Quiz L4M3: CIPS Commercial Contracting

FIDIC is the International Federation of Consulting Engineers (or FØdØration Internationale des
IngØnieurs Conseils in French). FIDIC has produced many publications, including the model form
contracts, best practice guidances, research on sustainability, integrity and risk management. FIDIC
model form contracts have been developed by this organisation since 1999, now they consist of
several different books which are marked by colours. Thus, FIDIC model contracts also have the
nickname "Rainbow suite of contracts". Basically, the "Rainbow Suite" include the following books:
* Yellow book: Plant and Design-Build Contract (2 editions: 1999 and 2017)
* Silver book: EPC/Turnkey Contract (2 editions: 1999 and 2017)
* Red book: Construction Contracts (2 editions: 1999 and 2017)
* Emerald book: Conditions of Contract for Underground Works (1st Ed 2019)
* Blue-Green book: Dredgers Contract (2 editions: 2006 and 2016)
* Gold book: Design, Build and Operate Contract Guide
* Pink book: Construction Contract Multilateral Development Bank Harmonised Ed (2 editions: 2005
and 2010)
This type of model contract is commonly used around the world because its author, International
Federation of Consulting Engineers, collaborates closely with development banks such as World
Bank, Africa Development Bank, Asia Development Bank, etc. Every construction project that is
financed by these institutions must adopt the FIDIC contracts.
The Joint Contracts Tribunal, also known as the JCT, produces standard forms of contract for
construction, guidance notes and other standard documentation for use in the construction industry
in the United Kingdom. From its establishment in 1931, JCT has expanded the number of
contributing organisations.
ITC (International Trade Centre) produces contracts specifically designed for small companies doing
international business, covering the sale of goods, distribution, services and joint ventures. Many
small companies are now engaged in international trade, but don’t have access to the necessary
contract forms to protect themselves. ITC and leading legal experts developed eight generic contract
templates that incorporate internationally recognized standards and laws for most small business
situations.
CIPS has several model forms of contract designed specifically for IT buying and servicing.
Reference: CIPS study guide page 142
LO 3, AC 3.1

Hank’s pre-contractual assurances may amount to misrepresentation. Remedies for
misrepresentation could be rescission of contract or damages. Rescission will be impossible in the
following instance:
- Where the innocent party has affirmed the contract; that is, acted in a way confirming that they
wish it to continue
- Where the claim has not been brought within a reasonable time (this is a point of general law)
- Where restitution (returning to the pre-contractual position) is impossible (e.g. because the goods
have been consumed or have deteriorated)
- Where there has been intervention of innocent third-party (e.g., if the goods have been sold on)
In this case, the subject of contract is designing, building and managing the new CRM system which
is impossible to be restituted. Therefore, the contract cannot be rescinded.
Reference: CIPS study guide page 53-55
LO 1, AC 1.2

There are number of reasons why the purchaser will want to control the supplier's subcontracting:
- Supply chain transparency: Normally the purchaser has invested a lot of effort into selecting the
right contractor. However, the main contractor's selection of subcontractor might not be in such
careful manner, which may result in poor performance. Purchaser must know who subcontractors
are. Controlling the subcontracting process can help the purchaser control the outcome.
- Contract terms: the purchaser's requirements must be reflected in the subcontracts. The
subcontracting clauses may require the main contractor to do this.
- Liability: the main contractor may subcontract the whole or a part of its liabilities. Subcontracting
clause may bind the contractor to be liable with the work, it cannot just blame the subcontractor for
any faults.
Reference: CIPS study guide page 154-155
LO 3, AC 3.2

Advantages of using invitation to tender may be as below:
No Nepotism: Tenders or bids are evaluated on the basis of certain predetermined criteria, such as
price, quality and value for money. In other words, the firm offering the highest quality product or
service at the lowest price point would win the contract. As most tender documents are opened and
evaluated in a public process, I think that there remains little room for nepotism or favoritism of any
kind.
Value for Money: From the perspective of the client, tenders offer the greatest value for the amount
of money spent. This is due to the fact that the client can choose from a wide pool of potential
suppliers to select the ones that can produce the highest quality product or service at the lowest
price point. This allows the company, establishment or organization to save money without having to
compromise on quality. Therefore, despite being quite time consuming, tendering is, in my opinion,
a profitable long-term process from an organization’s point of view.
Encourages Competition: The process of tendering helps promote a competitive market. This is
because a number of potential contractors, firms or suppliers get a chance to bid for every project.
And because selection depends on quality and price, every bidder tries to reduce operational
inefficiencies and redundancies as much as possible in order to lower expenses and improve quality.
This entire process encourages healthy competition in the market and prevents complacency and
laziness, which in turn provides a boost to innovation and new ideas.
Easier Entry: The system of tendering makes it easier and simpler for new firms to enter the market
or even a particular industry. This is due to the fact that contracts under this system are awarded on
the basis of predetermined, objective criteria. As a result, even a firm that is a new entrant to the
market, having no connections or contacts in the industry, can win a prestigious and lucrative
contract by providing the highest value for the client’s money. This process therefore helps new firms
to quickly get a foothold in the market or industry, thus significantly lowering the traditional barriers
to entry.
Reference:
- Characteristics and Benefits of the Tendering Process
- CIPS study guide page 6-8
LO 1, AC 1.1

Service level agreement often sets out the minimum quality standards of the services provided,
remedies if that standards are not met, consequences if the targets are exceeded. Penalty clauses
and service credits are remedies that are often used in conjunction with service level agreement to
ensure the performance and to compensate the purchaser if targets are not met.
Reference: CIPS study guide page 110
LO 2, AC 2.2

According to CIPS, there are two main types of specification:
- Conformance specification – is more output driven as it outlines the product details exactly which
may include the material, dimensions, tolerances, source, ingredients, packaging, storage of the part
or material.
- Performance specification – is more output driven in terms of what the part or material must
achieve.
Among the four options, only 2. 'Description of the operating environments' and 3. 'Chemical
formulae' are possible components of a conformance specification. Brand names can be a part of a
performance specification, according to a document published by CIPS and NIGP.

Tap the image to zoom
Reference:
- CIPS study guide page 8-10
- Knowledge Byte - Specification Development
- Principles and Practices of Public Procurement: Specifications
LO 1, AC 1.1

The market approach is a method of determining the value of an asset based on the selling price of
similar assets.
A fixed-price strategy means you set a price and keep it constant for an extended period of time.
Cost-plus pricing is also known as markup pricing. It's a pricing method where a fixed percentage is
added on top of the cost to produce
A price index (PI) is a measure of how prices change over a period of time, or in other words, it is a
way to measure inflation. There are multiple methods on how to calculate inflation (or deflation).
Reference: CIPS study guide page 176-179
LO 3, AC 3.3

Without further explanation, a schedule may be deemed to form an integral part of the obligations
of either or both parties. Obviously, the scope or binding nature of such schedule depends on the
way it is referred to in the obligatory language of the main agreement. Accordingly, merely attaching
the general terms and conditions of sale without explaining to which part of the sale they apply or
which provisions apply does not subject a sale pursuant to the body text of the agreement to those
general terms and conditions.
Subcontracting is the practice of assigning, or outsourcing, part of the obligations and tasks under a
contract to another party known as a subcontractor.
Reference:
- Schedules, annexes and exhibits
- CIPS study guide page 22-26
LO 1, AC 1.1

Hire purchase is an arrangement for buying expensive consumer goods, where the buyer makes an
initial down payment and pays the balance plus interest in installments. The ownership of the
merchandise is not officially transferred to the buyer until all the payments have been made.
Danielle has purchased the car from Aaron, which means its title has been transferred to her. The
accident happens before the last instalment is paid. Therefore, the ownership of the car still belongs
to Danielle
Reference: CIPS study guide page 70
LO 1, AC 1.3

In the scenario, the contract between the company and its suppliers is continuous rather than one-
off. So it cannot be one-off contract or spot purchase. The quantity and time is well known and fixed,
this type of contract is known as call-off contract or blanket order.
Reference: CIPS study guide page 63-64
LO 1, AC 1.3