CIPS L4M3 STUDY MATERIALS

Commercial contracting

Use these summarized notes and other CIPS L4M3 online resources to help with your studies!

CIPS L4M3 REVISION NOTES | Quick guide to TENDER process

In procurement situations where you are looking at a lot more variables than just price tenders become a good idea. 

Such situations will include:

  1. For complex projects
  2. For high value high risk purchases
  3. For projects where quality and price need to be assessed

Before we jump into our guide to tender process you have to remember that tenders normally start with invitation to tenders (ITT) or an expression of interest (EOI)

Regarding INVITATION TO TENDER (ITT)

In some instances, an organization may need to use a more formalized form of competitive bidding or tendering procedure in which the prequalified suppliers are issued with an invitation to tender (ITT) or invitation to bid for a contract, with the organization intending to choose the supplier with the best proposal or the lowest price.

What is TENDERING?

Tendering can be defined as a purchasing procedure whereby potential suppliers are invited to make a firm an offer of the price and terms on which they will supply specified goods or services which, on acceptance, shall be the basis of the subsequent contract.

At its simplest sense tendering is the process by which suppliers are invited to put themselves forward for a contract.

APPROACHES to Tendering process

There are several approaches to tenders and they include;

  • Open tendering– in this approach the invitation to tender is widely advertised and open to any potential bidder
  • Selective tendering – in this approach potential supplier are prequalified, for instance on the basis of their technical and competency skills, and about 3-10 suppliers are shortlisted for invitation to tender.
  • Restricted open tenders – in this approach, prospective suppliers are invited to compete for a contract, but are partly prequalified by advertising of tender being restricted, for instance the company can advertise the tender through their website alone.

STEPS IN PREPARING FOR TENDERING PROCESS

Step 1: Preparation of the proper tender and contractual document, this step helps to ensure that the bidding process is;

  1. Accurately costed
  2. Directly compared
  3. All requirements are complied with

Step 2: Advertisement of the requirement and procedures to be followed, and timetable for expression of interest or submission of bids

Step 3: Sending out of pre-qualification questionnaires (usually in a selective tender) in response to expressions of interested, with timescale for these to be returned.

Step 4: Issue of invitation to tenders (IIT) and tender documentation to those responding to the advertisement or invitation to tender within the prescribed time frame.

Tender documents would normally include;

  1. An invitation to tender and instruction to tenderers
  2. Pricing document
  3. The specification
  4. Criteria for contract award
  5. Conditions of purchase
  6. Deadlines for submission

Note: Tender documents should be issued to each potential supplier in identical terms and by same date

Step 5: receiving bids

Tenders or offers will be received in the form of sealed bids for opening by the tender evaluation team. Each tender will be analysed according to the criteria for tender award and selecting the best offer

Step 6 Post-tender clarification, verification of supplier information or negotiation where required

Step 7 Contracts will be awarded and the award communicated to the tenderers.

RELATED: Watch a video summary steps in tendering process here

REMEMBER THIS!

The general idea is that a successful tender will be the one with the lowest price or the most economically advantageous tender.

However, you may have to analyse whether and how effectively each bid meets the requirement of the specification

It will be legally and ethically important for any invitation to tender to state clearly that:

  1. The buyer will not be bound to accept the lowest price quoted
  2. Specified non-price criteria (such as environmental, social sustainability or innovation) will be taken into account, and given a specified weight or priority in the contract award decision.
  3. Post-tender negotiation may be entered into, if necessary to qualify or clarify tenders, or to discuss potential improvements or adjustments to suppliers offers

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COMMERCIAL CONTRACTING RESOURCES OUTLINE

1.1 Analyse the documentation that can comprise a commercial agreement for the supply of goods or services

  • Invitation to tender or request for quotation
  • Specification
  • Key performance indicators (KPIs)
  • Contractual terms
  • Pricing and other schedules (such as for health and safety records, details of supplier’s staff, use of sub-contractors, non-disclosure/confidentiality agreements)

1.2 Analyse the legal issues that relate to the creation of commercial agreements with customers or suppliers

  • Invitations to treat or invitations to negotiate
  • Rules relating to offer and acceptance, consideration, intention to create legal relations and capacity to contract
  • The battle of the forms and precedence of contract terms
  • Risks presented by contracting on supplier’s terms or through oral contracts
  • The Vienna Convention on the International Sales of Goods
  • Misrepresentations made pre-contract award

1.3 Compare types of contractual agreements made between customers and suppliers

  • One off purchases
  • Framework arrangements and agreements
  • The use of mini-competitions
  • Call offs
  • Services contracts
  • Contracts for the hire and leasing of assets

2.1 Analyse the content of specifications for procurements

  • Drafting specifications and developing market dialogue with suppliers
  • The use of standards in specifications
  • Typical sections of a specification
  • Standardisation of requirements versus increasing the range of products
  • Including social and environmental criteria in specifications
  • The role of Information Assurance in developing specifications

2.2 Appraise examples of key performance indicators (KPIs) in contractual agreements

  • Defining contractual performance measures or key performance indicators (KPI)
  • The use of service level agreements
  • Typical KPI measures to assess quality performance, timeliness, cost management, resources and delivery

3.1 Analyse contractual terms for contracts that are created with external organisations

  • The use of express terms
  • The use of standard terms of business by both purchasers and suppliers
  • The use of model form contracts such as NEC, FIDIC, IMechIEE

3.2 Recognise examples of contractual terms typically incorporated into contracts that are created with external organisations

  • Key terms in contracts for indemnities and liabilities, sub-contracting, insurances, guarantees and liquidated damages
  • Terms that apply to labour standards and ethical Sourcing

3.3 Recognise types of pricing arrangements in commercial agreements

  • The use of pricing schedules
  • The use of fixed pricing arrangements
  • Cost plus and cost reimbursable pricing arrangements
  • The use of indexation and price adjustment formulae
  • The use of incentivised contracts
  • Payment terms
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