100062055 pm0018 pm0018 contracts management in projects summer spring 2012

7/29/2019 100062055 PM0018 PM0018 Contracts Management in Projects Summer Spring 2012

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Master of Business Administration Semester 4

Subject Code PM0018

Subject Name Contracts Management in Projects

Assignment Set- 1 (60 Marks)

Note: Each question in total carries 10 Marks. Answer all the questions.

Q 1. Describe the four basic elements of a contract.

Contract is a binding agreement between two or moreparties. Once signed, this agreement

can be enforced by either a court oflaw or binding arbitration. Because legal contracts cannot

be signed under duress, there is the "mirror image" standard of binding agreement. This

simply means that each party must be as willing to sign the agreement as the other. The

concept of "breach of contract" is recognized by state and federal laws and is a valid reason

for litigation.

Mutual Consent

To enter into a binding contract, there must be mutual consent and understanding between

the parties. This means there must be a certain amount of conceptualization about the

contract's terms. This is why legal contracts are so long and filled with what people refer to

as "lawyer-speak." All the fine print is putting into words the concepts of the contract so

there is no wiggle room for interpretation.

Agreement

This is known as the "offer and acceptance" element of the contract. It is just as it sounds.

One party will make an offer, and the other party will accept the offer. This is what makes a

contract take shape. If one party makes an offer and the other party makes a counteroffer, an

agreement has not been made. This is usually seen as a rejection of the offer. If the

counteroffer is rejected, the original offer does not necessarily stand anymore.

Exchange

This is one of the very basic elements of a contract. Each of the parties must bring to the

table some form of product, service or legal tender to have a mutual exchange. This means
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that a contract can involve any of these exchanges. Employment contracts involve a business

exchanging a salary and benefits for the work services of a new employee. Sales contracts

involve the exchange of goods for the promise of payment from a customer. In most cases,

contracts are only enforceable after one of the parties has fulfilled his share of the exchange.

For instance, the new employee mentioned above would have a difficult time suing his

employer for not paying him if he failed to show up for work.

No Public Policy Violation

Even if a contract meets all other necessary elements, violating public policy will

automatically invalidate it. For instance, if prostitution is against the law in a certain city, a

contract in which a woman agrees to sleep with a man for a specified amount of money

would be invalidated because it violates public policy. This means that the terms of thecontract would be unenforceable in a court of law.

At least two separate parties entering into an agreement. The agreement can be

between two individuals, between an individual and a company or between a company

and another company.

The parties are qualified to agree to the terms and conditions in the contract. The

parties must be of legal age and have full understanding of what the contract is and the

details it outlines.Both parties are receiving consideration, or value, from the agreement. This is most

commonly money in exchange for a good or service, but there are other methods of

consideration, especially in the business arena.

The contract is created for legal activities. Contracts are not binding or considered

legally valid when they propose illegal activities or violate existing laws in any way.

Breach Of Contract

A party who has agreed to a valid contract can be held in breach of that agreement in a

court of law. When one party seeks legal recourse against another for breach of contract,

that party must re-evaluate the contract based on the four elements. These elements are

essential in showing that one party did not live up to his end of a valid contract. The

plaintiff must prove that:


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The contract was valid. In court, the plaintiff will attempt to prove that all the elements

that went into making the contract met the validity requirements.

One party did perform according to the contract. The plaintiff must show that the

other party did not complete the contract, while proving that the plaintiff did abide by the

contract.

The other party failed to perform according to the contract agreement. The plaintiff

will have to show that the other party failed to meet the basic contractual obligations.

Damage was incurred. The plaintiff must show that damage occurred as a result of the

other party's breach of contract. This could mean loss of money, assets or other

quantifiable items.

Q 2. Describe the characteristics and legal issues of Lump-Sum Turn Key type (LSTK)

contract

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Q 3. Write short note on the following bidding methods:

a. International/Global Competitive Bidding (ICB).

he purpose of this page is to provide information to enable qualified bidders from NATO

nations contributing to the funding of the requirements to make an offer in accordance

with the bidding instructions included in the respective solicitations packages.

Q 4. List the advantages of referring a dispute to arbitration.

Arbitration, a form ofalternative dispute resolution (ADR), is a legal technique for the

resolution ofdisputes outside the courts, where the parties to a dispute refer it to one or

more persons (the "arbitrators", "arbiters" or "arbitral tribunal"),

Q.5. Write a short note on the following types of mergers:

a. Product extension merger.

Product Extension Merger
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According to definition, product extension merger takes place between two business

organizations that deal in products that are related to each other and operate in the same

market. The product extension merger allows the merging companies

Q 6. Describe in brief the major components of planning negotiation

Negotiation is a dialogue between two or more people or parties, intended to

reach an understanding, resolve point of difference, or gain advantage in

outcome of dialogue






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http://en.wikipedia.org/wiki/Dialoguehttp://en.wikipedia.org/wiki/Dialogue


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Master of Business Administration Semester 4

Subject Code PM0018

Subject Name Contracts Management in Projects

Assignment Set- 2 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q 1. Compare strategic level analysis & Operational level analysis for Make or Buy

decision

The make-or-buy decision is the act of making a strategic choice between

producing an item internally (in-house) or buying it externally (from an outside

supplier). The buy side of the decision also is referred to as outsourcing. Make-or-

buy decisions usually arise when a firm that has developed a product or partor

significantly modified a product or partis having trouble with current suppliers,

or has diminishing capacity or changing demand.

Make-or-buy analysis is conducted at the strategic and operational level.

Obviously, the strategic level is the more long-range of the two. Variables

considered at the strategic level include analysis of the future, as well as the current

environment. Issues like government regulation, competing firms, and market

trends all have a strategic impact on the make-or-buy decision. Of course, firms

should make items that reinforce or are in-line with their core competencies. These

are areas in which the firm is strongest and which give the firm a competitive

advantage.

The increased existence of firms that utilize the concept of lean manufacturing

has prompted an increase in outsourcing. Manufacturers are tending to purchase

subassemblies rather than piece parts, and are outsourcing activities ranging

from logistics to administrative services. In their 2003 book World Class Supply

Management, David Burt, Donald Dobler, and Stephen Starling present a rule of


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thumb for out-sourcing. It prescribes that a firm outsource all items that do not fit

one of the following three categories: (1) the item is critical to the success of the

product, including customer perception of important product attributes; (2) the

item requires specialized design and manufacturing skills or equipment, and the

number of capable and reliable suppliers is extremely limited; and (3) the item fits

well within the firm's core competencies, or within those the firm must develop to

fulfill future plans. Items that fit under one of these three categories are considered

strategic in nature and should be produced internally if at all possible.

Make-or-buy decisions also occur at the operational level. Analysis in separate

texts by Burt, Dobler, and Starling, as well as Joel Wisner, G. Keong Leong, and

Keah-Choon Tan, suggest these considerations that favor making a part in-house:

Cost considerations (less expensive to make the part)

Desire to integrate plant operations

Productive use of excess plant capacity to help absorb fixed overhead (using

existing idle capacity)

Need to exert direct control over production and/or quality


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Better quality control

Design secrecy is required to protect proprietary technology

Unreliable suppliers

No competent suppliers

Desire to maintain a stable workforce (in periods of declining sales)

Quantity too small to interest a supplier

Control of lead time, transportation, and warehousing costs

Greater assurance of continual supply


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Provision of a second source

Political, social or environmental reasons (union pressure)

Emotion (e.g., pride)

Factors that may influence firms to buy a part externally include:

Lack of expertise

Suppliers' research and specialized know-how exceeds that of the buyer

cost considerations (less expensive to buy the item)

Small-volume requirements


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Limited production facilities or insufficient capacity

Desire to maintain a multiple-source policy

Indirect managerial control considerations

Procurement and inventory considerations

Brand preference

Item not essential to the firm's strategy

The two most important factors to consider in a make-or-buy decision are cost

and the availability of production capacity. Burt, Dobler, and Starling warn

that "no other factor is subject to more varied interpretation and to greater

misunderstanding" Cost considerations should include all relevant costs and be

long-term in nature. Obviously, the buying firm will compare production and

purchase costs. Burt, Dobler, and Starling provide the major elements included in

this comparison. Elements of the "make" analysis include:


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Incremental inventory-carrying costs

Direct labor costs

Incremental factory overhead costs

Delivered purchased material costs

Incremental managerial costs

Any follow-on costs stemming from quality and related problems

Incremental purchasing costs

Incremental capital costs


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Cost considerations for the "buy" analysis include:

Purchase price of the part

Transportation costs

Receiving and inspection costs

Incremental purchasing costs

Any follow-on costs related to quality or service

One will note that six of the costs to consider are incremental. By definition,

incremental costs would not be incurred if the part were purchased from an outside

source. If a firm does not currently have the capacity to make the part, incremental

costs will include variable costs plus the full portion of fixed overhead allocable to

the part's manufacture. If the firm has excess capacity that can be used to produce

the part in question, only the variable overhead caused by production of the parts

are considered incremental. That is, fixed costs, under conditions of sufficient idle

capacity, are not incremental and should not be considered as part of the cost to


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make the part.

While cost is seldom the only criterion used in a make-or-buy decision, simple

break-even analysis can be an effective way to quickly surmise the cost

implications within a decision. Suppose that a firm can purchase equipment for in-

house use for $250,000 and produce the needed parts for $10 each. Alternatively,

a supplier could produce and ship the part for $15 each. Ignoring the cost of

negotiating a contract with the supplier, the simple break-even point could easily

be computed:

$250,000 + $10Q = $15Q

$250,000 = $15Q $10Q

$250,000 = $5Q

50,000 = Q

Therefore, it would be more cost effective for a firm to buy the part if demand

is less than 50,000 units, and make the part if demand exceeds 50,000 units.

However, if the firm had enough idle capacity to produce the parts, the fixed cost

of $250,000 would not be incurred (meaning it is not an incremental cost), making

the prospect of making the part too cost efficient to ignore.

Stanley Gardiner and John Blackstone's 1991 paper in the International Journal of

Purchasing and Materials Management presented the contribution-per-constraint-

minute (CPCM) method of make-or-buy analysis, which makes the decision

based on the theory of constraints. They also used this approach to determine

the maximum permissible component price (MPCP) that a buyer should pay

when outsourcing. In 2005 Jaydeep Balakrishnan and Chun Hung Cheng noted

that Gardiner and Blackstone's method did not guarantee a best solution for a

complicated make-or-buy problem. Therefore, they offer an updated, enhanced

approach using spreadsheets with built-in liner programming (LP) capability to

provide "what if" analyses to encourage efforts toward finding an optimal solution.


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Firms have started to realize the importance of the make-or-buy decision to

overall manufacturing strategy and the implication it can have for employment

levels, asset levels, and core competencies. In response to this, some firms have

adopted total cost of ownership (TCO) procedures for incorporating non-price

considerations into the make-or-buy decision.

Q 2. Write short notes on the following:

a. Design, Bid, Build (D-B-B) methodology

Design-bid-build (or design/bid/build, and abbreviated D-B-B or D/B/B

accordingly), also known as Design-tender (or "design/tender") and Traditional

Method, is a project delivery method in which the agency or owner contracts with

separate entities for each the design and construction of a project.


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Q 3.List and describe in brief the four types of consultancy contract.

There are several types of contracts typically used to engage software development

vendors /suppliers:-

Q 4. List the advantages & disadvantages of Mergers & Acquisitions.

A merger does not require cash.

A merger may be accomplished tax-free for both parties.

Q 5. Explain the following

a. Indian Contract Act

Q 6. Describe the actions that can be used to minimize the causes of disputes and claims

in contracts.

No customer or contractor wants its contract plagued by disputes. Resolving disputes

absorbs valuable resources, frequently sours the present contractual relationship and

could affect future business relationships between the parties. Ironically, some of the


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leading causes of disputes are the easiest to minimize through careful contract negotiation

and administration. Three of these are discussed below with simple, but often

overlooked, precautions that can help to avoid them.





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100062055 pm0018 pm0018 contracts management in projects summer spring 2012

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