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Abu Dhabi Company for Onshore Oil Operations’ Procurement & Supply Contracts Report (Assessment)

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ADCO’s Terms and Conditions

Introduction

ADCO’s procurement and supply contract involve making promises to pay suppliers a specific amount of money for supplying the required materials, tools, and services within the recommended quality levels and the set timeframe. The specifications are provided in the company’s contractual terms and conditions. This section addresses these terms and conditions.

ADCO’s Terms and Conditions

The company’s contracts are guided by a set of terms and conditions that regulate the conduct of parties that are involved in the contract. At ADCO, particularly in the Supply Chain Management section, different terms and conditions are critical in ensuring that the firm manages the risks of poor quality, an extension of time, increased operations costs, and unethical practices. Article 4 (contract administration) of the company’s terms and conditions provide a recourse for managing the risks of poor quality in the procurement and purchase contracts. Indeed, sections 4.2 and 4.3 set out the roles of ADCO and consultant representatives.

According to Section 4.2, the company should appoint ADCO’s agent who shall have the power to stand for ADCO in all consultancy issues. The issues include “performance of the Services, acceptance of the Services by ADCO, and the right to require the correction of faults and deficiencies in any part or all of the Services which is not based on the requirements of a contract” (ADCO 13). These terms give ADCO the moral authority to guarantee compliance with the procured items and materials to the established specifications depending on the intended use of the items and the materials.

Where lack of compliance is noted, the second party that is herein termed as the CONSULTANT or the supplier in case of the purchasing and procurement processes has to abide by the requirements to correct the condition of the supplied items and materials so that they do not amount to a breach of contract. The capacity to curb risks of poor quality is further enhanced through Section 4.3 of ADCO’s terms and conditions. The section requires a CONSULTANT to appoint a representative who keeps on checking and signing on the party’s behalf for any items and supplied materials. He or she has to be there when modifications, additions, order changes, and any deletions are required.

The execution of contract deliverables may be delayed. In the purchase and procurement procedure, this delay leads to an extension of the delivery time of the procured materials and items for any organization (Leclerc 68). This situation translates into delays in ADCO’s operations and other processes. Article 36, Section 36.1 of the company’s terms and conditions helps the company to handle the risk of time extension through the payment of liquidated damages for delays in contract performance. The anticipated completion date is specified in the contract form in such a way that the suppliers remain aware of the expected delivery time. The company includes a disclaimer clause that any amount paid in the form of liquidated damages does not attract a penalty for time extensions or delays in completion.

What can happen if the supplier does not honor the obligation to pay the liquidated damages? Section 36.2 of the company’s terms and conditions provide a remedy for dealing with the risk of time extension in such situations. ADCO considers liquidated damage debts that are due for payment to be paid to the consultant. However “ADCO may, without prejudice to any other method of recovery, deduct the amount of such liquidated damages from any due payments that may be payable to the CONSULTANT” (ADCO 28).

The terms protect ADCO since they do not amount to relieving the suppliers’ obligation to complete the performance of a contract. Besides, they do not prejudice ADCO’s civil liberties as provided for in the contract law. The terms only ensure that the supplier or any other service provider complies with the set standards and/or keeps on checking the specified completion dates.

To operate competitively, it is crucial for ADCO to mitigate the risk of increased cost. Through Article 11 (warranties and liabilities), ADCO ensures that the services that are provided by a CONSULTANT are useful for a reasonable period to alleviate the risk of incurring costs soon after completion. For example, Section 11.2 requires a consultant to rectify service deficiencies and defects that are detected prior to the completion of services according to the specified requirements at no extra cost. ADCO provides remedies for meeting the warranties upon notifying the contractor to do so within a given period, the contractor should reimburse any costs incurred. Through Article 17, ADCO does not pay taxes or levies on behalf of the contractor.

Article 19 ensures that ADCO mitigates the risk of increasing costs. Service providers or contractors should meet their insurance needs and those of their employees. Article 25 mitigates the risk of increased costs by demanding the CONSULTANT to refund the amount that ADCO pays in the form of claims above the contract price. Through Article 5, the company alleviates itself from incurring costs that relate to the CONSULTANT. Such costs include, but are not limited to, the CONSULTANT’s organizational operations, payment of personnel, and remunerations among other costs. These terms help in protecting the company since they enable the procurement and purchasing department to settle not only the costs that are directly associated with its operations but also those of the supplier.

In the purchasing and procurement contracting relationships, the ethical codes of conduct help an organization and suppliers to determine what to do or not to do. For ADCO Company, Article 22 points out the confidential ethical conduct in terms of information disclosure and transfer of files and records upon the completion of service delivery. Article 29 of ADCO’s terms and conditions establish ethical considerations that are necessary when addressing conflicts of interest in a contracting relationship. These stipulations help in shielding the business since they present ethical guidelines in the field of operations and relationships of different parties during the purchasing and procurement procedures.

Conclusion

On a daily basis, firms engage in contract relationships. Contracts can be established in the area of employment, the building of firm facilities, the supply of raw materials, transportation and logistics, and/or the provision of support services such as human resource management and customer relationships administration among other forms of contracts. ADCO’s contracts are bilateral in nature. As revealed in the first section, contracts of the company involve making promises between ADCO and a second party (CONSULTANT), that are subject to the applicability of various terms and conditions as discussed previously.

The Battle of Forms

Introduction

Organizations that supply goods and services to ADCO through the purchasing and procurement department deploy standard form contracts. However, the terms of the contract often contradict. For successful business performance between the parties, offers and acceptances have to be made if legally valid contracts must be established. The concept of the battle of forms implies the emerging legal disputes in case of contradicting standard forms of a contract between parties. The concept is applied where the parties recognize the existence of an enforceable contract but are divided into terms implied by a specific contract. This section demonstrates an understanding of the concept of the battle of forms concerning ADCO’s contracting relationships with its CONSULTANT.

The Battle of Forms

The contract law requires one party to make an offer while the other accepts it for an agreement for it to become legally binding. When one of the parties alters the offer, a new proposition is created, which requires acceptance (Weitzenböck par.5). However, the battle of forms concept constitutes an exception to this rule. Two contracting parties never negotiate boilerplate terms. As illustrated below in figure 1, the battle of forms scenario mostly emerges when offers and counteroffers are established where two parties wish to engage in a legally binding agreement for sales and purchases of goods and services.

Illustration of the Battle of Forms Concept.
Fig. 1: Illustration of the Battle of Forms Concept.

When situations that lead to the battle of forms emerge, courts must decide which terms to be applied in a particular scenario. In this process, two tests are applied. In the first test, the parties do not need to read the boilerplate terms. If any of the parties possess the knowledge of terms, it is likely that the party will alter the acceptance of the consent equation (Koffman and Macdonald 78). The second test involves determining whether the parties completed the selling transaction. This information acts as evidence of the intent and the desire to engage in legally binding business relationships.

When the two tests are passed, the court acknowledges the existence of a contract. The next challenge entails determining whose terms apply. However, no universal resolution for the battle of forms exists. Thus, no single rule is applicable in every situation. Judges have the responsibility of evaluating circumstances in terms of their totality (Koffman and Macdonald 91). In some scenarios, a judge may invalidate the applicability of any of the parties’ boilerplate terms. In other situations, only the terms that do not involve material elements are validated. A third outcome may involve the validation of the applicability of one of the party’s boilerplate terms in controlling the contractual relationship.

The judicial precedence of Balmoral Group Ltd v. Borealis Group Ltd establishes rules that demonstrate the applicability of the battle of forms concept in relation to whose terms should prevail. The case involved two parties that had entered into a contract for the supply of a large amount of polythene polymer that is useful in producing tanks for storing chemicals. However, Balmoral’s green oil tank that utilizes the material in large proportions failed.

The company moved to court suing Borealis for damages amounting to £50 million. Balmoral asserted that for every purchase order, a separate offer was established. The offer was then accepted through the delivery of goods or in a word of mouth. However, Borealis included its terms regarding invoices. The terms limited the supplier’s liability to repaying the purchase price in case of defective goods or replacing faulty goods.

During the legal tussle in the court, Balmoral maintained the invoices that came when every contract had been signed. Therefore, every invoice only amounted to the payment of price claims. The court ruled in favor of the supplier. The presiding judge ruled that when the supplier’s prices were quoted, the quotation was made according to the terms and that the party intended to enter into a contract only when the terms were valid and acceptable.

According to the facts of the case, Balmoral was aware of the terms at the back of the invoice that was issued by the supplier. He had crosschecked them by paying without bargaining. The company also continued to pay in subsequent contracts without any protest. When Borealis notified Balmoral about the changes of terms, Balmoral never objected to the new conditions. Therefore, in the case of Balmoral Group Ltd v. Borealis Group Ltd, the supplier’s terms applied such that Balmoral could not be reimbursed for the damages. Based on this case, ADCO can ensure that the contract is based on its terms by ascertaining that the terms are part of the contract such that a contract is entered subject to the terms. Kraljic Portfolio Model for procurement and purchasing (fig. 2) provides a way forward for accomplishing this task.

Kraljic Purchasing Model.
Fig. 2: Kraljic Purchasing Model.

As illustrated in figure 2, Kraljic Model is a square matrix of order 2. For example, bottleneck items present a high supply risk and a low impact on profits. Thus, knowing that ADCO has a high buying power of such products, it can develop terms and conditions and/or push for their applicability to regulate the contractual relationship for the supply of highly risky items and products. This case applies considering that the supplier does not accept the terms.

ADCO will only experience a low impact on its profitability if no contract is formed. However, this scenario cannot apply for strategic items. ADCO’s procurement and purchasing section can only use its buying power to bargain on the terms and conditions that address the supply of highly risky products or items in a way that the two parties arrive at a compromise position. This outcome entails a win-win situation whereby offers are accepted as subject to contractual terms that apply to both parties. Where one party is not keen on the boilerplate terms that accompany each organization’s business documents, including invoices, this aspect of the Kraljic Purchasing Model leads to a legal tussle of the battle of forms.

Conclusion

From the challenges of the battle of forms, the question that emerges is, ‘what offers the best suit ADCO’s procurement and purchasing department so that it can readily accept them without any fear of risks?’ Kraljic Portfolio Model of procurement and purchasing can help the department to respond to this interrogative. Initially published in the Harvard Business Review-Journal in 1983, Kraljic remains an important model that is deployed by many companies across the globe to make their purchase decisions and/or determine suppliers’ acceptance capacity.

How ADCO’s Terms and Conditions ensure Monitoring and Management of Performance Measures

Introduction

ADCO enters into contractual relationships with suppliers with a clear objective of receiving items and materials in some specified conditions and form. Therefore, terms and conditions in purchasing and procurement contracts need to ensure that the supplying party does not deliver items and materials that are below the desired conditions and form. The terms and conditions need to ensure that the relevant performance measures are monitored and managed. How is the monitoring or management accomplished by ADCO through its terms and conditions?

Monitoring and Management of Performance Measures

Before making the actual purchase, ADCO’s contractual terms and conditions require it to place its representative in the premises of the CONSULTANT who evaluates the products or services to determine whether they conform to the established performance standards as established in the terms of engineering designs and various performance parameters. This cycle of events can be represented in the form of a purchasing cycle model as shown in figure 3.

Purchasing Cycle Model 1.
Fig. 3: Purchasing Cycle Model 1.

After making the initial purchase, the actual performance of the products and services while on the premises of ADCO is significant in influencing future contracting relationships with the CONSULTANT. This preparedness makes the monitoring of various performance measures of the services and the products when operating at the company’s facilities important. Where the results of the performance monitoring indicate satisfactory performance as provided for through the guarantees and warranties, ADCO develops better procurement and purchase relationships with the CONSULTANT.

This move makes it arrive at a decision of retaining the CONSULTANT for future considerations of an offer for supplying products and services to satisfy the same need or even a related need. This situation indicates the need for incorporating the performance monitoring and management retention aspect in the purchasing model that applies to ADCO. Such a cyclic model is illustrated in figure 4.

Purchasing Cycle Model 2.
Fig. 4: Purchasing Cycle Model 2.

Some of the potential causes of the poor performance of the delivered services or products by a supplier include poor workmanship and inconsistency between engineering parameters that are used by the supplier or the contractor and those in the design prototypes developed by the client (in this case ADCO). Purchases and procurement terms and conditions should guarantee the monitoring and management of these two important issues to ensure reliability in the performance of items/products and services supplied to ADCO by a second party (CONSULTANT). From the context of ADCO’s contractual terms and conditions, the company has sufficient mechanisms for monitoring and managing performance measures unless where boilerplate terms and conditions that lead to a battle of forms on the part of CONSULTANT may exist.

Article 3 (general scope of services) introduces a mechanism for capturing and managing performance measures. Section 3.1 calls upon the CONSULTANT to exercise reasonable skills, diligence, and care in the process of performing services to ensure compliance with terms and conditions set out by ADCO. It further compels a consultant to depict sound engineering practices together with the principles based on the established international standards for engineering works.

This strategy is a way of monitoring key performance indicators (KPI) since any acceptable practice in the process of performance of a contract by the consultant needs to compare and measure up to the internationally accepted standards and practices. ADCO also requires the CONSULTANT to provide equipment, personnel, and facilities on satisfactory performance levels.

Article 8 underlines the necessity for exchanging engineering data between ADCO and the CONSULTANT. The data includes designs, diagrams, models, prototypes, calculations, specification data, and plans among others. Such data guarantees consistency between service performance and the expectations of ADCO concerning performance measures in the consultant work. Management of KPI is enhanced by Section 8.2 of ADCO’s contractual terms and conditions, which require the consultant to examine any provided engineering data to notify ADCO within a reasonable time about any deficiency, inaccuracy, and inconsistency (ADCO 17).

In case of failure to accomplish this duty, ADCO considers the CONSULTANT liable for any poor performing deliverable where deficiency can be tracked from information that is provided to the CONSULTANT. Section 8.3 also establishes the need for ADCO’s representatives to inspect reports, deliverables, and studies conducted by the CONSULTANT during their process of preparing to perform a contract. This clause is essential in helping to capture inconsistencies between the data and ADCO’s KPIs.

Poor workmanship may arise where a CONSULTANT seeks the services of a third party in the process of performing a contract. ADCO ensures that it manages the risks of poor performance in such situations by including a contractual term demanding that any third party recruited by a CONSULTANT is to seek authority from the company before beginning to offer any service to the CONSULTANT. This move ensures the third party’s approval of its capability to deliver on key aspects of the contract in compliance with specifications.

Conclusion

In the best interest of an organization, many companies ensure that contracts are established with respect to their terms. ADCO has developed its terms and/or conditions to guide its contractual relationships with a second party that is herein referred to as a CONSULTANT. One of the key considerations in the terms and conditions of ADCO is ensuring that a supplier only provides goods and services that meet the company’s performance specifications. Hence, it considers monitoring and management of performance measures to be an essential component of its terms and conditions that are applied when developing legally binding business relationships with its suppliers (CONSULTANTS).

Works Cited

ADCO. Special Terms and Conditions, The Emirate of Abu Dhabi: Abu Dhabi Press, 2013. Print.

Chartered Institute of Purchasing and Supply., 2012. Web.

Koffman, Laurence, and Elizabeth Macdonald. The Law of Contract, Oxford: Oxford University Press, 2007. Print.

Leclerc, Yekul. “Sustainability and the Supply Chain: How to Reduce Cost and Save the Environment.” Manufacturing business technology 2.1(2012): 67-71. Print.

Skok, David. Understanding the Customer Buying Cycle and Triggers, Oxford: Oxford Publishers, 2012. Print.

Weitzenböck, Emily. , 2012. Web.

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IvyPanda. (2021, April 2). Abu Dhabi Company for Onshore Oil Operations' Procurement & Supply Contracts. Retrieved from https://ivypanda.com/essays/abu-dhabi-company-for-onshore-oil-operations-procurement-amp-supply-contracts/

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"Abu Dhabi Company for Onshore Oil Operations' Procurement & Supply Contracts." IvyPanda, 2 Apr. 2021, ivypanda.com/essays/abu-dhabi-company-for-onshore-oil-operations-procurement-amp-supply-contracts/.

1. IvyPanda. "Abu Dhabi Company for Onshore Oil Operations' Procurement & Supply Contracts." April 2, 2021. https://ivypanda.com/essays/abu-dhabi-company-for-onshore-oil-operations-procurement-amp-supply-contracts/.


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IvyPanda. "Abu Dhabi Company for Onshore Oil Operations' Procurement & Supply Contracts." April 2, 2021. https://ivypanda.com/essays/abu-dhabi-company-for-onshore-oil-operations-procurement-amp-supply-contracts/.

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IvyPanda. 2021. "Abu Dhabi Company for Onshore Oil Operations' Procurement & Supply Contracts." April 2, 2021. https://ivypanda.com/essays/abu-dhabi-company-for-onshore-oil-operations-procurement-amp-supply-contracts/.

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IvyPanda. (2021) 'Abu Dhabi Company for Onshore Oil Operations' Procurement & Supply Contracts'. 2 April.

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