Take Care When You Tender
Tendering practice and procedure
Tendering is an integral part of the security industry. Most clients use the tendering process to identify which contractor is most suitable and to ensure they obtain the services they really want, writes our regular legal commentator Claudia Gerrard.
From the contractor’s viewpoint, the key issue tends to be the pricing. Pitch too low and you might run the contract at a loss. But pitch too high and you might put yourself out of the running. Of course the key to success is winning the business and making a profit in the process. Perhaps easier said than done. In reality, there are many factors which might affect the likelihood of achieving that success. And the starting point, inevitably, is the invitation to tender. The ITT, as it is commonly called, can vary from a page or two of general requirements, through to dozens of pages listing in detail everything required by the client. Most people will view the tender from the perspective of the services only, but there are often overlooked elements which might affect the pricing. It is quite common for the contract terms and conditions to be attached as part of the ITT. Yet how many people actually read and assess them to see if they affect the pricing?
Take a real life scenario. A company recently sent us an ITT for review. As part of the document, there were lengthy contract terms and conditions. Wisely, the company was concerned about the legal implications and the possible impact on the tender response. A quick review showed a number of items which could result in additional costs. The contract required a lengthy implementation process, with integration of software systems and dedicated on-site staff. Service levels, TUPE issues and having to comply with additional policies, all meant more work, more time and potential costs. Combined with this was a clause allowing the client to terminate at any time on one month’s notice. But without cause. This meant a three year fixed term contract was really just a one month contract. Perhaps not such an attractive prospect, particularly in light of the hefty set up costs.
Other pitfalls included uncertain service levels and extensive warranties and indemnities. It would be all too easy for profit to be swallowed up if the client made a claim against the company. The payment provisions could have had an impact on cash flow. The contract included a complex procedure for authorising payment. It meant that the company might have to wait up to 65 days for payment of its invoices. Another unsavoury clause allowed the client to vary the services. The parties were supposed to agree the cost for the varied services. But, if they didn’t, the client could impose a cost and force the company to perform the additional services. Again, this could be particularly onerous in practice. So, while the idea of tendering is usually appealing, many forget that the price is only one factor and is made up of many components. Ultimately, if those components are overlooked, the pricing will be wrong and that could hit your bottom line.
Tendering: Top Ten Tips
1) Find out what the client wants
It is important to know precisely what you are supplying and how the services are to be provided. The more certain the obligations, the better. Otherwise you could find yourself in a dispute with the client.
2) Seek clarification on areas of uncertainty
Prior to tendering, check with the client if there is any confusion. Opening a dialogue at an early stage means you’re more likely to understand what is required. This should help you get the pricing right.
3) Review any terms and conditions
It is important to read through any contract conditions and seek specialist legal advice if required. Having to meet onerous obligations can drive up your costs and runs the risk of affecting your profits.
4) Know your liabilities and obligations
Service levels, standards of service and warranties all impose obligations on you. Make sure you can meet those obligations and, if not, consider whether it is wise to tender at all. Open-ended obligations means you run the risk of being in breach. This could have cost implications if the client makes a successful claim against you.
5) Look at payment provisions
As with the example, a lengthy payment process may mean you have to wait a long time to be paid. Also check whether there are any set-off provisions and, if so, when the client can withhold money from you.
6) Challenge onerous clauses as soon as possible
The time to challenge the contract is before you tender, or, if that isn’t possible, mention the objectionable clauses as part of your tender. If you tender on the basis of a contract, it is harder to challenge it at a later date. But, be wary of making your tender too unattractive by challenging minor matters.
7) Review all documents referred to in the ITT
If the ITT refers to other documents, check them before submitting your tender. Often, reference is made to the client’s internal policies and you need to back those off in your contracts of employment.
8) Use extra caution when tendering for public sector work
Be aware that your tender could be disclosed to third parties, including competitors, under the Freedom of Information Act 2000. Always qualify your tender with the right to be consulted before any information is disclosed. And protect your proprietary information, such as pricing.
9) Back off any obligations in employment contracts
In particular, ensure that your contracts of employment allow staff to be removed from a site if the client requests removal. Often, clients include a provision covering expulsion from sites and you need to maintain flexibility in your employment contracts.
10) If successful, make sure staff are trained and informed
Make sure staff are aware of any relevant policies, provide training as necessary and keep them informed of any changes.
This article first appeared in Professional Security Magazine. Contact us if you are interested in finding out more about Professional Security Magazine or subscribing to it.