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Key Techniques for an Effective Supply Contract

The techniques applied to a supply contract vary depending on the type of the work and the nature of the industry. Contract technique can be defined as determining the best contract arrangement to best facilitate procurement of goods or services, in alignment with the requirements and company objectives. A “one size fits all” approach to the form of contract is unsuitable and ineffective. It is crucial to tailor-make a contract that is appropriate – reflecting the size, nature, value and complexity of the requirement/project and also fitting to the relationship required with the suppliers.

A Supply Contract is an elaborated agreement between two or more parties where one or more parties (the seller) may provide products or services in return for something offered by other parties (the buyer). Contracts detail the terms and conditions of a particular project/supply. An inaccurately formed contract could cost you money over a period of time. If a contract is inadequate, you may need to spend money to get the other party to legally comply or pay extra because you opted for a time and materials procurement contract instead of one with a fixed price.

Fixed-Price Contract

With this type of contract, the seller agrees to provide their service or product at a set price, independent of resulting equipment, material, and labor costs. This means that the seller will bear any costs beyond the agreed-upon amount. This type of contract has the least risk for the buyer. A well-defined scope and statement of work and a selection of competitive bidders help control pricing for this type of contract. Fixed price contract is most suitable if you have a clearly defined scope of work.

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Ma Theresa Napalinga, DPSM
Ma. Theresa Napalinga has 10years of experience in the professional field of procurement management, and specifically in the Food & Beverage Sector and the Marine Industry. She holds a Bachelor degree in Commerce in Management Accounting. She is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Theresa completed the Diploma in Procurement and Supply Management (DPSM) course on September 2018 at SIPMM Institute.

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