Different Contractual Relationships, their types

1. Contracts Strategies

2. Contractual Strategy

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

6. The Relationship Spectrum

7. Relationship Types and Characteristics

8. Relationship Types – Contd.,

9. Relationships – Contd.,

10. International Contracts

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