Research Paper on "Baisc Understanding Procurement Contracts"

Research Paper 7 pages (2208 words) Sources: 6 August 26, 2017

[EXCERPT] . . . .

Running head: PROCUREMENT CONTRACTS 1

PROCUREMENT CONTRACTS 8

Understanding Procurement Contracts

Project procurement contracts are crucial elements in the procurement management process. A procurement contract basically defines the legally binding relationship between the client and the vendor of a given good or service. All the essential aspects must be included to ensure a smooth contract execution process (Project Management Institute [PMI], 2008). The contract should clearly define, among other aspects, the parties involved, purpose of the contract, general provisions, work to be done, deliverables, pricing model and payment terms, obligations and rights of each party, terms and conditions, ownership of intellectual property, and disclaimers (Dinsmore & Cabanis-Brewin, 2011). This paper assesses these elements in a procurement contract in the authors company. The contract relates to the procurement of a human resource (HR) analytics software.

Contract Elements

Parties

A contract is essentially a legally binding agreement between two or more parties (Flemming, 2016). The description of parties should be the first element of a contractual agreement. In the identified contract, the parties are clearly identified. The contract is between the authors company (the client) and Kronos Incorporated (the vendor).

Purpose of the Contract

The purpose of contract denotes the reason why the contract exists the intention of the contract (Lindstrom, 2014). Contract purpose also constitutes one of the first elements the procurement contract should pay attention to. Indeed, the purpose of the contract should generally be stated in the first page of the body of the contract. In this case, there is no separate section titled Purpose of the Contract. Nonetheless, the purpose of the contract is captured in the first paragraph of the contract. From the paragraph, it is evident that the contract intends to stipulate terms and conditions under which the vendor will sell to the client, and the client will purchase from the vendor, the right to use copyrighted software owned by the vendor. Whereas the purpose of the contract is apparent, there is no evidence of assumptions or restrictions. This can be viewed as one of the shortcomings of the contract.

Description of Work

Another important element of a procurement contract is the statement of work. The statement of work defines the specific activities or tasks to be undertaken by the vendor. The document also defines aspects such as the scope of work, location of work, performance period, acceptance criteria, special requirements, applicable standards, and delivery timelines (Flemming, 2016). The procurement contract in consideration provides a clear statement of work in the exhibits section. Indeed, the clarity and breadth of the statement of work is one of the noticeable strengths of the contract. As per the statement, the scope of the work covers the installation of the software as per the project schedule. The installation is preceded by a number of activities that should be performed by the vendor as well as the client. Prior to installation, the client should mainly undertake site preparation and employee data collection. The vendor on the other hand should survey the site, provide all the tools and equipment necessary for installation, start installation as per the project schedule, as well as provide the necessary training and post-installation support. The statement of work also outlines milestones, quality verification procedures, acceptance criteria, and the characteristics of the required software.

Deliverables

Deliverables are the tangible or quantifiable goods or services delivered by the vendor to the client (Flemming, 2016). A deliverable may be a document, a report, or a product. Clear definition of deliverables is crucial for ensuring clarity over what the vendor should deliver in the course of contract execution and by the end of the contract period. In this case, the specific deliverables of the procurement contract are not quite clear. The contract mainly lists milestones e.g. site survey, employee data collection, completion of site preparation, and commencement of installation. Even so, as per the purpose of the contract and the statement of work, there is one major deliverable a software product. By the end of the contract period, the client expects a fully installed and working HR analytics system. Moreover, as the deliverable is a software product, the client expects user information or support manuals. These aspects should have been more plainly defined in the contract. The completion of the installation is expected to be six months from the effective date.

Pricing Model, Payment Schedule, and Payment Terms

The definition of the applicable pricing model, along with the payment schedule and payment terms, is an especially critical element of the procurement contract. Is the contract a fixed-price contract or a cost-reimbursement contract? Are the prices adjustable? How will the payments be made? Who is responsible for paying the applicable taxes? The pricing section answers these questions (Flemming, 2016). Clarity in payment aspects is vital for avoiding contract administration difficulties and litigation. The contract in consideration provides an elaborate section on pricing and payments. The section clearly identifies the contract as a fixed-price contract. This means that the stated prices cannot be adjusted in the course of the agreement. Nonetheless, the agreement provides that there may be modifications to prices in the event of adjustments to project specifications and other events that may significantly affect the scope of work and deliverables. For such modifications, the vendor is required to notify the client 30 days in advance.

As for payment schedule, the agreement states that a 30% down payment will be provided once the client places the purchase order. An additional 30% will be paid upon full installation of the system and the remaining 40% upon acceptance of the order. Finally, the agreement states the client is liable for paying any charges, duties, and taxes that may be imposed by government authorities in relation to the procurement.

Duties and Rights

In any contractual agreement, every party has obligations that it must fulfil. Also, each party has rights or entitlements. These two aspects should be unambiguously defined to ensure a fluid contract execution process (Lindstrom, 2014). In this case, the duties of both the client and the vendor are clear. The contract states that the customer is obligated to prepare all sites where the system is to be installed, provide technical and non-technical information as reasonably needed by the vendor, as well as obtain and maintain any government permit required as a prerequisite for the installation of the system. Other duties specified for the client relate to program management, employee data collection, site preparation, and provision of adequate facilities, working space, and security for the vendors installation of the system. The client has a right to terminate the agreement. Furthermore, the client has a right to utilise the vendors intellectual property rights in relation to the procured system, but solely for the clients internal operations.

The duties of the vendor include site surveying, system installation, compliance with the clients security guidelines, and notifying the client upon the completion of system installation. Similar to the client, the vendor has a right to terminate the contract. In addition, the vendor is entitled to demanding reasonable guarantees of payment. There are no other discernible vendor rights in the contract.

Terms and Conditions

Terms and conditions are the rules and guidelines agreed between the client and the vendor (Guth, 2016). Both parties must agree on the rules before the contract is signed. The terms and conditions outlined in the contract in consideration relate to ten issues: agreement, governing law, independence of parties, severability, waiver, notice, force majeure, assignment, subcotractors, and counterparts. For instance, the agreement states that the governance of the contract will be in accordance with the applicable state and federal laws. Also, the agreement specifies that each party is an independent entity, and not an agent of the other.

Ownership of Intellectual Property

A procurement contract should also include a clause on intellectual property. Intellectual property includes patents, trademarks, copyrights, and other intellectual assets owned by either of the parties to the contract (Lindstrom, 2014). The agreement states that upon full payment of the contract price, the client acquires a non-transferable and non-exclusive right to use the intellectual property rights associated with the vendors software, but solely for the clients internal operations i.e. not for resale. The agreement further stipulates that with the exception of the license provided to the client, the vendor retains all the rights to the licensed software.

Disclaimers

A disclaimer is basically a statement that denies liability or responsibility (Lindstrom, 2014). Disclaimers are important in procurement contracts. In this case, disclaimers are mainly stated in relation to warranties. As per the agreement, the vendor will not be responsible for non-conformities arising from the clients (and its agents) modifications, misuse, neglect, errors, omissions, and failure to adhere to the provided user guidelines. The vendor also absolves itself from non-conformities generated by power irregularities such as power surge as well as repair, maintenance, or installation not undertaken by the vendor.

Possible Legal and Ethical Problems

Unexpected events may occur during the contract execution process. For instance, there could be vendor… READ MORE

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