Contracts - 2.ppt
Download as PPT, PDF0 likes82 views
The document discusses different types of contractual strategies and relationships between buying organizations and suppliers. Collaborative relationships involve both parties jointly working to improve cost, quality and innovation, while competitive relationships focus on obtaining the lowest price possible. Subcontracting is described as a tactical, short-term approach where a contractor delegates part of the work to subcontractors but remains responsible for quality and schedule. Benefits and risks of subcontracting are listed, such as gaining expertise but also potential loss of flexibility and control.
Contracts - 2.ppt
- 3. Collaborative Relationships O Benefits of doing business together arise from ideas of sharing as well as exchanging O Buying organisation seeks to develop a long-term relationship with supplier O Both organisations share common interests, both benefit from adding value in the supply chain O Supplier participates with buyer looking for improvements and innovations O Both parties jointly set targets for improvements in cost and quality O Meet regularly to discuss progress O Proactive relationship looking for improvements O NOT a long-term COSY customer-supplier relationship
- 4. Collaborative Relationships - Benefits
- 5. Competitive Relationships O The buying organisation seeks to obtain the best price possible from the supplier O The buyer tries to squeeze the supplier’s profit margins O Can be seen as a win-lose situation O Should be professional and ethical O Buyers may argue regularly with the supplier’s representatives & complain regularly about products or services supplied (some cases may mean relationship is adversarial) O Associated with transactional purchasing
- 7. Relationship Types and Characteristics
- 8. Relationship Types – Contd.,
- 11. Subcontracts and the issues “Make-or-Buy decisions compare the cost of producing a component or providing the service internally with the cost of purchasing the component or service from an external supplier
- 12. Subcontracting Outsourcing is a strategic long term decision, Subcontracting is a tactical, short term approach. Outsourcing is nothing but delegating a particular business activity/function to another individual/entity. Sub-contracting is sharing a part of the business activity with another. ” Contractor is responsible for the quality and time schedule to be maintained for the overall contract to be completed through and with the help of the subcontractors.
- 13. Link between Contracting and Subcontracting O Define work scope O Establish work breakdown structure in compliance with GC WBS O Define the cost codes or list of activities O Define the budget for cost codes (projected labor unit or budgeted cost) O Determine the sequence of activities O Estimate durations O Estimate resources O Make the links between subcontractor work packages and dates stated in GC schedule O Develop draft schedule O Review dates, resources, and cash-flow O Make adjustments or corrections O Establish the baseline
- 14. Direct Force Traditional Method Design Build (Turn Key)
- 15. Risks involved in Different Strategies
- 16. Conditions of a Contract O Conditions: They are terms expressing matters basic to the contract. A failure to perform the requirements of a condition is a fundamental breach of an essential obligation giving the aggrieved party the right to: O End the contract and claim damages, or O Continue the contract and claim damages.
- 17. Special Conditions of a Contract Special terms of payments. Patents and licenses. Applicable law. Official Language. Obligatory use of local labor, plant and material. Co-operation with contractor on site. Fair wages to be paid. Union membership of work force. Protection and disposal of historic, valuable, archaeological, etc. finds on site. Prohibition of access to named places. Restrictions on noise levels, dust, fire hazards, etc. Control of demolition work, explosives, etc. Responsibility for damage to public services. Responsibility for payment of local taxes.
- 18. Reasons for Subcontracting O Delivery failure or poor service by existing source O To allow the client organization to focus on its core business O To access skills and technologies O To provide flexibility O Pressure to reduce costs O Resource intensive activities – high labour/ capital costs. O Subject to specialist areas O Subject to dynamic market conditions for which it is costly to recruit & retain staff O Subject to rapid changes in technology with high investment
- 19. Some benefits of Subcontracting O Gain access to world class capabilities O Improve organisational focus O Make capital funds available O Free management time O Reduce staff costs O Increased flexibility O Cost certainty O Improved service levels O Reduced capital requirement O Reduced risk
- 20. Some problems with Subcontracting O Long term commitment O Communication with suppliers O Dependence on suppliers O Additional training O Reduction in flexibility O Coordinating different suppliers O Quality of service O High staff turnover O Poor project management O Lack of control over larger suppliers