Developing Contracts Exam Analysis © Profex Publishing 2010

DEVELOPING CONTRACTS IN PURCHASING & SUPPLY:

EXAM ANALYSIS & ANSWER FINDER

Here we analyse five of the latest exam sittings: what topics were set, where the key pitfalls and easy marks were, what the examiner said – and where you can find material for an answer, in your Course Book.

The full text of past exams, marking schemes and Senior Assessors’ reports can be accessed by members at:

May 2009

November 2009

January 2010

March 2010

May 2010

THE MAY 2009 EXAM

Section A: case study and two compulsory questions (25 marks each)

A local government authority seeks to encourage local tourism, and also wishes to upgrade children’s playground facilities. The chief executive places contracts connected with these aims.

Q1(a) / Analyse processes followed for the award of both contracts
You needed to recognise that the two contracts were: (i) a ‘Services’ contract for a public authority, above the threshold of the EU Procurement Directives and (ii) a ‘Works’ contract, below the threshold. Other issues included lack of good procurement practices; failure to meet requirements of public expenditure probity; failure to make reasonable attempts to advertise the tender locally; failure to practise formal competition; and failure to debrief the unsuccessful tenderer. See Chapter 12, Section 3. / 16 marks
Q1(b) / Suggest improvements for future tenders
Eg processes for correct formal tendering and contract award – and (since many of the procedural issues have been implied by Q1(a)) for managing compliance: training courses, briefings, intranet guidance, controls on spend and spend permissions, tighter controls on delegated authority and so on. / 9 marks
Comments:This required detailed knowledge of EU Procurement Directives, including the different financial thresholds for Services and Works contracts.
Note also that your answer was required in the form of an informal report: worth a little attention to the format, for an easy two marks!
Q2(a) / Three performance targets for marketing contract, and importance of each
Targets may have covered timing, penetration, response rates, costs and impact of the campaign (eg measured community opinions). / 15 marks
Q2(b) / Two performance targets for playground contract, and importance of each
Targets may have focused on timeliness, safety, aesthetics, quality and price. / 10 marks
Comments: You needed to come up with SMART, quantifiable targets using case-study information.

Section B (two questions, 25 marks each)

Q3(a) / Express v implied terms, with examples
See Chapter 8, Section 3. / 10 marks
Q3(b) / When standard/specially drafted terms should be used
Basically, standard T&Cs should be used for simple, lower-value, low-risk regular purchases such as stock items and MRO. Specially drafted terms (or model contracts) are required for more complex, larger, more strategic and unconventional purchases: standard T& Cs are unlikely to include all the matters that need to be addressed. We’ve added some notes in the Course Book Upgrade material. / 15 marks
Comments:Poorer answers to part (a) tended to evidence only basic understanding of express/implied terms – or got them mixed up, or provided incorrect examples. You must get to grips with basic legal terminology for this paper.
Q4 / How a strategic IT contract should provide for:
(a) Duration of contract
See Chapter 11, Section 3.
(b) Contract renewal
See our notes in the Course Book Upgrade material.
(c) Dispute resolution
See Chapter 11, Section 3.
(d) Variation of requirement
See Chapter 11, Section 3.
(e) Applicable legal system
See Chapter 7, Section 2. / 5 marks each
Comments:Note the specific context of a contract for the supply and maintenance of business-critical IT hardware and software. This was likely to be a strategic, long-term service contract, raising issues of duration, renewal, variation of requirement, dispute resolution – and variations in data protection and intellectual property law (among other things) in different legal jurisdictions.
Q5 / Arguments for and against e-tendering from the buyer’s perspective
See Chapter 13, Sections 1–2. / 25 marks
Comments:The examiner complained (as in previous reports) of confusion between e-tendering and e-auctions. Another common mistake was to state that e-tendering would worsen buyer-supplier relationships: this is more about how the process is handled than the process (or medium of communication) itself.
Q6(a) / Describe the battle of the forms
See Chapter 6, Section 1. / 10 marks
Q6(b) / Describe the nature/purpose of each ‘form’ in the battle
You should be able to describe forms such as: initial enquiry; acknowledgement of enquiry; issue of quotation; purchase order; acknowledgement of order; confirmation of order; advice note; delivery note and invoice – noting whose terms and conditions might prevail at each stage. / 15 marks
Comments:This should have been straightforward if you had covered the material on the Battle of the Forms.

General pitfalls

Section A required an unusually high degree of contextualisation, with little room for ‘generic’ theoretical answers. The same applied to Q4, which set a ‘mini-scenario’ to which your answers needed to be contextualised.

Easy marks

There were good marks to be obtained from mainstream syllabus topics such as: public sector purchasing; express and implied terms; e-tendering; and battle of the forms.

Highly-structured questions such as Q4 are effectively ‘short answer’ questions, for which all the marks are relatively straightforward. If you know the facts being tested, there should be high potential for near-full marks for such questions

What the examiner said

The Answer Guidance provided by CIPS mainly highlights the danger of insufficient preparation and planning – and hence lack of depth and clarity in answers.

Answers need a clear structure. Where a number of points is asked for, there should be clear separation between them.

Avoid repeating case study material, using a ‘theory dump’ of generic material for case-study questions, and padding out answers with irrelevant use of known models such as the Five Rights or Carter’s 10 Cs.

THE NOVEMBER 2009 EXAM

Section A: case study and two compulsory questions (25 marks each)

An online merchant of computer equipment sends automated sales messages to customers: two versions of the message are given. The merchant also wishes to protect operations by entering into a contract for data security/recovery.

Q1(a) / Legal status of Message One
You had to recognise the message (an advertisement) as an ‘invitation to treat’. A customer’s response would constitute an offer – which the seller could accept or reject (via its e-ordering system). You could citeFisher v Bellor Pharmaceutical Society v Boots on the significance of ‘invitations to treat’.
See Chapter 4, Section 3. / 10 marks
Q1(b) / Legal and commercial effects of Message Two
You had to recognise that the message assumes an offer from customers, unless it hears from them to the contrary. However, ‘silence’ (inactivity) is not interpreted as offer or acceptance in English law: no legally binding contract has been formed here: Felthouse v Bindley. If the company proceeded to supply the product, the customer could legally refuse to pay for it (unless the customer starts to use the product, which would be deemed to constitute acceptance). Commercially, the company could suffer from the embarrassment and expense of recalling the unwanted product; reputational damage; damaged customer relations; loss of profits; and potential loss of market share.
See Chapter 4, Section 3. Note the ‘hidden’ multiple requirement to discuss both legal and commercial implications. / 15 marks
Comments:This was a highly ‘applied’ question, requiring you to analyse the implications of the way an ‘invitation to treat’ was phrased. Worth studying key cases in detail, as they often illustrate case study principles.
Q2 / Five aspects to consider when developing contract with data security/recovery company
There are issues of certainty (service only when needed); duration (archiving of data); cost; confidentiality; liquidated damages for loss; force majeure (identified risk of flooding); ‘time is of the essence’; and so on. It was also acceptable to refer to the elements of a legally binding contract – but such points would need to be contextualised. / 25 marks
Comments: This gave you broad scope to discuss relevant terms and conditions and/or the elements of a legally enforceable contract. It was too broad in scope for some candidates, who covered a range of areas irrelevant to the question…

Section B (two questions, 25 marks each)

Q3(a) / Two areas where buyer’s standard terms may differ from supplier’s
Notes have been provided in the Course Book Upgrade material, on general points. However, this question allowed you to explain the use of any two conditions of contract you chose: eg payment terms, transfer of title, time is of the essence. / 10 marks
Q3(b) / Use of liquidated damages clause
See Chapter 10, Section 1 – but remember to focus on use issues: eg calculation of loss in advance; expression in monetary terms; certainty as to amount of future liability; incentive for seller to meet contractual requirements; and straightforward alternative to suing for damages. / 15 marks
Comments:Potential pitfalls here were: interpreting part (a) as a question on the battle of the forms; and covering the legal theory of liquidated damages rather than practical issues in its use.
Q4 / Five ways in which content of a specification might influence value for money
You should be able to piece this together from Chapter 3, with some obvious points such as avoiding over-specification – but additional notes have been provided in the Course Book Upgrade material. / 25 marks
Comments:The temptation may have been to ‘dump’ everything you knew about specification: note the specific application to value for money.
Q5 / Factors to be considered in drafting clauses re:
(a) Intellectual property rights
See Chapter 11, Section 1.
(b) Choice of legal system
See Chapter 7, Section 2.
(c) Dispute resolution
See Chapter 11, Section 3.
(d) Subcontracting by the main contractor
See Chapter 10, Section 4.
(e) Contract termination
See Chapter 11, Section 3. / 5 marks each
Comments:The main pitfall was talking more about general topics/theories than about what contractual clauses needed to say about each.
Q6 / Letter to a supplier addressing concerns re electronic invitation to tender
The supplier raised a specific set of concerns about responding to the e-ITT: lack of IT equipment; lack of IT skills; and fears about the security of confidential data. Points that could have been made therefore include:
  • IT equipment getting cheaper and easier to use over time; can be leased or borrowed; has many other applications; may be a strategic investment for future development
  • IT skills becoming more prevalent in the labour pool; can be bought in short term; are not high-level for operating e-tendering systems; are supported by help-lines from e-tendering service providers; may be a strategic investment for future development
  • E-tendering systems offer greater security than paper-based tenders, with strong password protection and encryption.
  • E-tendering is becoming common, and the supplier may miss out on substantial contracts unless it develops future capability in this area.
/ 25 marks
Comments:Your answer had to be in the form of a letter: you would lose up to 2 marks if you did not observe the requirement.

General pitfalls

There were a high number of relatively unstructured 25-mark questions. Some had an implied structure (eg Q4 which asked for ‘five ways’, or Q5 which asked about five types of clauses: in each case, you should have aimed for 5 marks’ worth of coverage of teach topic). Others (eg Q6) put pressure on your ability to structure your answer and manage your time.

Easy marks

There were good marks to be obtained from mainstream syllabus topics such as: requirements for a valid contract; divergence of standard contract terms; liquidated damages; specifications; basic contract clauses; and concerns about e-tendering.

Q5 was effectively a series of short-answer questions, enabling you to display a range of theoretical knowledge on mainstream topics, with the potential to gain very high marks.

What the examiner said

The Answer Guidance provided by CIPS repeats previous points about answer planning, contextualisation and relevance. None of this should need to be said again!...

THE JANUARY 2010 EXAM

Section A: case study and two compulsory questions (25 marks each)

A chain of franchised sandwich shops has mainly centralised its purchasing. A new purchasing director has been tasked with establishing standard terms and conditions, central control over local purchases, and a centralised inventory control system.

Q1 / What should be included in standard T&Cs to cover:
(a) Liquidated damages for failure of bread supply
See Chapter 10, Section 1. Damages could be based on costs per trading day of sourcing ‘emergency’ bread supplies, say.
(b) Protection of the brand
See Chapter 11, Section 1. Eg suppliers should not use the brand without permission; suppliers are wholly liable for any breach of third party IP; buyer wholly owns any IP created by suppliers while working for it.
(c) Dispute resolution with suppliers
See Chapter 11, Section 3. Eg mechanisms for escalating ADR. / 8 marks
8 marks
9 marks
Comments:The main challenge here was to contextualise your answers to the case study.
Q2(a) / How to plan the acquisition of the inventory control system
Planning capital expenditure raises issues such as:business case; project management; stakeholder engagement; whole life costing; risk management; precise specification; contracting model (hire or buy, model form contract or bespoke contract, tender process)etc. See Chapter 1, Section 1. / 15 marks
Q2(b) / Two KPIs that might be included in the contract for the inventory control system
See Chapter 3, Section 2 – butremember to contextualise to an inventory control IT system: eg response time to system queries; ease of use; training requirements; uptime/availability; compatibility with existing systems; support/maintenance. / 10 marks
Comments:A surprising pitfall for some candidates was the erroneous belief that the purchaser was subject to EU Procurement Law. Public sector candidates: check your assumptions – and remember that your answers must address the case study context, not your own work context.

Section B (two questions, 25 marks each)

Q3(a) / Explain concept and operation of ‘consideration’
Ie something of value exchanged in order to create a legally binding contract. See Chapter 5, Section 1. / 15 marks
Q3(b) / Explain ‘capacity’ to enter into contracts
Ie the legal ‘right’ or ‘ability’ to enter into a legally binding contract. See Chapter 5, Section 3. / 10 marks
Comments:This was an unusually ‘friendly’ question, allowing you to give a standard textbook answer, with case law citations to support your points. (Candidates who defined ‘consideration’ as a cooling-off period before entering into a contract, or ‘capacity’ as ability to fulfil the contract – as in Carter’s 9 Cs – gained no marks…)
Q4(a) / Four changes introduced by EU consolidated procurement directive
Eg: recognition of framework agreements; e-procurement; e-auctions; dynamic purchasing systems; competitive dialogue; and clarity on the inclusion of social and environmental issues. See Chapter 12, Section 3. / 12 marks
Q4(b) / Explain how to debrief unsuccessful bidders under the procurement directives
See Chapter 12, Section 3. / 13 marks
Comments:The main pitfall here was sorting out the changes introduced by the 2006 Consolidated Directive from the general thrust of the EU Procurement Directives (thresholds, advertising, contract award criteria etc).
Q5(a) / How provision may be made in contracts for:
(a) Change control
Ie change control procedures; restrictions on what can and cannot be changed; contract provisions relating to these. See Chapter 11, Section 3.
(b) Contract duration
See Chapter 11, Section 3. You might also discuss reasons for choosing longer or shorter contracts, to earn available marks.
(c) Contract renewal
See the notes in the Course Book Upgrade material. / 10 marks
10 marks
5 marks
Comments:This should be relatively straightforward, if you had covered the material. (Note that part (c) is only worth 5 marks, so you could still do well even if you knew less about contract renewal.)
Q6(a) / Discuss the merits of performance specifications
See Chapter 3, Section 1. / 15 marks
Q6(b) / Two circumstances in which conformance specification should be used
See our notes in the Course Book Upgrade material. / 10 marks
Comments:Part (a) should be relatively straightforward – as long as you distinguished correctly between the two types of specification. Initial marks were available for (briefly) defining each term.

General pitfalls

There were a number of questions on basic legal terminology and concepts. While this should not be a pitfall, it is a potential source of confusion – and leaves you open to getting no marks for a question, if you get the basics wrong.

There were a number of questions on quite detailed areas of the syllabus. This is unlikely to change in future exams: be prepared!

Candidates tended to waste valuable time on overly long initial explanations and definitions, which were not strictly relevant to the answer, and hence could not gain many marks. If you wish to define terms, or set your answer in context, do so concisely, recognising that a maximum of 1–2 marks will be available for such material.

Easy marks

There were good marks to be obtained from relatively straightforward questions on mainstream syllabus topics such as: liquidated damages; IP protection; dispute resolution; KPIs; consideration and capacity; contract terms; and specifications.

There were some recurring themes, which featured in previous exams. While we never advocate ‘question spotting’ – and it is always important to read and answer the specific question set – this does give an advantage to students who have analysed and practised past exams!

What the examiner said

One important new point emerged from the Senior Assessor’s report for this exam.

In some Level 4 papers, when the examiner asks you to ‘Discuss the merits (or advantages) of x’, the command word ‘Discuss’ is taken to mean: ‘Present a balanced/critical view’. The assessors thus expect to see counterbalancing points about the limitations of the merits/advantages, or even about disadvantages as well.

In this paper, however, when the examiner asks you to ‘Discuss the merits of x’ (as in Q6(a), this means: focus on the merits! Candidates who analysed the disadvantages did not gain extra marks, because ‘the question did not require it’…