Bid Desirability - Contract Negotiation Series 3
There are many factors on which the business desirability and bid success probability are dependent. If it’s to consider that the bid value will be increased to a level that is acceptable to the management, then there are actions which party needs to perform to maximise the success probability. Concerning bid desirability in Contracts and Commercial negotiations the below areas and factors need to be considered, encompassing four main areas;
A - Marketing
- Analyse and Determine if the tender is part of the company’s main business and activities or is placed in the business periphery.
- How the tender affects the company and business development within the factors comprising; territory, customers, products/services, competitors.
- To what extend the company’s sales’ covers the particular product budget and what is related to order book for the same product.
- Based on the above, what is the balance left to other businesses from the sales budget, not covered by the company’s orders.
B - Production
- Would the future contract require any particular arrangements, special tools, products or services
- How the contract procurement would affect the current production process, people, services and processes.
- What would be the effect if the company doesn’t win the contract
a) Withholding of staff and labour
b) Non recovered operating expenses and additional cost.
- Is the company familiar with this product, any additional requirements and specifications, and if not what is the level of confidence the product is to meet specific requirements.
C - Financial.
- What cash flow is expected from the contract and lifetime margin.
- What are the contractual risks involved
- Anticipated risk concerning;
Exchange rates and currency
Financial stability of the customer
- Anticipated healthy lifetime margin of the contract
D - Contractual
- Which terms the contract will be based on, related special clauses under customer’s or company’s specialities.
- Anticipated contractual risks concerning;
Inspection and testing requirements and arrangements
Ability to acquire independent decision related to dispute resolutions
Special clauses under the contract if any and termination.
Performance guarantees and contract KPI’s
The specific bid opportunity analysis is compared with the target set by management. The below guidelines may be used as a base to decision making.
- If there is no big difference in the resources used, as well as the company commercial objectives, between the target and bid analysis, then the party can proceed with the current analysis without many adjustments.
- If the bid cannot meet the target expected value, then a further decision is required by the management, till further arrangements are made so the bid can meet the expected target value.
- A particular management decision will be needed if specific arrangements and resources are required to meet the target.
- The management decision will be needed if the success probability is conditional, based on deviation from the company’s standards; for example approving limitless consequential damages.
- Irrespective of all factors, if the bid can’t meet 50%, then the decision is clear; no bid.
International Business Negotiations
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