Legal
A quick review showed a number of items which could result in additional costs. The contract required a lengthy implementation process, with integration of software systems and dedicated on-site staff. There were stringent service levels, meaning that the tenderer would have to allow additional resources to meet the contractual obligations. There was also a TUPE issue, in that a number of existing staff were likely to transfer under the arrangement. However, the contract put no obligation on the client to ensure that the outgoing contractor fulfilled their obligations. As another point, the client had a number of internal policies which would form part of the final contract. In some instances, this required the tenderer to obtain suitable accreditation before meeting the contractual requirements. In a totality, what did this mean for our tenderer? Well, in short: it meant more work, more time and potentially more costs. However, it was only as the contract was examined further, that we became aware of additional, unforeseen issues. Firstly, the contract was stated to be for a fixed period of three years. This was welcomed by the tenderer, of course, as it meant they could work out the costs over a three year period – aiming, of course, to
make a profit at the end of the term. The contract also contained a clause allowing the client to terminate at any time on one month’s notice. But without cause. This meant a three year fixed-term contract was really just a one month contract. Perhaps not such an attractive prospect, particularly in light of the hefty set up costs.
Other pitfalls included uncertain service levels and extensive warranties and indemnities. There was no limit on the number of claims which could be made against the tenderer, if things went wrong. Or more importantly, no maximum financial liability in respect of those claims. It would be all too easy for profit to be swallowed up if the client made a claim against the company. Anther hidden pitfall was the payment procedure. Unknowingly it could have had an impact on cash flow. The contract included a complex procedure for authorising payment. It meant that the company might have to wait up to 65 days for payment of its invoices. In a situation when staff and suppliers wanted to be paid monthly, this could involve using an overdraft facility to keep his business afloat. Not cheap!
Another unsavoury clause allowed the client to vary the services. The parties
were supposed to agree the cost for the varied services. But, if they didn’t, the client could impose a cost and force the company to perform the additional services. Again, this could be particularly onerous in practice.
So, while the idea of tendering is usually appealing, many forget that the price is only one factor and that a tender is made up of many components. Ultimately, if those components are overlooked, the pricing will be wrong and that could hit your bottom line.
•
Claudia Gerrard is a legal consultant at Excello Law. You can call her on 07447 985647 or email her at:
cgerrard@excellolaw.co.uk
Imtech Traffic & Infra UK and Ireland
Rail Infrastructure Safety Solutions
Information Systems Monitoring
BRINGING BENEFITS TO THE UK RAILWAY; using technologies proven in the highways industry and railways across Europe, we provide integrated solutions to infrastructure management and information systems.
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October 2013 Page 27 PKT00001-4 Page Rail Profesional
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