Monday, May 23, 2011

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.

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; delivery delays that delay project completion, subsequent delays in progress payments, labor shortages, weather. Are you liable for any delays and what is the impact of this liability?
  3. Exposure through clauses that work against the building organization, such as clauses that hold the builder responsible for circumstances outside their control.
  4. Disputes over payments, either payments from the client to your organization or payment from your organization to subcontractors. Assess your cash flow to ensure that you can make payments to subcontractors even if you haven’t been paid by the client for a particular milestone.
  5. Incorrect labor 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 on-site 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.
Get more in this excellent article by Micheal L. Young for PM Hut.

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