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Solution
Executive Summary
This report has focused on evaluating contractual terms and their impact to Emirates Transport Company (ETC) power distribution and risk of supplier and organisation. By evaluating the ETC company, a general contract has been selected which is used in sourcing different products and services in the organisation. Through an analysis of the contract, the power distribution and risk of ETC and their suppliers has been established. Through the use of statistics and desk research, appropriate findings have been obtained.
In this report, the findings note that the power and risk of distribution of the buyer and supplier directly impact the level, scale and delivery of the contract. The rationale of this is that contractual terms guides risks measurements associated with the scale, diversification and critical nature of services provided. For appreciating this, contract classes in the identified areas which influence the power balance have been reviewed and evaluated. For the various evaluated areas, it is clearly established that the buyer leverage on the power with the risk being passed to the vendor/support. By using tools such as Mendelow stakeholders matrix, SWOT analysis, there are various risks which have been evidenced as impacting the organisation successful contract implementation and contract terms issues mitigated. As supported by the Kraljic analysis, contract terms are essential for ETC as they note how their contractual risks and power are distributed.
At the end, various recommendations have been developed which are;
- To expand their contract and integrate factors of scaling, diversity and flexibility
- Considering the existence of different stakeholders, simplification of the terms and conditions is essential to ease understanding
- For their different spend categories, harmonising their terms and conditions is essential
- Align more their contract terms and conditions with United Arab Emirates (UAE) legislations and those of other international bodies regulators
Table of Contents
1.1 Emirates Transport Company (ETC) Background. 3
2.1 Background of UAE Automobiles Suppliers and Supply Market 4
2.2 Contractual Terms and Conditions Summary. 5
3.0 Strategic Importance of the ET Contract. 5
4.0 Power and Risks Distribution Between Parties. 10
4.1 Power Distribution amongst the Parties 10
4.1.1 Supplier Preferencing Matrix. 10
4.1.2 Porter’s 5 Forces Analysis. 12
4.1.3 Turnkey- Design and Build Model 14
4.1.4 BOOT (Build, Own, Operate, and Transfer) 14
4.2 Risk Distribution amongst Parties 14
5.0 Conclusion and Recommendations. 18
Appendix 1: Contract Summary. 23
Figure 1:Kraljic Analysis Matrix. 7
Figure 2:ET Organisation Stakeholders Analysis. 8
Figure 3:Supplier Preferencing Matrix. 11
Figure 4:Porter’s 5 Forces Summary. 13
Table 1:Summary of ET Automobile Suppliers. 5
Table 2:Essentials of Valid Contract 6
Table 3:Summary of the Risk Register 19
1.0 Introduction
1.1 Emirates Transport Company (ETC) Background
Emirates Transport Company (ET) is a public sector organisation which was founded under the Federal Law No. (17) in 1981 (ETC, 2022). The mandate of this organisation is to manage and supervise the transport and maintenance services and related business for the optimum gain of federal and local government bodies and companies from the United Arab Emirates private sector. Albeit its dominance in the field of school transport, ET has significantly attained investment growth and services diversification in its 38 years of operations. Currently, the organisation is engaged in providing their clients both established and individuals with a set of services including transportation, vehicle leasing and auto maintenance. The organisation has significantly grown in the UAE transport sector whereas at 2019, they were engaging approximately 30,000 employees. This is with their fleet expanding significantly to 40,000 diverse vehicles with their extensive infrastructure including 41 different working sites. Owing to the diverse operations of the organisation, this provides their different clients with immense opportunities for service delivery outlets. Owing to the organisation improved performance, ETC (2022) report noted that ET had obtained a net profit of Dh244.2 million in 2021 which was an increase with 40% in the previous year 2020.
1.2 Purpose of Report
The aim of this assessment is assessing contractual terms for ET and how they influence distribution of power and the risks of the suppliers and the organisation. The selected contract is used for supplying different buses, vehicles and their accessories (Automobiles) as summarised in appendix 1. By evaluating this contract, their terms and conditions have been reviewed and power distribution and risk of the suppliers and ET put into account.
2.0 Selected Contract
As evidenced in CIPS (2021), contracts is a legal document which offer specifications of an agreement of involved parties in business. It can also be verbally presented or implied terms (naturally understood). For this assessment, the contract or supply of automobiles to ET has been used. The rationale of this is informed by the view that after COVID-19 pandemic, ETC (2022) note that resumption of business have significantly impacted on the organisation strong clients demands as global travel restrictions eased. Further, for abiding with the Roads and Transport Authority (RTA) in Dubai under the Administrative Resolution 201, for 2012 Decree No. (363) of 2016, the contract is relevant. To support this, the contract terms and conditions note;
Further, for ET, this contract is instrumental as the organisation focus on developing their current business operations and key activities, automation and transport technology, promotion of innovation and building new capabilities.
2.1 Background of UAE Automobiles Suppliers and Supply Market
Globally, Statista (2022) report evidence that the automotive manufacturing market is worth $2.86 trillion in year 2021. This is with a projection of the sector growth in 2022 to reach $2.95. further, in UAE, Statista (2022) report note that the automobiles sector is worth $14 billion and forecasted to increase promptly to $20.5 billion by year 2025 with anticipation of CAGR of 10-12%. Overall, the sector has been under consistent growth which harness capacity to leverage on competitive advantage and market dominance. For ET automobile suppliers, they are as illustrated in table 1;
Table 1:Summary of ET Automobile Suppliers
| Supplier | Specifications |
| A-MAP Trading | Vehicles, lubricants suspensions |
| ABU Dhabi Motors | New and used vehicles, automobile parts and linked accessories |
| AGMC | Financing, leasing, repairing and maintenance services of vehicles |
| Toyota | Leasing and selling vehicles and their maintenance |
| Lexus | New and used Lexus cars with Al-Futtai |
As summarised in table 1, owing to the increased of business since the COVID-19 and the new demands of new products and services in automobiles, they engages majority of these suppliers. Since these suppliers have their operations in Dubai, UAE, they ensure they have a direct access to these supplies on time and effectively.
2.2 Contractual Terms and Conditions Summary
In line with CIPS (2021a) findings, for success in contract management, the various essentials of a valid contract need to be put into account. As shown in table 2, through their priority being on the identified factors, it is possible to identify validity of the contract in context of ET automobiles.
Table 2:Essentials of Valid Contract
| Factor | Description |
| Invitation to treat (ITT) | This entail prices noted, catalogue, display of products and quoting request. This is different compared to formal contracts. |
| Representations | The contract engage vendors in evaluating capacity and capability of their operations. The time is a major contract requirement |
| Offers | Engage entire stakeholders from the initial phase as highlighted on the 3 years period |
| Acceptance | This is done through writing and verbally to agree on contract to accept the process |
| Agreement | ET suppliers department engage their suppliers in the process of implementing these proposals |
| Capacity | The automobiles suppliers ought to have the capacity and ability to execute their roles |
| Considerations | This entail provide services, costs incurred, subcontracting and invoice |
| Legal Intent | This is inclusive of the entire KPI metrics and passing penalties and terminated |
| Legal objects | Proposal from the organisation, approving the vehicles demand pursed |
| Operative | The entire process followed to implement a contract should not have any error owing to influence and lack of on-time misrepresentation. Therefore, analysis of all automobiles and other provisions must be pursued. |
3.0 Strategic Importance of the ET Contract
In order to identify the strategic importance of the contract for ET and best practice in risk management and power held, the Kraljic analysis is applicable. In line with CIPS (2021b), this is as summarised in figure 1;
Figure 1:Kraljic Analysis Matrix
Leverage Items (Low and High Value)– This is identified as presence of high number of suppliers in control to solve prevalent risks. The costs to purchase individual items is reduced.
Strategic Items (High Value and High Risk)– This entail the entire automobiles and their eventual maintenance of these vehicles. The importance of this is identified as available in long-term basis, collaborative practice and long-term relations. This impact on contractual terms reducing risks on incurred issues.
Bottleneck Items (Low Value and High Risk)– These are readily available with multiple suppliers hence low risk and issues faced. Supply process is an assurance, medium-cost contract implementation and engaging new suppliers.
Non-Critical Items (Low Risk and Low Value)– This lower the impact of organisation daily operations, sourced in an easier manner with entire products auditing effectively.
3.1 Stakeholders Analysis
To identify the importance of risk and power distribution to the stakeholders, it is relevant to conduct stakeholders analysis. According to Willeam (2021), using Mendelow Matrix analysis is relevant (see figure 2);
Figure 2:ET Organisation Stakeholders Analysis
Low Influence; Low Interest- The administration and management in the organisation have the mandate to guarantee the automobiles supply process in their entire subsidiaries in Dubai. This is by exerting reduced influence and immense interest for risk and power aspects.
High Influence; Low Interest- Finance department and IT are all actively engaged to influence risk and power of implementing the contract. The rationale of this is their terms and conditions in the contract noting that;
High Influence; High Interest- For the Procurement Supply and Management (PS&M) are mandated with a role of managing risks and power held. To support this, the contract terms noted that;
The terms are interlinked with is an evidence of their importance in the risks and power distribution.
High Interest; Low Influence– For ET, their end-users and customers influence the organisation operations with their legal departments being tasked with a function of maximum success to source their automobiles.
As explained in CIPS (2021d), the contractual terms are relevant for supplier engagement and identified through elaborate conditions, warranting and innominate contractual terms. In figure 2 Mendelow analysis, the contractual terms and conditions provides options when the risks are more and threaten successful procurement process. To note on the different risk and power in the ET contract, SWOT analysis is important. According to Gurl (2017), this tool is relevant in evaluating the main areas and risks evidenced by issues in the sourcing of automobiles. This is with the terms and conditions being used to mitigate them.
Strengths- Currently, ET ensure that they follow the Purchasing to Pay (P2P) and modernise technologies application in their entire supplier chain. The practice harness the capacity for reporting, planning, efficient, services provided and managing them. The issue of pricing in the contract note that;
Therefore, the technologies used in the process lead to contribution of accuracies and importance of the set costs.
Weaknesses- Considering the stakeholders who do not possess sufficient knowledge and skills for the automobiles quality fail to achieve the noted Key Performance Indicators (KPIs). Considering their KPIs, they note;
As evidenced in the terms and conditions, they prioritise on the issue of automobiles quality levels of the automobiles.
Opportunities- ET operations in Dubai and their subsidiaries in other UAE Emirates have an influence on capacity to attract best suppliers. Also, their practice in transport sector require being able to adhere to appropriate contractual stipulations. Their terms and conditions note;
Hence, the risks ensure their on-time delivery is improved. Hence, a major risks inform on the power balance in the automobiles sourcing and how they influence ET operations.
Threats– This include high level of competition by the different automobiles suppliers in Dubai. Failure of one supplier to provide the required product/services, an alternative is preferred with lead to losses being included. The terms and conditions note;
4.0 Power and Risks Distribution Between Parties
4.1 Power Distribution amongst the Parties
For the purpose of identifying power distribution, the supplier preferencing matrix is appropriate. According to CIPS (2021h), this involve an appreciation of their positioning in heart of suppliers, strategy to establish and maintain holistic business relations.
4.1.1 Supplier Preferencing Matrix
In figure 3 summary, this is grouped into nuisance, exploitable, core and development customers.
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