I was speaking with Archie, an associate, the other day when he shared an interesting story about a recent project that has some lessons you might find interesting. Archie was part of a Tender Evaluation Panel (TEP) for a significant services project worth around $95 million over three years. After a comprehensive evaluation process, only two suppliers were left standing, unable to be split by the panel. Mulacho (a major industry player) was the incumbent and had a slightly cheaper price but their solution was not quite as technically strong as Rivcorp – a classic value for money dilemma! Given the initial result was so close the Agency decided to conduct parallel negotiations with each party until they found a meaningful point of difference. Guess where they found this point of difference? In their compliance with the draft contract.
When digging in is dangerous
Mulacho had entered responses of noncompliant or partially compliant against 75 clauses and subclauses of the draft contract. They had also put forward significant changes to the clauses, as they are required to do if they are not fully compliant. Their stance was in spite of the fact that they were the incumbent and already delivering services under many of the clauses in question. The Agency sent a message to Mulacho to see if their position was firm. When Mulacho advised that they would remain firm on all clauses, the Agency awarded the contract to Rivcorp as they would be easier to work with, even though their solution was marginally more expensive.
When Mulacho queried why they had lost the contract during the debrief session the Agency informed them that they had been the preferred supplier when negotiations started but had lost this position by being intractable on too many areas of the contract. The Managing Director was not too pleased when he waved goodbye to that $95 million contract and you can only imagine the conversation that took place with their legal adviser.
So what is the lesson here? While it is commercially prudent to identify troublesome clauses in the contract, such as intellectual property and liquidated damages, be wary of turning it into a tug of war. When involved in parallel negotiations, it is vital to work out what is really important and seriously consider letting go of minor issues. Also be wary of lawyers flexing their legal muscles, especially if they are early in their careers as was the case with Mulacho. Always considered their advice but remember that it is your future revenue streams at stake.
Are you are looking to enter the government market? Perhaps you are already tendering for projects but want to improve your win ratio? If this sounds like you then give me a call on (02) 6241 0676 for a free 30 minute consultation.