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 | Understanding Quotations and RFQ
Understanding quotations and RFQ is important when dealing with commercial contracting. Here is a quick summary of important things you need to know about these documents that are used in business agreements
WHAT ARE QUOTATIONS?
Quotations are typically used in procurement when price is the only variable.
The idea behind quotation is, the buyer describes what they wish to buy and the supplier states the price at which they are willing to supply it for.
Example;
John is interested in buying 20 laptops. He sends an email with the details of the laptops he would love. The supplier (laptop dealers) responds to this email with a list showing the prices they are willing to sell the laptops to John for. The supplier’s document or response is a quotation.
By using request for a quotation John avoids making an offer when here doesn’t have all the details!
Remember since price is the major thing in a quotation, other terms and condition will be missing and that will mean having to discuss them before a contract is concluded.
WHEN IS IT ADVISABLE TO USE QUOTATIONS?
- For low value, low risk purchases
- Where the specifications and delivery terms are fixed
- Where suppliers have been pre-qualified
- Where a framework or dynamic purchasing system has locked down the contract terms and price is the only variable
WHAT IS A REQUEST FOR QUOTATION (RFQ)
One of the simplest approaches to dealing with a supplier is to send an inquiry, for instance request for quotation (RFQ), Request for Information (RFI) or even Request for Proposal (RFP).
RFQ as the name suggests is an inquiry requesting the supplier or dealers to send you a quotation about what you are interested in.
Of course, suppliers may also choose to send the buyer unsolicited proposals or even quotations for standard items or for what they think the buyer may be in need of.
Contents of a request for quotation (RFQ)
A typical RFQ form will require the following;
- The contact information of the purchaser
- A reference number to use in reply and date by which to reply
- The quantity and description of goods or services required
- The required place and date of delivery
- The buyer’s standard terms and conditions of purchase
- Terms of payment
The supplier will then be invited to submit a proposal and quotation for the contract.
HOW DO YOU EVALUATE QUOTATIONS?
Quotations may be evaluated in different ways
- On a comparative or competitive bidding basis – in which case the best value wins
- As a basis for negotiating with a preferred supplier, in which case the supplier is asked to present a quotation as the basis for negotiation to refine contract terms
- As a way of testing the market to see what the current market price is in which case you are using the quotation to see what the market for the goods you are interested in looks like
Note:
As you go through these notes with an aim of understanding quotations and RFQ remember if you have any questions just ask through any of zerite network social media platforms.
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Access commercial contracting VIDEO LESSONS & Practice EXERCISES
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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