Managing Risks in Tendering: What’s a World-Class process when receiving a Tender?

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?

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.