Contract award leads to contract negotiation to seal off the agreement.
PURCHASING & SUPPLY NYASHA CHIZU
The negotiation in the private sector includes negotiating material elements of the contract of specifications, costs, delivery terms and other terms and conditions of the contract.
There is, however, a limit in the public sector on the negotiable elements of bids submitted, although the process is necessary.
There is an express provision that there shall be no negotiations with respect to the bids submitted and a bid is equivalent to the “Oliver Twist meal portion”.
The negotiation process is, thus, bridled with numerous risks in both the public and private sectors.
The major risk is that the outcome of the negotiations may fail to match the expectation of the parties.
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Contracts are a result of consensus and lack of it is a huge risk that reflects on the procurement team’s capacity to manage a procurement process.
In the fear of exposing poor procurement management skills, procuring entities are at risk of being tied to poor agreements only for purposes of encapsulating the incompetence of its staff.
If the negotiation team is bold enough not to tie the organisation to a poor arrangement, there is another risk of a deadlock on the details of the agreement.
Negotiation is a process, whereby parties pull outwards in order to safeguard organisational interests.
The supplier’s desire is to achieve maximum profit at minimal costs, while the procuring entity desires to conclude a purchase at the lowest possible terms.
The two situations are at tangent, dismissing the myth that people negotiate from opposite ends towards each other. They actually negotiate from the centre outwards.
There is a further risk that apart from the delay from the deadlock, a compromised position that fails to secure mandatory conditions of the contract may be reached.
There is further risk during negotiations, where unfair or onerous requirements are imposed on one party in the contract conditions.
Burdensome and unfair conditions lead to the suppressed party failing to perform affecting the performance of the overall project.
Another risk is associated with the extension of the tender conditions in the ultimate contract.
Many contracts fail to reflect the terms offered and agreed into the final contract at the risk of the overall performance of the contract.
At law, a fundamental principle when entering into contract is that the parties must have contractual capacity.
Parties must have the legal capacity to conclude the contract on behalf of their organisations.
For a contract to be enforceable at law, it is important that it is created by personnel with the delegate’s prior approval.
There is risk of entering into an arrangement with someone without such authority, leading to a void contract.
The risks at contract negotiations could be as a result of genuine errors in the procurement process emanating from use of unskilled staff.
The flip side is that the risk can be created by personnel with corrupt tendencies.
The leading element associated with risk from corrupt tendencies is that of failure to extend terms offered and agreed into the contract.
It is very high in the public sector, where some terms and conditions of the contract are used as an evaluation criteria.
Such criteria would have eliminated deserving offers, but excluded in the contract.
It is very common in the public sector that bidders are disqualified for demanding advance payments or other payment conditions, which the resultant contract would accommodate.
The effects range from high costs, inefficient solutions, delays and contracting suppliers that are not credible.
It is important that we explore the effects of these risks in details and prescribe some solutions to mitigate them.
Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: [email protected] Skype: Nyasha.chizu
