Avoiding the pitfalls of tendering

By Robert Backstrom.

Key Points:
Understanding the tender process and the role of the documents in the tender package goes a long way to getting what you want.

At some stage, all businesses will face the challenge of seeking competitive tenders from the market when purchasing plant or equipment. If the article involved is a mass-produced item and readily available from a number of potential suppliers, the tender process is relatively straightforward. You can describe it, and even go and look at it if you like, and when assessing tenders, your consideration will be focussed on the product's features and cost.

But if what you are looking for is not so readily available, it may need to be specially manufactured for you by the successful tenderer, often to your special design requirements. A tender process for this can be much more complex.

Here we describe some aspects of the tender process which will help make that process run more smoothly and efficiently, and result in the delivery of a product meeting your specifications.

A successful tender process will result in bids from prospective suppliers which show how your technical requirements will be satisfied in a form that, should you choose to accept that bid, will result in a binding contract for supply. The more clearly you set out your technical requirements and the commercial terms upon which you are prepared to contract, the more likely you are to receive bids that you can compare, and which will show how your requirements are met, or highlight any departures (both positive and negative) from what you intended. This avoids time-consuming and frustrating negotiations which often result in the price going up, and the commercial terms becoming less favourable, as you try to pin your supplier down to a contract.

Confusing technical requirements, conflicting commercial conditions and unclear requirements generate concern to tenderers, who increase their prices to cover the risks such documents may cause them. An unsuccessful tender process will leave you with tenderers who ignored or did not understand your requirements, offers you cannot compare, and prices with so many qualifications that you cannot accept any proposal without further negotiation.

So how can you improve your chances of getting what you want?

Tender documents – What goes into them?

Where the tender is for purpose-built equipment, the tender documents will comprise the following:

• Tender Conditions – these tell the tenderers how the tender process will be conducted, what they need to do to submit the formal tender and what you may do when considering it;
• Contract Conditions which describe the commercial terms of the contract once the tender is accepted. These need to be included so that tenderers know what obligations the tendered price needs to take into account;
• the Specification describing the technical details of your requirements; and
• a collection of returnable documents to be completed by tenderers to enable you to assess the quality of the equipment offered, and the suitability of the tenderer as someone you would consider contracting with, and any variables (like the contract price, the form of any guarantees etc) which would ultimately be included in the finalised contract.

What can go wrong?

While putting these four documents together into a tender package seems simple enough, in some cases it can become very complicated, confusing and time-consuming. There are two common reasons for this:

• the various documents making up the tender package deal with matters which ought be (and are) covered by the other documents, and in doing address the matter differently in each case; and
• the tender documents being prepared in isolation so that, for example, the commercial conditions envisage something being stated in the technical documents, which the technical documents overlook.

The first difficulty can be avoided by ensuring that each of the components of the tender package address issues solely related to their particular function. For example:

• the Tender Conditions should not explain what the Contract Conditions say in order for the tenderer to understand what costs and obligations its contract price should take into account. Any attempt at such a summary will inevitably throw up inconsistencies between the two documents, allowing uncertainty to creep into any subsequent dispute about what the contract arrangements really were; and
• the Specification should deal only with technical issues describing the equipment. Proper Contract Conditions will deal with the commercial issues in a co-ordinated fashion. Having the technical Specification addressing only some of these issues in isolation will only confuse the process.

The second difficulty can be avoided by proper project management of the documentation process. Someone needs to take responsibility for ensuring the technical documents and the commercial terms work with one another. A common example arises where the Contract Conditions require tests to be undertaken as described in the Specification before the equipment is delivered. This requires a clear statement in the Specification as to what those tests are. Often, because the Specification has been prepared by a different consultant before this commercial decision was made, the contract package will not describe what those tests are.

Things to look for in your tender conditions

Finally, to give you better control over the tender process, when setting the rules for the tender process, you should consider including at least the following in the Tender Conditions:

• Make sure the tenderer is required to keep its tender open for your acceptance long enough for you to consider it. For significant tenders, consider requiring tenderers to supply a bond which would be forfeited if they fail to proceed to contract following acceptance of the tender.
• If the tender documents include information which is confidential to your business, prospective tenderers should be required to sign a confidentiality agreement before receiving the tender package. Statements claiming confidentiality in the Tender Conditions may not be sufficient to protect this information if the recipient of the information does not subsequently submit a tender.
• Decide whether you need to insist that tenderers submit conforming tenders if they wish to propose a non-conforming one. Will you be able to sensibly compare the offers received and accept one that meets your needs if all the offers are different and none of them give you a price for what you specifically required?
• Give yourself the flexibility to assess, reject or accept any tender. The more rigid you make any published assess-ment criteria, the more grounds you provide for an unsuccessful tenderer to challenge the process you used.
• Do not fall into the trap of saying no contractual relationship has been established by the tender conditions as a means of escaping claims from unsuccessful tenderers. Reserving flexibility in the assessment process, thereby removing any basis for such claims, is best. Remember, you may need to enforce the tenderer's obligation to keep the tender open for acceptance and its warranties that what you were told in the tender was true.

A little understanding of what the tender process involves and the role of the documents in the tender package will smooth your way to a successful selection.

For further information, please contact Robert Backstrom.