SUPPLY CHAIN MINDED

Made to fit

Made to fit

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13 June 2013 | Stephen Ashcroft supplymanagement.com

We asked you what you particularly wanted to know when it came to tenders and you told us specifications were one of the top challenges. Stephen Ashcroft advises on how to make them fit for purpose.

Specifications lie at the heart of a contract and create obligations for the supplier. When you include a specification in an Invitation to Tender, it should accurately portray to the recipient what the specific requirements are for the goods or services being purchased. It is unlikely that the specification will be created by procurement; most likely it will emanate from a technical area in your organisation. The worst scenario is when the supplier creates the specification and it isn’t understood, challenged or negotiated. The law courts are regularly filled with disputes about non-compliance with specifications. And even when the courts are not involved there are time-consuming and costly disputes to resolve. Inevitably, many of these will irreparably damage relationships. Here are a few things to consider…

Terminology

1. Design specifications set forth, in precise detail, the materials to be employed and the manner in which the work is to be performed; they permit no deviations.

Generally speaking, the buying organisation is, in these circumstances, exposing itself to all the liabilities arising when the specification is inadequate. There is a modicum of solace in that an ‘expert’ supplier should apply their skills and point out alleged deficiencies, but of course they may not be aware of the end purpose. 

2. Performance specifications state an objective and the successful supplier is expected to exercise its ingenuity in selecting the means by which the objective is to be achieved. This is often the preferred route for procurement because, providing the objective(s)/outcome(s) are accurately defined, the obligation for performance passes to the supplier.

3. Specifications describe goods, for example hardware and software.

4. Statements of work describe services to be performed.

Clarity

Specification writers must accept that the usage of words and phrases can be vital. The use of ‘and/or’ is confusing. It leaves the supplier free to choose whether the sentence ought to read ‘and’ or ‘or’, whichever is cheapest. It should not be used in specifications or statements of work.

Another example is ‘as well as’. When a supplier is asked to do ‘A as well as task B’, we haven’t explicitly required tasks A and B to be done, we’ve only required that both be done equally well.

‘As a minimum’ and ‘not limited to’ serve no purpose other than to give the specification writer a false sense of security. The requirements must be spelt out in full. Lawyers often use the phrase ‘not limited to’ in an attempt to dodge a rule of interpretation known as ‘expressio unius est exclusio alterius’, which means ‘the expression of one thing implies the exclusion of the other’. This sleight of hand doesn’t always work for lawyers and nor will it in specifications

A US study of causes of specification-based claims, litigation or arbitration included the following:

  • ‘Or equal’ specifications – jobs have ground to a halt over arguments about just what is ‘equal’ to the proprietary specification and whose decision it is.
  • Conflict between drawings and specifications – it may be noted that buyers are regularly given the wrong issue of a drawing to provide with the Invitation to Tender.
  • Ambiguity.
  • Defective specifications, for example buildability.
  • Inaccurate technical data.
  • Product performance deficiencies.

 Roles and responsibilities

Whose role is it in your organisation to check specifications for a lack of clarity?

In researching this article, I took a look at a random selection of specifications.

The first was a domiciliary care specification. Included in the required outcomes is that the service user ‘feels confident care workers are aware of their special dietary and nutritional needs’. How do you measure ‘feels confident’ because it is a qualitative judgement? How do you test the confidence level – by personal interview, questionnaire? What does the word ‘their’ mean – is it the service user or care worker’s needs?

It also said ‘the service user feels the services have assisted in them regaining confidence’. How do you measure that? It also assumes the service user initially had confidence. It is a fact that many services do not have key performance indicators and are not measured/assessed prior to tendering.

The service user is also expected to be able to ‘maintain social and familial relationships’. This is potentially subject to a dispute. How do you know there’s something to be maintained? If the relationships were appalling, has the contract requirement been met if that is maintained?

The next specification I reviewed was for the provision of waste collection, street cleaning, winter maintenance, recycling and ancillary services. Included in this published specification is a line that says ‘the contractor may be asked to use any other system deemed fit by the service (sic)’. If the contractor is told to use another system, who purchases it? Who decides it is deemed fit for the service? What are the financial consequences if the system is later proved to be unsuitable? If the contractor has to terminate its contract for an existing system, who picks up the bill?

It also said the contractor will be expected to ‘accept and input verbal communications from the authorised officer’. The word ‘expected’ does not create a contractual obligation. Is the contractor being asked to accept, for example, something that breaches health and safety legislation? What does ‘input’ actually mean? Within what timescales? There is always a risk when anyone is asked to act on verbal instructions. It is recommended that verbal instructions must be confirmed in writing within a specified time period.

Finally, it said the contractor ‘shall provide the following services in a safe, clean, tidy and nuisance-free manner’. Again, herein lies the potential for a later dispute. What is safe? What is clean, bearing in mind part of the service is waste collection? What is tidy? What is a nuisance-free manner?

The third example is the procurement of a helicopter. Here is a sharp contrast with the previous examples. It specifies ‘gross weight of 1370lbs, maximum airspeed of 118mph and a maximum range of over 200 miles (no reserve)’.

What would procurement include in the contract to deal with a situation where the helicopter was delivered with a gross weight of 1500lbs? Would delivery be rejected for material default? Would damages be payable because of excess fuel burn and if damages are to be paid will there be a limit of liability in the contract?

In terms of speed, what would procurement include in the contract to deal with a situation where the attained airspeed was 105mph?

When it comes to the range, the buyer will recognise that a performance of 200.1 mile range will satisfy that specification requirement.

Consideration of these latter points emphasises that procurement cannot ignore the detail of a specification and its relationship to the contractual detail. It is regrettable, but it is a fact that some purchasers never read specifications, they simply attach them to Invitation to Tenders.


Legal context

Procurement should be the custodian of managing contractual risk. Take a look at the case of the Department of National Heritage v Steensen Varming Mulcahy, Balfour Beatty Ltd, Laing Management Ltd [1998] EWHC Technology 308. Next, consider this specification statement: ‘A high standard of workmanship and finish is required and the contractor must clearly understand that any work which is not, in the opinion of the MC, up to such standard, will have to be taken down and made good or replaced with new at the contractor’s expenses, including consequential costs.’

Regardless of the outcome of this case, which involved many claims and counterclaims, some of which settled in favour of the department, there are questions that procurement could raise, including: who decides what ‘a high standard’ is? How is ‘high standard’ going to be determined by inspection and testing? Is there a British Standard or equivalent that could be used to define the ‘standard of workmanship and finish’?

 Risk

Is procurement, the custodian of managing contractual risk in your organisation?

There are concerns whenever the supplier uses its own specification as the basis of a deal. See Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd [2010] for the kind of nightmare that can arise when details of the supplier’s specification are unknown and a system demonstration does not show inherent faults. Kingsway was successful with its claim.

This case raised many issues including: the terms and conditions of contract; limit of liability; demonstration of a system; remedying faults; system functionality; and supplier helpline issues.

Procurement must adopt a more proactive role in challenging specifications, whether generated in-house or from a supplier. It must negotiate a robust contract and provide remedies when performance is deficient or non-existent.

10 checks to ensure your specifications are fit for purpose

1. Do you know (really know) what you are buying?

2. Are the responsibilities clear (who, what, why and when)?

3. Has the supplier been invited to explain how deliverables are going to be delivered? Is this explained in the tender?

4. What does the supplier need from you? Have you asked it?

5. Are deliverables linked to acceptance prior to payment?

6. What happens if things go wrong?

7. Are responsibilities to report progress clearly stated so there are no surprises?

8. What measures will be in place to ensure delivery is on track?

9. What will success look like (timing, quality and cost) and are these clear in the contract/specification?

10. If it is not clear to you, how can it be clear to the supplier?

Misaligned expectations are the number one cause of commercial disputes.

Stephen Ashcroft is a procurement coach at Brian Farrington and can be found on Twitter @ProcureChange  

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