Top 10 Procurement Risks - Tender preparation

Responding to RFTs (requests for tenders) can be risky, given that your tender response is a legal
offer and you may be bound to the terms within it, if the client accepts it. Responding to a complex
tender can also be very time-consuming, tying up substantial company resources for significant
periods of time.
For both of these reasons you need to:
Evaluate the risks associated with each tender carefully, to ensure that it is in your
organisations best interests to respond
Establish an effective team to develop the bid and work to a realistic schedule that will allow
the team to produce a thorough response within the available timeframes
Oversee the development of human and physical resource cost estimates very carefully, to
ensure that the tendered price is accurate and comprehensive of all likely costs
Prepare the response carefully, to ensure that it meets all necessary requirements and
evaluate it to ensure that it is accurate and professional
Gain the necessary endorsement or approval before submitting the tender response to the
client.

Top 10 risks
Below is a list of potential risks that should be assessed when responding to Requests for Quote or
Tenders. These risks are generally the same as those you would identify for any building and
construction project:
1. What constitutes a breach of contract and what is the resultant impact. Will a breach trigger
termination, or will it require make good or rectification at your own cost? Can you
terminate the contract or can it only be done by the client?
2. Delays caused by circumstances outside the builder's control, such as:
a. Delivery delays that delay project completion
b. Subsequent delays in progress payments
c. Labour shortages
d. Weather
Are you liable for any delays and what is the impact of this liability?
3. Exposure through clauses that work against the building organisation, such as clauses that
hold the builder responsible for circumstances outside their control.
4. Disputes over payments, either payments from the client to your organisation or payment
from your organisation to subcontractors. Assess your cash flow to ensure that you can
make payments to subcontractors even if you havent been paid by the client for a particular
milestone.
5. Incorrect labour or materials costs, or miscalculations in any figures given. Have you added
any budget or materials contingency?
6. Inappropriate funding levels and funding shortfalls for the project, resulting in a suspension
or cancellation of the project or renegotiation of terms and conditions during the project.
7. Industrial disputes through misunderstandings onsite or through overt action.
8. Risk of default or non-performance of one or more of the key players, including the client,
the builder and subcontractors.
9. Ignoring risk and failing to plan for it.
10. Positive risks. Risk is usually seen in a negative light, but some risks are positive and can be
seen as an opportunity to enhance procurement objectives. These can include currency
fluctuations and even proposed changes to legislation or regulations which could simplify
compliance requirements and therefore reduce the overall cost of the contract.

Some tips
Scrutinise all the RFT documentation and complete a risk assessment for the project. Check the
information in all of these documents and note all the project requirements / special features or
issues. Look for missing information / inconsistencies / discrepancies in the information provided.
These kinds of omissions and inconsistencies pose a risk right from the outset and need to be
considered carefully.
All the contract documents need to be thoroughly scrutinised to identify all requirements, all
conditions and all risks. Review proposed conditions of contract, as many of its clauses will seek to
apportion the risk associated with the project to one of the parties to the contract, either the client
or the head contractor.
Generally risk should be borne by the party that can best control the risk, so it is appropriate that the
head contractor bear some risks that are within their control, such as those related to the schedule
of work or site management. The head contractor needs to ensure, however, that they are not
being asked to bear risks over which they have limited or no control.
Given that builders are frequently engaged through tendering processes, especially for large projects
and particularly by government agencies, knowing how to respond well to RFTs can greatly increase
the volume of work that a building organisation can bid for and win.

For information on how Transformed can help pave your pathway to success contact:
Michael Young, Managing Director
P: 02 6259 6221
www.transformed.com.au
info@transformed.com.au