Blakenall District Hospital (BDH) is a large hospital that is a major part of the government's health service. Purchasing staff are in the habit of placing many long-term contracts with suppliers and sub-contractors. Whilst these contracts are usually carried out successfully, prices are often paid that are well over budget. The purchasing manager is concerned to find that, in some cases, members of staff are forcing suppliers to accept fixed price contracts. The policy has caused several problems such as some suppliers refusing to deal with BDH and a few going out of business mid-way through performing a contract with BDH. This is due to fluctuating market prices of materials. The procurement manager suggests supplier to adopt variable pricing arrangement with price index. Is this a right course of action?

• A.No, variable pricing would only benefit the suppliers
• B.Yes, this type of arrangement would provide absolute certainty when budgeting
• C.Yes, this pricing arrangement would reimburse the fluctuation of material prices
• D.No, price adjustment should be applied to short-term supply contract only (3-month duration or less)

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Standard terms and conditions should become the governing terms for which group of items?

• A.Leverage items
• B.Bottleneck items
• C.Strategic items
• D.Routine items

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Which of the following should be taken to avoid the conflicts between orally negotiated terms before the conclusion of contract and the final written contract?

• A.Finding signs of misrepresentation of the other contracting party
• B.Prevailing orally negotiated terms over the final written contract
• C.Embedding a term excluding all prior oral discussions that are not mentioned in the final written contract
• D.Avoiding long negotiation

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Which of the following indicates the ratio between profit and costs?

• A.Gearing
• B.Margin
• C.Mark-up
• D.Liquidity

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To expand its operation, Steel Co. decides to build a new plant. Despite of excitement, the senior management is very concerned about the complexity and risks of such project. Hugo, the procurement manager, suggests that the company can adopt a model form of contract. What is the advantage of using model form of contract?

• A.It shifts the balance of power in the favour of the buyer rather than the contractor
• B.The company could avoid the need to draft a complex contract from blank
• C.Model form of contract eliminates the need for legal advice totally
• D.The company does not need to draft the drawings as well as specification anymore

Correct Answer: B

Advantages and Disadvantages of using model form contracts.
Model form contracts save a lot of time and money. They are written by industry experts and the buyers and suppliers both understand what is included in the contract.
They are mainly used in Construction and term maintenance contacts. Typical ones are JCT and NEC.
Without the use of model form contracts the buyer and supplier will take a long time to write the terms, negotiate and finalise the contract.
This is time and money wasted.
However, model form contracts require buyers and suppliers to have training so you understand them.
Finally, if you are a buyer in a powerful position you cannot exploit that with a model form contract as these are written for mutual benefit.

Reference:
- Procurement Study Buddy on Facebook
- CIPS study guide page 147

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