well as what it needs to be done. However, it is worth noting the vulnerabilities to which the organization has become exposed to in as far as inflation of costs is concerned.

Unit Price Contracts

These are contracts that are majorly used when it comes to small supplies that are required by the organization. There are various supplies that may be constantly needed by the organization. As a result, bidders are often invited to submit their bids in order to make the contract achievable. They are needed to communicate their price quotes and what is needed for their submission of the requirements. In the above approach, the procuring party will be able to evaluate the prices that are required, selecting what is good for it. Scholars in this area have continued to criticize this approach of contracting as the quality of the products that are often sold would go down (Brown et al., 2018). It is however worth stating that there is a need to have the quality element in such contracts. Arising from the above understanding is the fact that some of the contracts may always get accepted as they are, but the quality elements declines at delivery.

The United Nations organization has a sound policy that guides the formation of contracts that are based on unit price contracting. Whereas it is often said that there is a requirement to have the price of the products well defined and placed within the policy, there is an emerging challenge of employees and suppliers conniving and breaching the contractual obligation (Keränen, 2017). The lowest price is therefore not a guarantee that the aims of the organization may be achieved as required. The contract when so formed must be able to secure the rights of the procuring party and ensure that the best quality is realized. In line with these obligations, organizations must now develop the best terms that will make the reaching of the goals of quality a major part of the contract.

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Fixed Price Contracts

This is a contractual obligation where the contractor is paid a fixed price for the performance of the contract. The project must however be able to perform the set out goals and objectives of the contract before the price is paid. The quality standards of the given contract must always be set out and defined as required. In this line, and as per the terms of such contracts, the quality is a vital element that if not satisfied as may be required, then the payment of the agreed sum is reneged (Christensen et al., 2016). The most appropriate approach that must be given in effective performance of such contracts is the capping of the element of time. It is emerging that most contractors are keen on exploiting the elements of time, thus lengthening the periods of the performances, or worse doing substandard works.

The United Nations has in the recent past remained incapable of enforcing various contractual obligations, a factor that has led to protracted legal battles in the courts and tribunals across the world. This is attributed to the failure of these contracts to capture the entire risks that the organization may end up facing from time to time, and in line with the performance of the obligations of the contract (Norris-Tirrell & Clay, 2016). Consequently, it is worth stating that there is a growing need to include these forces within the contract, and make sure that parties are bound to perform the contracts as required. In recent times, the development of contracts has taken a new shift, with parties now opting for the stage by stage contractual approaches (Brown et al., 2018). The contractors get approved at every stage of their performance, thus making it easy to develop projects that are within the required and defined qualities.

Incentive Contracts

These are contracts that seek to balance costs, quality and profit. Whereas the contractor has the right to claim for the work done, this type of contract is often formed in a manner that ensures that the required quality standards are met within the required timelines. The output of the contract and the required supply must not only meet the expectations but must be able to have the required qualities that will lead to the achievement of the objectives of the project (Bertone et al., 2018). Whereas this form of contractual approach is often not so much used, there is a growing concern within the United Nations Organizations, which previously did not venture into having profit making investments (Brown et al., 2018). Currently, the change in the tact has created a growing need to have the contracts formed in this area so as to protect the organization from the suppliers who have now started exploiting the already evident gaps.

Risks for Poor Quality in Procurement and Supply

At the core of procurement contract formation, it has become evident that at times, the achievement of the goals of the contract may not be done. The parties are left disgruntled and suffering from the outcomes of the incomplete performance of the obligations. They are therefore left with no option but to pursue their rights with the courts or arbitration tribunals. These suits lead to the discovery of risks that are associated with the formation of contracts and contractual obligations (Liinamaa et al., 2016). As a result of this, it is now imperative that all the facts that pertain to the performance of the contract must have to be brought to the limelight, with everyone able to understand and know what is expected of them. One of the most evident results of the above moves is the failure to have the best in terms of delivery. This leads to loss of capital for the procuring party (Liinamaa et al., 2016). It is worth observing that whenever these breaches occur, it has now become evident that the procuring party is the one that is more exposed, and thus the need to shield such parties who may end up with losses from unperformed obligations.

The major risks that face the organization are hedged upon the absence of transparency among the contracting parties. It has become evident that whenever these contracts are formed, then the parties that are required to perform them do not mean their intentions. In fact, the breach has been found to take place right from the time that the contract is formed, with the contractor not doing what was agreed upon. This has often presented the purchaser or hirer with the risks of time of delivery not being honored. The present approach therefore means more and more risks that affects the organization in terms of the delivery of its projects and goals. These drawbacks have the impact of affecting service, performance and achievement of the goals for which any given organization is formed. As a result, it has become necessary to have an organization with an inspection team that is keen on realizing the objectives of the organization.

Mitigation of Contract Related Risks and Poor Quality

At the contractual stage, the risks that have continued to riddle the purchasers and those who engage in contracts have made it critical for the participants to find the best approach on how risks can be mitigated. Parties must be able to understand that they are expected to perform most of their obligations, and not just adopt any given contract in its state. The first strategy is to organize the quality assessment team, one that is able to assess the situation as it is, ensuring that the compliance requirements are met as needed. The most appropriate strategy will be premised upon the best quality assessment team. Whereas the United Nations Organization reputes itself as having the capability to deal with quality assessment issues, the performance of these roles remain relaxed, calling for a reproach on the quality assessment teams that the organization possesses.

Adopting contacts that meet the key requirements of the purchasers is the best approach. It has now come to the observation of many, that there are several instances where a single contract format approach has been used in creating obligations of all the contracting parties. This does not limit the fact that these templates are often confined in terms of the manner in which the parties are able to achieve the goals of the contract formation. Contractual formation in recent past has called for a specific manner where contacts are drafted for specific tasks. Templates have become limited in terms of what they capture. This assessment therefore recommends an approach that is going to make it a tradition of specific contracts for specific tasks and procurement projects. Through this, the increasingly complex operations that need detailed performances can be solved. The strategy would make contract formation an easy task that ensures quality.

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Conclusion

The contract formation has become an important part of procurement. There are many procurement contracts that are currently being formed within the organization. At the helm of this contract formation, there has been an increase in the failure on the part of the contractors to deliver the contracts as required of them. Consequently, they have failed to achieve the main objectives for which they are often contracted, leading to an expose of the hirer or purchaser exposed to a number of risks. At the apex of it all lie ,the risks that are associated with the quality, time, and costs of the projects. These costs and their inflation have made many contrasts stand incomplete. The analysis, therefore, calls for a sound approach when it comes to evaluating the type of contract an organization must adopt. Not all contracts will be applicable to all the procurement works in any given organization. Parties must have an understanding of the key requirements and make sure that the contracts are drafted to suit the purpose of each of the activities. However, all parties must be made aware of their duties, objectives and what is expected of them.

References

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  5. Keränen, O. (2017). Roles for developing public–private partnerships in centralized public procurement. Industrial Marketing Management, 62, 199-210.
  6. Liinamaa, J., Viljanen, M., Hurmerinta, A., Ivanova-Gongne, M., Luotola, H., & Gustafsson, M. (2016). Performance-based and functional contracting in value-based solution selling. Industrial Marketing Management, 59, 37-49.
  7. Norris-Tirrell, D., & Clay, J. A. (2016). Strategic collaboration in public and nonprofit administration: A practice-based approach to solving shared problems. CRC Press.
  8. Pelton, R. E., & Smith, T. M. (2015). Hotspot scenario analysis: Comparative streamlined LCA approaches for green supply chain and procurement decision making. Journal of Industrial Ecology, 19(3), 427-440.

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BusinessEssay. (2022) 'Developing Contracts in Procurement and Supply'. 15 January.

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BusinessEssay. 2022. "Developing Contracts in Procurement and Supply." January 15, 2022. https://business-essay.com/developing-contracts-in-procurement-and-supply/.

1. BusinessEssay. "Developing Contracts in Procurement and Supply." January 15, 2022. https://business-essay.com/developing-contracts-in-procurement-and-supply/.


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BusinessEssay. "Developing Contracts in Procurement and Supply." January 15, 2022. https://business-essay.com/developing-contracts-in-procurement-and-supply/.