Why You Should Read Your Contract Before Bidding

RFPs can be exciting for businesses – especially younger SMEs looking to scale their operations. And rightly so - they’re a valuable opportunity to secure new clients. Nonetheless, not every RFP is right for your business and all too often we see businesses clamouring to prepare bids for contracts that fall outside of their usual target client or business offering. Whilst you may be keen to lap up every opportunity, knowing when to say “no” or question a project’s contract is a valuable skill for business owners – and one which may save you from costly dilemmas further down the line…

Capability

Before divulging further into a project’s terms, it’s important to first consider whether you and your team can deliver the specified project. It can be tempting – particularly when scaling a business – to overextend your organisation’s resources. However, whilst you may secure the project and increase your client-base in the short term, long term, you risk jeopardising your business reputation by failing to deliver on existing client contracts. Make sure that you can provide the manpower, equipment, and other resources to commit to the project, and complete it within the specified project timeframe.

Profitability

Once you’ve ascertained whether you can deliver the project, next it’s important to consider whether it’s worth your time. You must carefully read the full project specification, including project delivery date and location and draw up a comprehensive estimate of your costs for producing the materials or services required.

At this stage it’s also worth considering any potential risks involved with the project and what the financial implications of this would be.For example, for constructions projects, an organisation might consider whether any specialist materials are required and whether the difficulty of procuring them may delay project delivery.

Whose Fault is it Anyway?

Now that you know whether the project is feasible both from a capability and profitability perspective, it’s time to start dealing with the legal nitty gritty. Whilst on the topic of considering the potential risks involved with the project, it’s a good time to review any liability clauses in the contract.

Having to assume some liability for mistakes or negligence can seem daunting but is a normal part of a commercial contract. Nonetheless, ensure that your liability limit for a breach of contract or negligence is capped to a reasonable amount; this is often capped at the value of the services provided throughout the duration of the contract.

Often the buyer will only outline the contractor’s liability, but you should make sure that there is a carve out for their liability too. Contracts should be in place to benefit and protect both parties.

Whilst looking at liability clauses, you may also stumble across an indemnity clause. Indemnity clauses are a promise by one party (the indemnifying party) [you] to be responsible for and cover the loss of the other party (the indemnified party) [the buyer].You should always be extremely cautious about agreeing to unlimited indemnity clauses, as you could unintentionally put your business on the line for unlimited costs should a problem occur. Remember, buyers will always put their best foot forward with the initial contract and it will likely be heavily weighted in their favour. Check contracts thoroughly and request changes to clauses that you feel are unfair or are against your organisation’s best interests.

Contract Term & Termination

We’re glass half-full kind of people, but even so, we know that commercial relationships don’t always work out. Whether it’s personal clashes between stakeholders, different working styles or a difference in commercial interests –relationships can break down for all sorts of reasons, and when they do, you want to know that you can resolve the issue in an efficient and professional manner.

In most situations, this simply means terminating the contract. As such, ensure that you know what notice you would have to give in such a scenario and likewise, ensure that you’re happy with the amount of notice that a buyer may give you should they wish to terminate.

In some scenarios – such as a breach of contract – disputes may also occur. Contracts often include a clause for dealing with alternative dispute resolution such as mediation or arbitration. These can be beneficial in saving costs associated with going to court. So, it’s worth checking that such a clause included. At the least, it’s important to ensure that the contract jurisdiction clause is set to your home jurisdiction and that the choice of law clause is that of your home country.

Still Need Help?

The bidding process can be overwhelming – not least for SMEs who may have less experience dealing with commercial RFPs and moreover, have less legal in-house experience for reviewing project contracts.

At Athena Commercial, our team have a wealth of experience helping to navigate organisations just like yours through the entire bid process. For help reviewing RFPs and deciding which projects to bid on, get in touch with our contract review experts today! Get in touch.