The current business environment has seen variety of business functions take a high priority in managing of organizations with procurement being one of these significant aspects of management. According to Bower (2003), procurement management is the intricate function that helps business entities examine as well as determine the most appropriate contractual based practice that would aid in the lease, buying or selling of goods and services to acquire profitability. However, despite the fact that procurement management is not entirely new but modified, significant information on the topic remains unknown and there has been a growing need to highlight on contagious issues. This paper gives a comprehensive examination on procurement management using Dubai Petroleum Establishment and Solutions Middle East purchase order as a case study highlighting on a variety of issues that are highlighted through sub-topics.
Procurement is the acquisition of goods or services from external sources. The regulations of a procurement contract or purchase order dictate that it is valuable that a business obtains its products or services at the best possible cost, quality quantity, as well as time suiting the obligations set by management (Sollish&Semanik, 2007). The above definition subsequently suggest the input of management giving raise to the analogy of “procurement management”. According to Bower (2003), procurement management is contractual in nature and is intricate as it deals with several issues that are both business as well as legally acceptable with Contract implementation process and Tenders requirements being the major significant issues that need clarification
The purchase of goods and services is currently determined by both profitability and legal acceptance. With this taken to consideration there are two particular factors of contract law and regulations that have to clearly clarified.
In order for a contract to be accepted, terms and conditions of the transaction have to be achievable and the party that serves as a supplier should have the capability to achieve said terms. There are two types of requirements that have to be meet to validate a purchase order namely public (open terms) and contractual terms. The public terms are based on finding the best party to be a partner in forming a profitable contract and are open in nature taking in consideration factors such as
- Minimum value of the contract.
- Award process.
- Opening offer.
- Technical and commercial evaluation criteria.
Other than the above factors, the remaining issues in reference to awarding a purchase tender are contractual in nature. Marson and Ferris (2015), state that the type of contract agreed upon the parties involved determines the terms of a purchase order. There are three major types of contracts in procurement management namely;
- Fixed Price Contracts. This type of contact where payment is independent from the resources used as well as the time it takes to achieve the goals set by a contract. In this type of contractthe contractor is liable to determining their own profits as the price is preset. The greatest risks in terms of contractor’s extra obligations is only placed on the contractor and fines may be placed on late service or product delivery.
- Cost-reimbursable contracts.This type of contract also called a cost plus contract represents an agreement where payment is made to the contractor from the client for all incurred expenses in addition to extra value that would constitute to a profit. The risks in this type of contacts are mostly shared.
- Time and materials contracts.This type of contract represents an agreement where the contractor is paid to cover all cost spent on materials as well as hours used in either offering a service or delivering a commodity.
Contract Implementation Process
After the requirements of awarding a tender have been met, it is significant to negotiate on the binding issues of an agreement. A contract is defined as an expressive or transcribed agreement between parties in reference to an agreement. The aforementioned issues discussed as ‘Tenders Requirements’ are based on reaching an agreement and this is the first step of forming a contract which is legally binding unlike an agreement which is considered informal in nature. Company representatives who are legally recognized to handle an organizations are responsible in the awarding of a contract. The main factors discussed prior to the presentation of a procurement include;
- Payment terms.
- Claims approval.
- Quality of goods or services to be provided
- Time of products deliver or service dispensation
- Location of products deliver or service dispensation
Contract Analysis (Dubai Petroleum Establishment and Solutions Middle East purchase order)
In order to explain the above mentioned factors this paper uses a procurement order for an order by Dubai Petroleum Establishment for contractual services and goods from Solutions Middle East purchase.
The Subject of the Contract
The said contract between the parties involves the supply of a ‘RIGHTFAX ENTERPRISE SERVER – STANDALONE MODE’. This will involve the installation of the server, commissioning, as well as enabling all Dubai Petroleum Establishment affiliates access client desired information. The discretion of client needs are as follows
The Right Fax 10.5 Enterprise Server should include a one document delivery channel with the capabilities of expanding to a maximum of 1024 channels. In addition to this, the server should provide its unlimited users with Web access; no cost faxing between Right Fax Servers; least cost routing and conversion; a protected SMTP mail gateway connected to a cloud database in reference to the email system reducing any chances of hacking. This would be helped by the fact the server should have altering and monitoring functionalities with unlimited SMS transaction capabilities from a dedicated delivery channel.
Description of the Services to be provided.
The contract states that Solutions Middle East shall mobilize the workforce required to the designated affiliates of Dubai Petroleum Establishment location for commissioning start-up as well as training for the system supplied. Additionally, as earlier stated Solutions Middle East under the agreement made was expected to provide maintenance services. Consequently, this would be done on a yearly basis where the contractor can remotely call, email, as well as log on to the server and aid the support team between the hours of 8:30 to 18:30hrs Sunday to Thursday. The Annual maintenance of the server will also include an onsite preventive health check service once every 4 months and 4 onsite visits in case of emergencies. The support service will be in charge of the server repairs a month after completion of installation and project sign off. The free contractor maintenance services are however valid for one year only.
Offer and Acceptance
It should be noted that the above mentioned discretions can only be part of the contract when the contractor in this case Solutions Middle East can meet the requirement prescribed can be met. According to Marson and Ferris (2015),experts in contract law explain that this is what is termed as “offer and acceptance”. For the parties involved in a business transaction to be settle on a contract they have to be on the same page on the aspects that make the contract profitable for both or all of them. This would consequently suggest the existence of “an offer”. An offer is defined as the initial requirement provided by a client that explain what is required by the contractor. The offer has to be realistic and achievable under the prevailing conditions when the agreement is made. After the contractor feels comfortable with meeting the contractual requirements then at this point “an acceptance” is made. When the parties involved come to agreement then a contract can be formulated. It should be noted that by law the offer and acceptance clause are what make a contract binding and legally recognized. A contract without these two features is considered invalid and cannot be protected by law in case of a “breach of contract”. In reference to the specific contract between Dubai Petroleum Establishment and Solutions Middle Eastpurchase order the offer is made open to the contractor in form of the description of both the product and the services offered. The acceptance on the other hand would be made through signatories representing Solutions Middle East and they are the individuals that would be held liable incase their company does not meet the terms of the offer.
Warranty and Conditions
A breach of contract is defined as the lack of one party not reaching the potentials presented by the contract. The two factors that represent a breach in contract are conditions and warranty. A condition is defined as a regulation where a particular contractual, stipulation can be done. In reference to the contract between Dubai Petroleum Establishment and Solutions Middle East the conditions may be placed on the product description; however, more specifically the annual maintenance represents an explicit condition that has been agreed between the two parties involved. The condition states that within the first month of installation, the only staff to work on the server would be from the contractor and only after the 30 days pass is when the client will have the support staff work on the server. In addition to this one on site preventive health check would be conducted after every four months and other four on site checks should be scheduled incase on an emergency. In reference to these conditions, both parties would alter the annual maintenance schedule to offer the best service for the client. However, in this case the condition had a warranty that stated that the free maintenance services would be provided by the contractor only for a year. A warranty in reference to a contract is defined as a period where damages as well as all liabilities that may be encountered would be covered by the contactor. Beyond this set period, the client expects the goods to be in perfect condition; however, this is not usually the case as some times a breach falls beyond a warranty.
The offer provided by the client in this case was specific and described the product as well as the services in detail. The acceptance by the contractor was based on the actualization of the offer provided by the client; consequently, any dissimilarity in the terms would merit a breach of contract, whichwould be covered by the warranty. However, factors such as quantity, location as well as time may not be covered warranty and may lead to contract termination incase the damages are substantial. Contract termination is defined as lawful dissolution of an agreement that can be caused by a variety of factors such as
Inability to Perform
In particular, cases a contract may be terminated due to the occurrence of an unforeseeable happening that would prevent one party from following through with the terms of the contract. In the case of Dubai Petroleum Establishment and Solutions Middle in case the contractor fails to offer maintenance services after providing the client with the RIGHTFAX ENTERPRISE SERVER due to downsizing from a financial crisis then they may opt to terminate the contract on the basis of inability to perform duties.
Breach of Contract
This is the most common cause of contract termination and is caused by a party’s failure to put up with the terms of the agreed contract. A breach of contract can be triggered by a variety of factor; however, the most legally accepted reasons are;
Frustration. O’Sullivan and Hilliard (2014), states that this occurs when neither party in the contract intentionally defaults on the original terms of a contract making it impossible or illegal to continue with transaction. When a frustrating event is identified by a court, the contract inevitably ends with all parties exempted from their responsibilities with all accrued liabilities remaining on the party that caused the event.
Repudiation. This ensues when a party fails to honor the terms of a contract in a way that may cause significant damage to the point the innocent party is forced to ending the contract (Poole, 2016). The cause of the breach is determined by a court and incase negligence or any pre-emptive notion is determined liability falls on the guilty party.
In reference to the contract in question, a termination of the terms is placed on the lack of provision of either the product (server) in actual spasticity from the client or a similar action in terms of the services to be provided. The terms are placed to suggest that incase the server was not the one requested then the contractor would have 10 days to acquire and fit the specified product; in case this is not done then the contract would be terminated. Additionally, if the services stipulated are not meet as described by the client a similar action of termination action would be taken
It should be noted that all contracts are covered by a legal clause of termination. However, a contract may not stipulate limitations based on when or what circumstances may trigger the termination clause causing a differentiation in what both parties interpreted as a legitimate or lawful reason to end a contract. According to case laws, the absence of appropriate wording on the conditions of a contract termination would suggest “convenience” as legitimate reason for changing of contractors by a client, which is damaging to one party. According to Poole, (2016), there is a need for clear wording of what may cause a termination as well as compensation. However, not all frustration or Repudiation events may cause an end of termination but issues such as arbitration, moderation, and mediation can be used to resolve contractual disputes.
In reference to the contract in question, the applicable law is placed in writing. In the first instance, Appendix A places both parties on notice of the applicable contract laws that may be used in case of a dispute or in conducting their obligations. In the second instance, Appendix B is based on the specific contract regulations that would be used by both parties in order to maintain a proper business transaction.
Mechanism to Resolve Disputes
Due to the fact that most contracts are acceptable or joined by law most individualsbelive in court proceedings to be the best means of resolving contractual disputes. However, due to a number of court ‘red tape’ issues other mechanisms have been brought forward to resolve termination, compensation as well as breach issues as shown below.
Alternative Dispute Resolution (ADR)
Due to the lack of clarity on issues relating to termination on a contract variety of scholars for instance Judge Advocate General’s School and American Bar Association (2007), have given more emphasis alternative dispute resolution methodologies in order to save contracts. Below are the major ADRs that are used today.
Arbitration. This is a legally-binding process that uses a panel credible independent party to solve dispute orders outside the legal system by taking up the role of judge giving directions by using evidence and passing a ruling.
Mediation. This process like arbitration is a legally-binding process that uses experts in coming up with a compensation format that would help the innocent party and the guilty party achieve low cost justice.
Mediation. This is a process of achieving a mutual agreement by both parties involved in a contract in finding a way of sharing liabilities from a terminated contract. This ADR is used when both parties are guilty of not keeping up with contact terms
In reference to the contract in question, the disputes will be done through the process of the court as stated in Appendix A. However, as stated in Appendix B, an arbitration is to be formed in case one party feels the terms of the contract have been violated.
Other Contractor’s Commitments
According to Arnavas(2014), most contractual conflicts take place due to other contractor’s commitments which exists in two form either as a rule of thumb or written in contract. The need of written word has gained significance over the last decade as more role has been placed on contract disruption and not the standard regulations governing contracts. In procurement management for instance, there has been an unwritten rule on warranty considering the commodity being bought. However, it is the role of the contract to state the duration of a contract. Other factors such as medication and insurance have turned from an unwritten rule to contract descriptive. According to the purchase, order in the case study the client stated in the offer that the contractor should be libel to the medical and fitness of the staff working on and of site of the server. However, this similarly extends to the period beyond the warranty of the server. The complication in this contract is that the client stated that all staff to be used at the server site should be identified and trained by the contractor and would be insured and medically cleared yet they work for the client well after the warranty period underlining the question placed on the responsibility of extra contractual obligations. In reference to the above case it is highly significant to place contractors extra responsibilities in writing.
Protection of Dubai Petroleum Establishment and Solutions Middle East by the Contract
The procurement contract used in the case of Dubai Petroleum Establishment and Solutions Middle East is highly descriptive in explaining standard as well as specific regulations that are used to govern the transaction between the two companies. The chances of one party overlooking the terms of the contract are minimal first because the product description was specific not only on model but functionality; the services provided by the contractor were also highly specific and lastly the contractor payment, delivery, location as well as after sales service (duration) requirement were placed I clear wording. This contract highlights on the factors that are highly contagious in contractual law cases such as law binding offer and acceptance, condition, warranty as well as termination closes options. This contract is best suited for commercial purposes and does not require improvements unless the transaction terms are agreed upon to change by both parties.
In summary, the paper presented highlights on the need for a clearer explanation of management majorly in procurement where the current business environment has changed numerously complicating the purchasing process. By using an example of Dubai Petroleum Establishment and Solutions Middle East purchase order this essay has highlighted on both the business as well as the legal frameworks that deal with procurement contractual law giving comprehensive insights on issues such as offer and acceptance; condition and warranty; contract termination; conflict resolution well as compensation. At the end of this study, it is significant to note that in order to be fully protected by the law it is necessary to give clear wording on product or service description, place compensation as well as contract termination clauses in clear wording as shown in the case study.
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