(Solution) CIPS FIDIC Contracts Advanced Practitioner Corporate Award (APCE)
- In this report, an evaluation of a contract by Oracle which is FIDIC guiding their construction projects in more than 67 countries globally has been carried out.
- It is evident from the analysis that there are varying contractual terms having an influence on the power and risk distribution between a supplier and an organisation.
- The rationale of this is that a contract is a legally enforceable agreement between different parties with specific acts or practices to be put into account.
- The core report areas of focus of focus has included the issues of price, quality, construction projects delivery timeline and health and safety have been put into account on the extent in which the risk and power are distributed between the contractor and the organisations.
- In the components identified, it is evident that irrespective of whether the buyer or supplier executes the risk or power.
- Through the application of different tools such as Mendelow stakeholders matrix, SWOT analysis and others, distinct issues and risks characterised by various challenges in the construction projects execution with their mitigation approaches and risks have been evidenced.
- As evidenced from the Kraljic analysis, it is evident that contractual terms have a strategic relevance in the context of Oracle informing on their holistic leveraging on the risks and powers of the contract.
- In situations where Oracle fails in leveraging on contract holistic risks power balance, warrant and also insurance cover is used.
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Description
Solution
Table of Contents
1.1 Organisation Background. 4
2.0 Assessment of Selected Contract 4
2.1 Contract Terms Essentials. 5
2.2 Construction Contract Strategic Relevance to Oracle Operations 8
2.3 Contractual Terms Implication to Stakeholders 9
3.3 Construction Projects Delivery Timeline. 14
3.4 Health and Safety Risks 14
5.0 Conclusions and Recommendations. 15
Appendix 1: FIDIC Contractual Terms 19
Appendix 2: Contractual Terms KPIs 27
Executive Summary
The purpose of this assessment is assessment of contractual terms and their implication on distribution of power and risk between the supplier and organisation. Through a focus on Oracle organisation, the selected contract is Federation Internationale des Ingenieurs- Conseils (FIDIC) which is a representative of consulting engineering industry both globally and domestically. In this contract, varying contractual terms and implication on power of distribution and risk between the supplier and organisation noted. To achieve this, primary and secondary data has been put into account. The findings of the analysis indicate that the power and risk distribution between the buyer and supplier has a significant influence on the scope, scale and delivery context of the contract. This is since through the contractual terms, it is possible to measure risks linked to scale, diversity and criticality of services. To understand this, the clauses in the contract relating to price, quality, timely delivery, and ethical risks management for establishing risks and power balance. In the different areas identified, it is evident that the buyer or the suppliers hold the risk and power.
The findings from the contractual terms analysis evidence that Oracle is tasked to manage the international construction projects as evidenced in the FIDIC contract. Based on the report findings, it is clear that this contract is valid. Through the application of a stakeholder’s analysis by the use of Mendelow stakeholders matrix and SWOT analysis have been used which highlight on various issues and risks that present the noted challenges in construction sector operations and contractual terms issues mitigation. In line with Kraljic analysis, contract terms have been noted to be critical to Oracle which evidence on its holistic leverage on contractual risk and power.
Finally, in regard to recommendations, they include;
- Part of the contract need to include the scale, diversity and flexibility of the terms
- Owing to diversity of stakeholders identified in analysis, the contractual terms need to be clear and avoid application of ambiguous or legal terms to aid an improved understanding
- In Oracle, the construction projects are both locally in UK and in EMEA (Europe, Middle East, Africa) region, contractual terms needs to be harmonised instead of having varying contractual terms in all the regions
- Additionally, contractual terms similarly need to be in line with the United Nations Convention on Contracts for International Sale of Goods (CISG) from 1980
1.0 Introduction
1.1 Organisation Background
Oracle organisation has been in an active operations since the year 1977 operating as a cloud technology organisation providing organisations globally with computing infrastructure and software for assisting innovation, unlocking efficiencies and effectiveness. There are multiple areas of operations including database software, relational database management system and computer systems and software (Oracle, 2021). All these areas are intended to assist individuals seeing data in new ways, discovery of insights and unlocking endless possibilities. As a procurement Lead Category Manager in the organisation, my roles is in the support of Real Estate and Facilities (RE&F) managing a diverse range of leased and owned property portfolio. This is inclusive of 5 million SQF within 200sites in 67 countries. As noted in Oracle (2020) this is achieved through creating an opportunity for enabling recognition of events in their occurrence, minimising data entry and streamlining business operations. The large scope of operations of Oracle RE&F sector influence the reliance of the FIDIC contractual terms in procurement of professional construction services and general contractor services. According to Loop Group (2020) this is a standard form of contract in civil engineering projects applicable globally. In Oracle, their procurement function is based on collaborative engagement with different suppliers in a transparent ease of procuring process management with different engaged partners. An agreement to the contractual terms is critical for existence of a contract between Oracle and their suppliers with sustainable relations being harnessed with their suppliers. This is best achieved with FIDIC contractual terms that guide a balanced approach for roles and responsibilities of leading players and allocation and management of the encountered risks.
In line with the above background information, this assessment focus on the construction professional services contract in Oracle by focusing on FIDIC contractual terms. Through this, various terms have been evaluated to note on the scope of power distribution and risks between supplier and organisation.
2.0 Assessment of Selected Contract
According to CIPS (2020) referencing Hackett et al. (2007), a contract has been defined as an agreement which is legally enforceable between two and more persons. In contract execution, there are things that need to be done or abstained guided by the legal relations and not only exchanging mutual promises. In this case, the selected contract in Oracle is engagement of construction professional services. To achieve this, the organisation uses the FIDIC contractual terms. The rationale of application of the contract is as evidenced in figure 1;
Figure 1: Oracle RE&F sector Costs and Contract Areas
Source: Oracle (2020)
As evidenced in appendix 1 of the contract, a summary of the contract note that “The Employer hereby agrees to pay the Contractor the Contract Price in consideration of the Contractor executing and completing the Works and remedy any defects in the Works in conformity with the provisions of the Contract”. As a result of this, it is evident in Oracle (2021a) that despite of the COVID-19 pandemic, Oracle construction and engineering has been successful in supporting the business and providing continuity of services at all times despite of the COVID-19 pandemic.
2.1 Contract Terms Essentials
As evidenced in the CIPS 2020 notes, the essentials of a valid contract are offered. In line with figure 2, by focusing on the different factors, the construction contract in Oracle organisation agreement validity can be considered.
Figure 2: Valid Contract Essentials
Source: CIPS Materials 2020
As shown in figure 2, a summary of the contract essentials in line with Oracle contract, scope, scale and delivery context of the construction projects include;
Invitation to Treat (ITT)– This describes factors such as price lists, catalogues, displaying products and a quotation request. This is distinct from a formalised contract. For the Oracle contract selected, it gas clear general terms with internal catalogues and price lists done internally (see figure 1).
Representations– Part of contract demand construction services to possess capability and capacity. In Oracle, timing is instrumental as the contract note that “Key Date” shall mean the key date by which execution of a Key Stage, as stated in the Appendix to the Conditions, as may be extended from time to time in accordance with these Conditions”.
Offer– Since Oracle continuously implement different construction projects, the contract is always on offer with no commencing date but annually renewed
Acceptance– Executed through a full writing in the contract with performance guiding acceptance
Agreement– service agreement between Oracle and their suppliers. In the construction project, the agreement is as shown in figure 3;
Figure 3: Agreement Essential of Oracle Construction Contract
Capacity– Supplier is supposed to put into account the different contractual terms for highlighting their capability. Any capacity issue is evidenced in Force Majeure part of the contract. Particularly, the clauses highlight “Each Party shall at all times use all reasonable endeavours to minimise any delay in the performance of the Contract as a result of Force Majeure”.
Considerations– This inclusive of services, fees, subcontracts and invoices in the contract. The selected contract note that “The Employer hereby agrees to pay the Contractor the Contract Price in consideration of the Contractor executing and completing the Works and remedy any defects in the Works in conformity with the provisions of the Contract”.
Legal Intent– This is guided by requirements of KPI metrics, penalty and termination (see appendix 2)
Legal Objects– Include organisation proposals, approved construction contracts
Operative– Misconceptions eliminated, undue influence mitigated with misrepresentation mitigated.
Hence, in conclusion, based on the construction contract essentials, it is evident that the contract is a valid contract.
2.2 Construction Contract Strategic Relevance to Oracle Operations
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- In this report, the area of focus is on different sourcing approaches which can be used in procurement and supply management (PS&M) in contemporary business environment. This is through the focus of ROSHN organisation in Design Building category of spend.
- To achieve the intended aim of this report, data has been sourced from the organisation internal documents, different CIPS modules and models (Mendelow, STEEPLE and Kraljic). The key findings include ROSHN prefeed approach being multiple sourcing owing to the high-level of market competitiveness. This is with sole and single approaches preferred when only one supplier is being engaged owing to differences in organisation needs.
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