Managing Risk in the Tendering Process: Insights & Best Practices

 

Words of Industry Insider: Mark Wharton

When you go for a high dive, surely you’d check there’s water in the pool?

There is now far more attention paid by subcontractors to tender documents and contracts, either from one of the many outsourced QS services in the market, or if the firm is larger, their in-house QS. That said, the understanding of a contract and what you as a firm are signing up to is only half the story.  What about your client risk? What about the risk of their client? And theirs above if there is an end user or funder upstream in the chain.

The many liquidations, receiverships and administrations and the inevitable published creditor list showing tens of millions of pounds lost in the supply chain are evidence that this vital area is still being seriously neglected by the specialist sector.

What’s your process when a tender lands? Do you say “Wahey we have a job to price! Let’s get on and do it?” Or do you hesitate and think “this is a potential new client which is great, but it’s a tier one, why are they suddenly coming to us out of the blue?” How do you know they can pay your bill? A credit check can be useful but shouldn’t be wholly relied upon. Different agencies use different criteria and can conflict with one another. It’s also a snapshot in time, and in a fast moving, high risk market, that moment can be many months ago.  What if the credit report is poor? What do you do? Price or don’t price? It’s not that simple. If firms haven’t filed figures for some time, that can lead to a credit downgrade. Not talking about filing late, no, this is simply “not filed for a while but within the time frame”. Not fair is it? Perhaps not but this is the market.

Ask for management accounts of your potential client to you can analyse them/have them analysed? Be met by “Noone has ever asked us for those before. Anyway they’re confidential so you can’t have them.” What then?

We (the specialist supply chain) have a significant arsenal at our disposal in these situations. It does though need a policy, no matter how big or small you are. Time spent on devising that policy is time saved when making decisions. Yes, there is always something from leftfield, but if there is a company line, the whole thing gets simpler.  What level of risk are you willing to take? If your mark up and therefore delivery margin is small, taking large risk can be catastrophic. On the other hand, if you’ve taken a flyer on a job and the mark up is very high, you may wish to accept a high level of risk due to the potential for higher reward.  Figure this out and write it down. Share it with key members of the team, it’s them who’ll be doing the nuts and bolts so bring them into it and the reasons why.

Is trade credit insurance “worth it”? Ah “but it’s a huge pain to manage!” I hear you cry. Is it though? In common with all insurance markets, capacity waxes and wanes, hence so do prices and availability. In a weak economy and high construction risk, credit insurer’s appetite for risk drops, meaning full cover on a debt may not be available. This is where it’s time to get creative to minimize your risk. A combination of trade credit insurance on a project, plus a cash flow forecast which could including the vesting of materials on which fast payment is agree with the client. The level of success in how you minimize risk is all about both your appetite for it, your commercial outlook and your confidence in undertaking what can be difficult conversations with clients, and of course the clients attitude to collaboration, delivery of a successful project and the protection of the supply chain.

We all view risk differently from a human perspective. One person’s day to day activities can be another’s big adventure. Where do you draw the line at what’s acceptable?

Understanding and mitigating risks in the tendering process is critical, as echoed by our industry expert’s insights on the importance of diligent risk assessment and management at every level of the supply chain. As we delve deeper into the tendering process, it becomes evident that the complexities and challenges extend beyond individual experiences, encompassing a range of financial, operational, and reputational risks that can impact all parties involved. Let’s explore the broader landscape of risks in tendering, examining common challenges and strategic measures that businesses can adopt to safeguard their interests and enhance project outcomes.

 

Expanding on managing risk in the tendering process.

The tendering process, integral to securing contracts and expanding business capabilities, is fraught with complexities. Understanding the scope and depth of potential risks, from financial instability to delivery delays, is crucial for both buyers and suppliers. Mark Wharton emphasizes the critical importance of assessing every aspect before making a commitment, a principle that resonates deeply as we explore the breadth of potential risks in the tendering process. His analogy of ‘checking for water before diving’ underscores the necessity of a thorough understanding of the risks involved, echoing our need for diligence in navigating these complexities.

This exploration begins with a detailed look at multi-dimensional risks encountered during tendering, including financial burdens due to unforeseen costs and the impact of poor supplier performance on project delivery.

 

Multi-Dimensional Risks in Tendering

The tendering process is fraught with various dimensions of risk, ranging from financial to operational. Understanding these risks is crucial for both buyers and suppliers. Reflecting on Mark’s insights about the interconnected risks across the supply chain, our examination of multi-dimensional risks becomes particularly pertinent. He highlights how risks at one level can cascade, impacting all involved— a crucial consideration as we discuss the varied financial, reputational, and operational risks in tendering.

Potential Risks and Common Risks

The tendering landscape is diverse, encompassing various risks such as financial, reputational, and operational. Common risks include financial burden due to unforeseen costs and poor supplier performance impacting project delivery.

Tender Documents and Contractual Obligations

A detailed examination of tender documents is essential. Mark Wharton’s discussion on the significance of fully comprehending contract details aligns closely with our focus on tender documents. He stresses the importance of knowing what your firm is signing up for, which reinforces our point on the need for meticulous scrutiny of these documents to avoid costly misunderstandings or disputes. These documents form the bedrock of the tendering stage, outlining the contractual obligations that bind both parties. Misinterpretations or ambiguities in these documents can lead to significant challenges, including cost overruns and project delays.

Risk Management in Tendering

A robust risk management plan must address several areas:

• Risk Identification and Assessments: Early identification and comprehensive risk assessments help mitigate unforeseen issues like quality standards not being met or unexpected peaks in demand. As Mark Wharton advocates for a proactive and well-prepared approach to risk, his strategies resonate with our emphasis on early risk identification and comprehensive assessments. His approach supports our recommendation for implementing effective mitigation strategies to manage risks throughout the contract lifecycle.

• Risk Mitigation Strategies: Implementing effective strategies is critical for managing risk exposure throughout the contract lifecycle. This includes setting up contingency plans for delivery delays and ensuring financial stability.

Financial Risks and Quality Issues

The financial risks associated with managing risk in the tendering process can be substantial, often influenced by poor quality outputs that fail to meet the stipulated quality standards. Echoing Mark Wharton’s caution about the financial stability of new clients, our section on financial risks and quality issues highlights similar concerns. His advice on conducting credit checks and not solely relying on them emphasizes the need for robust financial assessments and quality assurance to maintain profitability and avoid instability. Ensuring adherence to these standards is vital for maintaining profitability and avoiding potential financial instability.

Supplier and Contractor Selection

The selection of contractors is a pivotal stage, requiring rigorous assessment criteria to evaluate potential suppliers’ track records and financial thresholds. In line with Wharton’s emphasis on the critical nature of choosing the right partners, this section underscores the importance of stringent evaluation criteria. His insights alligns with our approach to rigorously assessing suppliers’ track records and financial health to ensure high-quality outcomes and service delivery. This ensures that the chosen contractor can meet the project’s demands and maintain high-quality service delivery without causing delivery phase disruptions.

Strategic Approaches to Tender Management

• Bidding Process and Tender Strategy: Strategic tendering involves understanding the bid process and integrating risk management capabilities into every phase. This includes preparing for tender challenges and ensuring all bidders have sufficient time to meet submission deadlines.
• Project and Contract Management: Effective project management requires anticipating potential pitfalls and implementing a continuous process of monitoring and adjustment. Contract managers play a crucial role in this by overseeing the contract specifications and ensuring all parties adhere to the agreed terms.
• Business Continuity and Risk Profiles: Maintaining business continuity in the face of unplanned risks is essential. Organisations must develop a risk profile that includes all potential risks and mitigation actions, ensuring a steady supply chain and minimal disruption to business operations.

Enhancing Tender Outcomes

To optimise outcomes, it’s crucial for organisations to focus on key performance indicators, maintain stringent regulatory requirements, and ensure all contractual and tendering obligations are met comprehensively. The procurement lifecycle must be managed with precision, from the tendering stage through to the final award of the contract, ensuring all processes are aligned with strategic business goals.

Conclusion

The tendering process, when managed with a keen understanding of the risk in the tendering process and strategic approaches, offers substantial opportunities for business growth and operational efficiency. As emphasized by our industry insider, Mark Wharton, the complexities of the tendering landscape demand careful attention, not only to the formal aspects like contracts and obligations but also to the subtler cues, such as the financial stability of new clients and the strategic positioning of your firm in the market. By embedding rigorous risk management processes that reflect Mark’s approach—evaluating risks from the water’s depth before diving in—and adhering to strict quality and financial guidelines, organizations can safeguard their interests. The deep dive into risk assessments and mitigation strategies discussed further in this article supports Mark’s advocacy for a well-prepared approach, ensuring that firms not only survive but thrive in the competitive tendering arena, enhancing their market position while protecting the entire supply chain. To see how C-link can help streamline this crucial process and further protect your projects, you can book a demo here.

About Mike Wharton

Mike is passionate about quality and standards in the delivery of construction. He is an experienced change agent and leader with extensive experience of complex stakeholder environments and business transformation programmes.