Some of the reasons why you should conduct a legal risk assessment for every tender:
Tender bids can result in binding contracts before a written contract is signed
Tenders can result in binding legal obligations. In recent times the Courts have suggested that the tender process itself is capable of resulting in binding obligations on the various parties involved in the process, even before a contract is awarded (referred to a “process contract”).
If your bid is successful, a binding contract might come into existence as soon as the letter of acceptance is sent to you, before you have signed a contract. In other words, once you have lodged a tender bid, it’s generally too late to object to or insist on changes to the terms of the proposed contract. Any changes to the proposed contract need to be included as part of your tender submission.
The law is constantly changing and becoming increasingly complex
The Common Law, which forms the basis for the law of contract, can potentially change whenever a Court hands down judgment on a contract law case. Are you or your “contracts person upstairs” trained in legal research? Do you or they understand the legal principles behind the Common Law, including how a Court decision can change the law?
The Common Law can be modified by legislation and regulations, which may affect the rights and obligations of parties to contracts. This is becoming more and more common these days. The Competition and Consumer Act and the Australian Consumer Law are prime examples. New legislation and regulations are being enacted every day. Do you know how to keep abreast of all these developments? Do you know how to find relevant legislation? Do you know how to interpret and apply it to a fact situation? Do you have time (is that your core business)?
Contract risk allocation trends are changing
The last decade or so has seen a gradual reallocation of contract risks down the line to the contractor or subcontractor. Indemnities are often weighted in favour of the principal and against the contractor; contractual insurance requirements are becoming more complex and onerous; one-sided termination clauses are now the norm rather than the exception. The risk bar has been raised.
Insure against contract risk
The Tender Lawyer knows of a man who chose not to insure his house. The house burnt down. He rebuilt the house but decided again not to insure it. After all, what were the odds of it burning down twice? Well, you guessed it – the house burnt down again (true story!). Most of us would consider this man an idiot, yet many people in business don’t insure their business against legal risk by getting legal advice when they should. The risk in tendering is not so much about the money you might have wasted if you don’t win the tender, it’s more about the risk of winning the tender and what could go wrong during the life of the contract, especially if it’s a long-term contract. Does it contain an appropriate price adjustment mechanism? What potential loss and damage will you be responsible for? Can you be held responsible for other people’s actions? Will your equipment be secure and will you get it back at the end of the contract? These are but a few of the things you need to consider every time you decide to submit a tender. There can be so many nasty monsters lurking between the pages of a contract. Do you know what they look like? Do you know what to do if you see one?
The potential value of the contract is not necessarily commensurate with the risk
Many companies apply a value threshold (e.g. estimated revenue per year from the contract) to each tender in deciding whether to undertake a legal risk assessment or not. The logic behind this seems to be that: (a) more valuable contracts can justify more money being spent on the tender submission, including legal advice and (b) higher value contracts carry a proportionately higher risk. In actual fact, the value of the contract is not necessarily commensurate with the risk. All contracts carry a risk of incurring liability that is far greater than the costs of a legal risk assessment.
The things that could go wrong
Tender documents are invariably full of nasty surprises. There are so many things that you need to watch out for, which could potentially have devastating consequences for your business. Click here for some real-life horror stories.