Government Procurement - Negotiating and finalising your contract

When you're conducting government procurements, it's important to have a contract that's clear and complete - but how do you ensure that it is? In this article we're going to look at some simple ways to negotiate and finalise your contract.

1. Getting the right team together

Even when a draft contract is issued as part of a request for tender (RFT), negotiations will usually be required before the contract is finalised and signed. Agencies should ensure that their negotiation teams contain an appropriate mix of skills (eg. commercial, technical, financial and legal) and that negotiation personnel possess all necessary authorisations and delegations to carry out their roles.

A record should be kept of all negotiated outcomes including the reasons for rejecting a position. The agency must then ensure that the resulting contract accurately documents the parties' negotiated agreement. Surprisingly, this is often not done, or is done incompletely, in the rush to finalise the contract.

2. Some common pitfalls

Common failings that undermine the achievement of value for money in contracts are:

• the representations, solutions or systems included in the preferred tenderer’s tender are not adequately included in the contract;
• the Statement of Requirement (SOR) (also sometimes called the Statement of Work or Service Level Agreement) is incomplete and deliverables are not clearly defined;
• project timeframe is incomplete or unrealistic;
• the contract schedules are inconsistent with one another;
• implementation and disengagement plans omit key requirements;
• key personnel are not specified; and
• the requisite approvals and delegations are not obtained prior to contract signing.

3. Content of preferred tenderer’s tender

All required aspects of the preferred tenderer’s tender should be included in the final contract (eg. as part of the SOR or other relevant schedules). Remember: if it is not referred to in the contract, the contractor is not obliged to do it.

Also keep in mind that contract negotiations provide a useful opportunity for agencies to clarify any unclear aspects of the preferred tenderer’s solution.

4. Statement of Requirement

Ideally, the framework for the SOR should be included in the RFT. The final SOR will be based on this framework but will be supplemented by content from the preferred tenderer's response.

It is risky (but not uncommon) to leave aspects of the SOR unclear or for agreement after execution of the contract. Although these "agreements to agree" are not legally binding, they often find their way into SORs in practice when parties have run out of time to finalise the contract (eg. to meet a 30 June deadline). Even then, it is critical that this approach is not adopted for any essential components of the procurement.

5. Deliverables

All deliverables required under the contract (eg. goods, designs, plans, system, reports) should be clearly identified, otherwise disputes can arise. Your contract should include sufficient detail about:

• the relevant specifications for each deliverable;
• the timing for delivery; and
• any relevant testing required prior to the agency's acceptance of the deliverables.

Where plans are to be provided, you could specify a framework for the plan in the contract or include a draft plan as a schedule which will be finalised by the contractor at a specified point during the term.

6. Consistency of contract documents

A contract's schedules are frequently drafted by different people, and can often use different language and terminology, and may even be inconsistent with one another and/or with the clauses of the contract. Even if the schedules are initially consistent, they may evolve during negotiations to become inconsistent, generally leading to disputes.

To avoid this problem, a thorough sanity check of the schedules should be undertaken before the contract is signed to ensure that the entire contract is internally consistent. This step is often missed in practice but it is desirable. Particular attention should be given to the SOR and the pricing schedule as these are key documents. If appropriate, you should clearly link payments in the pricing schedule to provision of the deliverables (including plans) specified in the SOR, providing a commercial incentive for the contractor to provide these deliverables.

7. Implementation arrangements

Implementation deliverables should be clearly specified. Acceptance test plans (if relevant) should be provided for and acceptance testing rules and methodologies should be agreed upon.

You should try to collect all relevant information the RFT is issued and made available to tenderers. The contract should also provide a procedure for adjustment if new issues arise during implementation. Both of these measures, however, are often missed in practice, but they are important for avoiding implementation problems,.

8. Key personnel

If the tenderer's personnel are critical to the performance of the contract, these personnel should be listed as specified personnel in the contract. It is no use to the agency if the A team is proposed in the tender but the B team is provided.

9. Approvals

Before signing any contract, agencies must ensure that they have all necessary approvals under the Financial Management and Accountability Regulations 1997 (Cth). The agency must also ensure that its intended signatory possesses the requisite delegation to sign the contract. Similarly, the agency should confirm that the contractor's representative is authorised to sign the contract.

Agencies should not permit work under the contract to commence until the contract is signed.