(a) What is outsourcing and what is the primary reason for its use? [2]
Outsourcing is the employment of individuals from outside an organisation to undertake some specific aspect of the organisation's business. [1]
The primary reason for its use is economic since companies decide to
use outsourcing to reduce cost. [1]
Other valid reasons, such as increase of quality, should also receive credit

(b) (i) What is a contract? Give an example of a simple contract and a
sophisticated contract. [3]
A contract is an agreement between a buyer and a seller stipulating the rights and responsibilities of each with regards to a specific transaction. [1]
An example of a simple contract would be the procurement of 10 boxes of photocopier paper, for which the contract is likely to be a simple, single-page form. [1]
An example of a complex contract might be an agreement to install a new computer system for a major international company, and to train the company's staff in its use, for which the contract is likely to be very lengthy and detailed document. [1]
Other valid examples should also receive credit.
(ii) Identify the two phases of the contract process and explain what is
involved in each phase. [4]
pre-award phase (1 mark) the buyer identifies a suitable candidate and the detailed terms and conditions of the contract are negotiated (1 mark). [2]
post-award phase (1 mark) involves monitoring the way in which the contract is being carried out - is the contractor performing its duties on time, within budget, and according to specifications (1 mark). [2]

(c) (i) What are the two most commonly employed types of contract? [2]
Fixed-price contracts. [1]
Cost-plus contracts [1]
(ii) What are the key features of each of these two types of contract?
Illustrate your answer with a numerical example. [4]
Fixed-price contracts - the buyer and seller agree that project deliverables will be produced for an agreed price. [1]
e.g. a contractor agrees to supple a new software system for $10000. If it costs the contractor $9000 to produce the software his or her profit will be $1000. On the other hand if it costs the contractor $11000 to produce the software he or she will lose $1000. [1]
Other valid examples should also receive credit.
Cost-plus contracts - contractors are reimbursed for their expenses and in addition are also awarded a certain fixed amount of profit. [1]
e.g. in a contract for a new computer system the contractor is awarded a fee of $10000 on an estimated cost of $100000. If it actually costs the contractor $90000 or $110000 he or she will receive exactly the same fee of $10000. [1]
Other valid examples should also receive credit.