Procurement Glossary

Ambiguous contract terms

Contract terms are considered ambiguous if they can be subject to more than one interpretation. 

Benchmarking

Comparing services, products, processes or standards against other recognized and accepted industry, organizational or public-sector standards. Benchmarking is often done prior to outsourcing a service so that the contractor’s progress can be measured against a standard.

Bid bond

A financial guarantee provided by a bonding company that protects the purchaser against loss if the bidder withdraws its bid or doesn’t enter into a formal contract within the specified time required.

Breach of contract

A violation of a significant contractual commitment where one of the parties did something they should not have done or failed to do something they were required to do, under the terms of the agreement.

Communication protocols

Communication protocols address how formal, informal and outside communication is expected to flow during the course of a contract or procurement process.

Construction

Construction, reconstruction, demolition, repair or renovation of a building, structure, road or other engineering or architectural work. It does not include professional consulting services related to the construction contract, unless they are included in the procurement or contract scope requirements.

Contract administrative requirements

Key components to a contract structure. Typically, these include a legal description of the parties to the contract, the contact information for the parties, the date and location of the performance of services or delivery of goods, and the contract term.

Contract amendment/modification

An agreement outlining any addition, correction, modification, or deletion from a contract. The agreement is executed by both parties to the contract and becomes a part of the contract document. 

Contract extension

An extension that lengthens a contract by a certain duration of time. There should be a clear provision in the contract to extend the contract under certain circumstances, and a modification agreement should be executed by both parties and incorporated into the contract when a contract extension is granted. Legally one cannot extend a contract that has expired.

Contract incentives

Clearly defined mechanisms for rewarding performance that exceeds defined expectations in the contract. Incentives may include bonus payments, contract extensions or renewals, increased contract volume or other favorable outcomes. 

Contract kickoff meeting

Before the contractor begins work, parties attend a contract kickoff meeting to review the contract or project requirements and come to a mutual understanding of their respective obligations and responsibilities. These meetings help to build solid working relationships and clarify any potential misunderstandings, gaps or misalignment of expectations.

Contract milestone

Logical stages, steps or chunks of work in the contract. Milestones are often used as a strategy to control the quality of contract results by tying payments to specific delivery or completion milestones. The contractor must successfully complete each milestone before they are paid and before they can move onto the next phase of work—controlling both project delays and scope creep.

Contract monitoring

The process of overseeing, reviewing and confirming work in progress during the life of a contract. Periodic or systematic contract monitoring can help protect against project delays and cost overruns. 

Contract remedies

Clearly defined mechanisms or repercussions for failure to meet specified contractual commitments. Remedies are designed to drive improved performance and may involve payment of money, reduction in contract volume or term, or other financial repercussion for the contractor. 

Contract renewal

The recreation of a legal relationship or replacing an old contract with a new one, rather than an extension of a previous contract or relationship. One cannot legally renew a contract that has expired.

Contract terms

Any provision forming part of a contract. Each term generally gives rise to a contractual obligation, and breaching contract terms can result in litigation. Not all terms are expressly stated, and some terms carry less legal weight than others.

Copyright

A bundle of rights that protect the creator of a work from unauthorized duplication, alteration or association use of the work. It does not protect ideas; rather it protects the expression of those ideas in some tangible work or product. Copyright generally includes the sole right to publish, produce, reproduce or perform a work in public. All literary, dramatic, musical and artistic works are protected by copyright. 

Debriefing

After a competitive process has been concluded and a contract has been awarded to the successful proponent, unsuccessful proponents may contact the purchasing organization to arrange a debriefing so they can understand where their proposal could be improved for future bid opportunities. Debriefing helps to diffuse suspicion around the selection process, inform the proponent of ways to improve for the next process, and also provide the purchaser with valuable information for internal process improvement.

Deliverable

A measurable, tangible and verifiable output that is produced as part of a project or contract. Deliverables should be clearly spelled out in contracts so that all parties are clear on what is expected of them.

Dispute escalation provisions

As part of a broader dispute resolution framework, escalation provisions gradually move the dispute to higher levels of authority. Each step, or tier, is designed to revisit the dispute if it has not been resolved by the previous step, and each step escalates the dispute to a higher level—generally to a person or department with greater authority in the organization. 

Dispute resolution provisions

These contract terms set out the process parties intend to follow to resolve disputes that arise during contract performance. They can be simple or complex, and generally involve a progression from less formal to more formal interventions. The objective of dispute resolution provisions is to bring performance back in line with stated contract expectations. 

Expiration of contract

When a contract comes to a natural conclusion at the end of the term and all contractual commitments have been met.

Extras

Despite one’s best effort to clearly define a scope of work, which the contractor has promised to complete for a fixed price, unplanned urgencies inevitably arise during the performance of the contract. Items such as delays, unexpected subsurface conditions and design changes can give rise to a claim by the contractor for more money. Contracts should contain clear provisions outlining how extras are determined, approved and compensated for.

Gain sharing proposal

A contractual structure where the organization and its service provider agree to share financial gains as a result of continuous improvement and/or innovation. Including gain sharing in a service contract can incentivize providers to bring forward more innovative or cost-effective methods of delivery. 

Goods

Materials, furniture, merchandise, equipment, stationery and other supplies required by an organization for the transaction of its business and affairs, including services that are incidental to the provision of such supplies.

Holdback

A portion of contract payment that is held back during the term of the contract, under predetermined circumstances, to protect against inadequate performance or to protect the rights of third parties. Common with construction, for example, holdbacks are often specified in the contract to protect the rights of unpaid subcontractors and suppliers. 

Industrial design

Protected in Canada by the Industrial Design Act, artistic works that are used as models to be applied to useful articles of manufacture, and that are intended to be reproduced in numbers greater than 50 (e.g., containers, toys and furniture).

Intellectual property

Intellectual property law is very broad and covers a wide range of legal rights designed to protect the creator/owner of a specific product or idea. Intellectual property rights cover patents, trademarks, industrial design, copyright and moral rights.

Legal entity

It is important to identify the correct legal entity when executing a contract so the contractor is bound by the contract terms.  For example, ABC Co Ltd. is a different legal entity than ABC Co Inc. 

Liquidated damages

Damages that parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach. In most jurisdictions liquidated damages are designed to be a reasonable pre-estimate of the losses that will be incurred rather than a penalty, and are not enforceable if they are unreasonable. 

Moral rights

The author or creator of an original work holds the moral rights to their work. Moral rights protect the author or creator from anyone altering a work without consent. Moral rights have three components: paternity, integrity and association. Moral rights belong to individuals, including individual employees, and can be waived but not assigned.

Patent

Patent rights protect inventions. The Canadian Intellectual Property Office provides the following definition: “A patent is a right, granted by government, to exclude others from making, using, or selling your invention in Canada.”

Performance bond

A financial guarantee, provided by a bonding company, that the contractor will perform as set out in the contract. If the contractor does not meet its performance obligations as set out in the contract, then the purchaser can access the bond and have the surety (the third-party bonding company) step in to assist. Generally associated with construction projects, performance bonds can also be useful in other contracting scenarios where performance and project completion are critical success factors. 

Performance contract

A contract to perform the work/service or deliver the goods. A submitted bid or proposal is viewed as the supplier’s offer to enter into the performance contract. Once the purchasing organization has evaluated the submissions, it accepts the best-value offer based on predetermined evaluation criteria, and the performance contract is formed between the purchaser and the supplier.

Performance management framework

The portion of a contract that sets out the contractual expectations for both parties, mechanisms for monitoring and reporting on performance with associated incentives and remedies, and dispute resolution and escalation provisions. It is the framework that enables contract performance management. Frameworks can be quite simple, with two or three service levels and a simple evaluation, remedy and escalation process embedded into the body of the contract, or they can be very comprehensive with detailed schedules appended to the contract. 

Performance measures

Precise, measurable indicators that can be tracked to assess predetermined contract performance goals. What gets measured gets managed, so performance measures are a critical component of any significant contract. 

Performance security

A financial guarantee that a contractor will perform as set out in the contract. If the contractor does not meet its performance obligations, then the purchaser can access the performance security to remedy the defect. The most common form of performance security is a performance bond, but it can take other forms such as an irrevocable letter of credit. Generally associated with construction projects, performance security can be useful in other contracting scenarios where performance and project completion are critical success factors. 

Poor performance

When a contractor does not fulfil obligations to the extent identified in the contract. Poor performance can lead to claims of breach, and ultimately to termination of a contract if it is significant and not remedied, despite intervention attempts. Legal advice should be sought in situations where it is unclear whether the performance issues are significant enough to invoke termination.

Post-contract evaluation

Used to determine how the organization benefited from the contract, if all the deliverables were met, how well the contractor performed during the contract, and how well each member of the organization’s team performed his/her role. These evaluations are documented to serve as a reference on the project and to identify lessons learned to drive continuous improvement. 

Progress payment

A contractual provision that ties payment of a portion of the total contract value to achievement of a clearly identified contract milestone. Progress payments are a useful tool for monitoring and managing contract performance and avoiding contract delays. 

References

A professional reference is a recommendation from a person or organization that can vouch for your qualifications for a job or contract. In procurement, references are generally used to confirm statements made in a proposal. 

Risk

Risk is the chance of something happening, positive or negative, that will have an impact on achieving objectives.

Risk allocation

Allocation of risk is central to all commercial contract negotiations. Each party seeks to minimize its risk and maximize its reward, which creates an inherent tension between contracting parties. Parties can manage risk by carefully negotiating and drafting many common contractual provisions. To obtain maximum value while preserving working relationships, contracting parties should turn their mind to balancing the risk obligations. Risk should generally be allocated to the party best able to control it.

Risk management

A logical, step-by-step process to identify, analyze and most effectively deal with risk. It is a structured approach to controlling uncertainties and potential opportunities by first assessing the unknown factors, then developing strategies to minimize, transfer, mitigate or take advantage of those risks.

Risk mitigation

Mitigating risk should be a key objective when drafting contracts. The parties should try to identify potential risks that are specific to the relationship and negotiate the risk allocation accordingly. Risk mitigation strategies can include adding an indemnification clause, insurance requirement, warranties, or limitation of liability provisions to the contract.

Scope

A clear and concise description of the work to be done or goods to be delivered under a contract.

Scope creep

In project management, refers to changes, continuous or uncontrolled growth in a project’s scope, at any point after the project begins. This can occur when the scope of a project is not properly defined, documented, or controlled.

Service level agreements

The section of a service contract that clearly defines expectations about the level of service required. Service level agreements can be a lengthy appendix to a contract, or simply one paragraph embedded into the body of the contract. Service level agreements help both sides understand exactly what is expected from the contractual relationship and help avoid many of the disputes and disagreements that can come up during the life of the contract.

Service levels

Describe, in measurable terms, the services that will be provided under a contract. For example, when used as a call center metric, service levels measure the percentage of incoming calls that an agent answers in an established amount of time.

Services

A service required by an organization for the transaction of its business and affairs. Contracted services generally do not include services provided by an employee of a department through a personal services contract.

Specification

A concise definition of requirements for a product or service that is being requested.

Statement of requirements (SOR)

A detailed description of the goods and/or services to be supplied under contract. Also referred to as a statement of work.

Statement of work (SOW)

A detailed description of the goods and/or services to be supplied under contract. Also referred to as a statement of requirements.

Subject matter experts (SMEs)

A person who is an authority in a particular area or topic. A subject matter expert provides the knowledge and expertise on a specific subject, business area, or technical area for a project/program. In contracting, SMEs such as legal and risk management advisors are often required.

Trade secret

A form of intellectual property, usually involving a formula, practice, process, design, instrument, pattern, or compilation of information not generally known or reasonably ascertainable by others by which a business can obtain an economic advantage over competitors or customers. Under Canadian law, information is classified as a trade secret if it is not publicly known, of some independent value, and kept confidential by the owner.

Trademark

A work, symbol or design, or a combination of these, used to distinguish the goods or services of a person or an organization from the goods or services of others in the marketplace. 

Transition obligations

Contractual provisions that set out obligations for each party as the contract is coming to an end. Transition obligations help to ensure a smooth transition of services or other contract requirements. These provisions should be built into each contract so that the contractor is aware of expectations and so the contract manager can hold them to those expectations.

Unilateral convenience termination

Provisions in a contract that give one party (normally the purchaser) the right to walk away for any reason (or no reason) at any time. Sometimes these provisions include an “exit right for a price” to compensate the contractor for its unrecovered mobilization and demobilization costs.

Warranties

Promises provided to the purchasing organization in a contract (generally regarding the quality, longevity, and sustainability of the goods or services procured). You have the right to be indemnified (collect damages) if the warranty is not satisfied. There are differences between “expressed” (clearly in writing) and “implied” (understood from the context) warranties and how each is interpreted. 




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