Finance and accounting

The sales department, through the proposal group, has the final responsibility for the content and outcome of all proposals and contracts that it handles. However, there are certain aspects that should be reviewed with others who can offer guidance, advice, and assistance to facilitate the effort. In general, contract agreements should be reviewed by the following departments:

Proposal

Legal

Insurance

Tax

Project management

Engineering

Estimating

Construction (if required)

Purchasing (if required)

Responsibility for collecting and editing contract comments rests with the proposal manager. In preparing contract comments, consideration should be given to comments previously submitted to the client for the same form of agreement, and also previous agreements signed with the client.

Contract comments should be reviewed for their substance and ultimate risk to the company. It must be recognized that in most instances, the client is not willing to make a large number of revisions to his proposed form of agreement. The burden of proof that a contract change is required rests with the company; therefore each comment submitted must have a good case behind it.

Occasionally, a company is confronted with a serious contract comment for which it is very difficult to express their position. In such instances, it is better to flag the item for further discussion with the client at the conference table. A good example of this is taxes on cost-plus foreign projects. Normally, when submitting a proposal for such work, a company does not have sufficient definitive information to establish its position relative to how it would like to handle taxes; that is:

• What is the client's position on taxes?

• Will one or two agreements be used for the work? Who will the contracting parties be?

• Time will not permit nor is the cost justifiable for a complete tax assessment.

• Contract procedures have not been established. Would we buy in the name of the company or as agents without liability for the client?

The legal department should be advised of information pertinent to its functions as promptly as possible as negotiations develop. Proposal personnel should also be familiar with the standard contract forms the company uses, its contract terms, and available conditions, including those developed jointly between sales and the legal department, as well as the functions, duties, and responsibilities of the legal department. In addition, key areas that are normally negotiated should be discussed so that proposal personnel have a better understanding of the commercial risks involved and why the company has certain positions.

By the time the client has reviewed the proposal, the company's legal position is fixed commercially if not legally. Therefore, sales and proposal personnel should understand and be prepared to put forward the company's position on commercially significant legal considerations, both in general and on specific issues that arise in connection with a particular project. In this way, sales will be in a position to assert, and sell, the company's position at the appropriate time.

Proposals should send all bid documents, including the client's form of contract, or equivalent information, along with the proposal outline or instructions to the legal department upon receipt of documents from the client. The instructions or outline should indicate the assignment of responsibility and include background information on matters that are pertinent to sales strategy or specific problems such as guarantees, previous experience with client, and so on.

Proposals should discuss briefly with the legal department what is planned by way of the project, the sales effort, and commercial considerations. If there is a kickoff meeting, a representative of the legal department should attend if it is appropriate. The legal department should make a preliminary review of the documents before any such discussion or meeting.

The legal department reviews the documents and prepares a memorandum of comment and any required contract documents, obtaining input where necessary or advisable. If the client has included a contract agreement with the inquiry, the legal department reviews it to see if it has any flaws or is against some set policy of the company. Unless a lesser level of effort is agreed upon, this memorandum will cover all legal issues. This does not necessarily mean that all such issues must be raised with the client.

The purpose of the memorandum is to alert the proposal department to the issues and suggest solutions, usually in the form of contract comments. The memo may make related appropriate commercial suggestions. If required, the legal department will submit a proposed form of contract, joint venture agreement, and so on. Generally, the legal department follows standards that have been worked out with sales and uses standard forms and contract language that were found to be salable in the past and to offer sufficient protection.

At the same time, proposals reviews the documents and advises the legal department of any pertinent issues known by or determined by proposals. This is essential not only because proposals has the final responsibility but also because proposals is responsible for providing information to, and getting comments from, others, such as purchasing, engineering, and estimating.

Proposals reviews and arranges for any other review of the legal department's comments and documents and suggests the final form of comments, contract documents, and other relevant documents including the offer letter. Proposals reviews proposed final forms with the legal department as promptly as possible and prior to any commercial commitment.

Normal practice is to validate proposals for a period of thirty to sixty days following date of submission. Validation of proposals for periods in excess of this period may be required by special circumstances and should be done only with management's concurrence. Occasionally, it is desirable to validate a bid for fewer than thirty days. The validity period is especially important on lump sum bids. On such bids, the validity period must be consistent with validity times of quotations received for major equipment items. If these are not consistent, additional escalation on equipment and materials may have to be included in the lump sum price, and the company's competitive position could thereby be jeopardized.

Occasionally, you may be requested to submit with your proposals a schedule covering hourly rate ranges to reimbursable personnel. For this purpose, you should develop a standard schedule covering hourly rate ranges and average rates for all personnel in the reimbursable category. The hourly rate ranges are based on the lowest-paid person and the highest-paid person in any specific job classification. In this connection, if there are any oddball situations, the effect of such is not included. Average rates are based on the average of all personnel in any given job classification.

One area that is critical to the development of a good contract is the definition of the scope of work covered by the contract. This is of particular importance to the proposal manager, who is responsible for having the proper people prepared for the scope of work description. What is prepared during proposal production most likely governs the contract preparation and eventually becomes part of that contract. The degree to which the project scope of work must be described in a contract depends on the pricing mechanism and contract form used.

A contract priced on a straight per diem basis or on the basis of reimbursement of all costs plus a fee does not normally require a precise description of either the services to be performed or the work to be accomplished.

Usually, a general description is adequate. This, however, is not the case if the contract is priced by other methods, especially fixed price, cost sharing, or guaranteed maximum. For these forms of contracts, it is essential that considerable care be taken to set forth in the contract documents the precise nature of the work to be accomplished as well as the services to be performed.

In the absence of a detailed description of the work prepared by the client, you must be prepared to develop such a description for inclusion in your proposal. When preparing the description of the work for inclusion in the contract documents, the basic premise to be followed must be that the language in the contract will be strictly interpreted during various stages of performance. The proper preparation of the description of the work as well as the evaluation of the requirements demands coordination among sales, administration, cost, and technical personnel both inside and outside the organization. Technical personnel within the organization or technical consultants from outside must inform management whether there is an in-house capability to successfully complete the work. Determination also must be made of whether suitable subcontracts or purchase orders can be awarded. In the major areas, firm commitments should be obtained. Technical projections must be effected relative to a host of problems, including delivery or scheduling requirements, the possibility of changes in the proposed scope of work, client control over the work, quality control, and procedures.

An inadequate or unrealistic description of the work to be undertaken or evaluation of the project requirements marks the beginning of an unhappy contract experience.

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