Legal Download 2.0 - Managing tenders

Avoiding wasted expenditure and unnecessary legal risks in IT procurement.

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By  Lenka Glynn Published  November 25, 2007

The phrase ‘IT procurement' can encompass a broad range of procurement activities - from the acquisition of a single computer through to a complex worldwide turnkey inter-office network solution. While all IT procurement should be executed with caution, large scale IT procurement, or procurement of mission critical IT systems, should be supported by a well-thought out procurement strategy if unnecessary expenditure and legal risk are to be avoided.

A number of factors may cause/lead to unnecessary expenditure and legal risk, including inappropriate choice of IT solutions and/or IT vendors, failure to negotiate appropriate terms, failure to identify and manage IT specific risks (which can cripple a business) or commitment to a long-term rigid arrangement that does not take into consideration developments in the IT industry. In today's column, we want to provide you with a few tips on how to avoid unnecessary expenditure and legal risk when procuring your IT systems, solutions or services.

The power of tender process

For complex IT solutions (even solutions offered by more than one vendor), you should invite relevant vendors to ‘compete' for your business - to prepare and offer to you the most appropriate solution (technical and financial) for your IT needs. Competition between IT vendors is typically achieved via a tender process. You may think that organising a tender is time consuming and costly. However, compared to the expenses you may incur if you choose the wrong solution and/or vendor, or the loss you may suffer if the IT solution doesn't work, the costs of a well run tender are generally negligible.

Generally, it is up to you to set the rules of your tender - the process should match closely the internal procurement procedures of your business to ensure process efficiency. However, please note that you may be subject to specific legal or organisational rules and requirements, in particular if you are a government-linked or multinational entity (e.g. - public procurement regulations or group procurement policies).

Tenders may be opened to the general public (where a tender notice is published), closed to the public ‘upon invitation only' (where the invitation to participate is only delivered to selected recipients) - or a combination of both (the initial stage opened to all eligible vendors, later stages only to shortlisted candidates).

Tenders should allow you to assess your position and options (such as the level of competitiveness between vendors) and effectively sift through interested vendors and their proposals. Generally, the more complex the deal, the more stages that may be required in the tender process. A typical tender process for more complex IT procurement can include the following stages: (i) a request for expressions of interest, (ii) a vendor Q & A period, (iii) the pre-qualification of vendors, (iv) a request for full proposals, (v) the first down-selection of vendors, (vi) an interview, presentation and/or demonstration; (vii) the second down-selection of vendors, (viii) the running of parallel negotiations with shortlisted vendors, and (ix) the final contract award in respect of the proposed solution from down-selected vendors.

Tender documentation

The success of your tender to a great extent depends on the quality of your tender documentation. There are a number of key principles you should follow when preparing your tender documentation including:

clearly specifying the type and extent of information and data that you require from the interested vendors in order to ensure the relevance of proposals and so as to avoid unnecessary misunderstandings at later stages;

specifying and enforcing the required structure and format of vendor proposals in order to ensure time efficient and cost effective straight-line comparisons between vendor proposals;

providing exhaustive data on your requirements, if possible, and always invite the vendor to assist in defining your requirements and tailor the most appropriate solution for you; if you think it necessary, also introducing a Q&A period during which interested vendors may seek clarification as to your requirements;

always including draft legal terms and conditions, and request, as part of the proposal, a compliance statement including reasons for any non-compliance by your vendors - this can save you tens of thousands of dollars in legal fees;

to the extent permitted, ensuring your tender documentation does not impose any binding obligations or restrictions upon you from unilaterally changing the terms of the tender or cancelling the tender for any reason; and

ensuring that it is clear that you are not liable in any way for the vendors costs in preparing their responses to tender.

Confidentiality

Regardless of whether or not you conduct a full-fledged IT procurement tender, you are likely to disclose to interested vendor(s) technical and commercial information that you may consider confidential. Unauthorised disclosure of such information may have serious consequences for your business. In some cases, you may even wish to keep the actual IT procurement process outside the public domain. Therefore, always ensure that all interested vendor(s) sign a confidentiality or non-disclosure agreement before engaging with them.

Cooperation

From day one, make sure that your technical, commercial and legal team work jointly on any IT procurement process, regardless of whether it is conducted via a tender or a simple order placed with your established IT vendor. What may be a perfect solution from the IT perspective may not be commercially and/or legally viable. Such issues must be identified at early stages and this can only be achieved by such cooperation. Remember, your IT, legal and commercial/finance functions all have a vested and legitimate interest in the IT procurement process. Your IT procurement should therefore ensure that the concerns of all internal stakeholder groups are clearly met.

Contract

Negotiating and finalising a contract may become a time-consuming and costly proposition if not managed efficiently. When it comes to a contract, there are, generally, three options. You may use the vendor's template, your template or a new agreement specific to the particular deal.

By far the most qualitative and time and cost-effective means of concluding the contract is to use your own draft agreement as should have been included in the request for the tender. Any provisions against which the vendor has indicated compliance need not be negotiated. In addition, you will have had the benefit of the competitive nature of the tender process (eg. the parallel negotiations stage) to encourage vendors to withdraw any previously stated non-compliances.

We note that at times vendor's template terms and conditions may appear to be acceptable to you when you are procuring a standard IT solution and/or service. However, we recommend you consider preparing your own procurement's terms and conditions. While systems and services may be the same, the impact of generic systems/services on your business and the loss they may expose you to can be extremely different. Hence, there is no such thing as a standard IT procurement as your business is unique.

If you procure IT solutions on a frequent or multiple basis, you may wish to use your own standard IT procurement contract in order to ensure that similar procedures and principles apply across all your IT equipment, services and/or solution. In cases where you are procuring a bespoke IT solution, a contract tailored to match this solution should be prepared and again we recommend this be included in the initial tender documents.

(At this juncture, you might wish to note that in a future article we will be discussing contract essentials for the IT industry.)

Benchmarking and technology updates

IT develops rapidly in terms of new technologies, service availability and pricing. Your contract should allow you to benefit from such changes, particularly, if you are procuring a long-term IT or communications solution (such as a multinational inter-office virtual private network). Therefore, you should ensure that your contract allows for and sets out the rules for regular price or quality of service benchmarking exercises and periodic technology upgrades.

The key principle weaving through the above tips is the need for efficient, well-coordinated and proactive management by you of your IT procurement projects. If you stick with these principles, you WILL minimise, in both the short and long term, the risks of wasted expenditure and unnecessary legal risks in relation to your IT procurement.

The author, Lenka Glynn is a Senior Legal Consultant with DLA Piper's Technology, Media and Commercial Group in Dubai.

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