When does contract negotiation fail?

Thursday - 28/12/2023 09:12
Contract negotiation is a crucial step as it forms the basis for the bid solicitor to propose the winning contractor. Being invited for contract negotiation is highly esteemed and appreciated by the contractor because it signifies that they have essentially passed the evaluation and ranking stages. So, are there cases where contract negotiation is unsuccessful? Let's analyze this with the article below from DauThau.info.
When does contract negotiation fail?
When does contract negotiation fail?

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Contract negotiation occurs before winning the bid

When the Bidding Law No. 43/2013/QH13 came into effect on November 26, 2013, and the Government's Decree No. 63/2014/ND-CP (known as the 2013 Bidding Law), one of the fundamental changes compared to the 2005 Bidding Law was the introduction of the step of negotiating and finalizing the contract before submitting the bid results for approval. The process of contract negotiation before the decision of winning the bid fundamentally addresses the issues mentioned in the article 'The importance of contract negotiation in bidding', making the negotiation more meaningful and in line with global practices currently being implemented.

Three Essential Principles to Grasp in Contract Negotiation

To negotiate a contract, it's crucial to understand three principles:

  1. All the contents offered by the contractor in response to the bidding documents are automatically recognized, including the price. Previously, there were instances of 'pressuring' contractors to reduce their prices during negotiation. However, to avoid such situations, discussions about price reductions are not mentioned, and it's even 'not allowed' under the provisions below, except in cases where the contractor 'voluntarily' does so, though it's rare for any contractor to willingly do this!
  2. The unit price after error correction and discrepancy adjustment, which the contractor has accepted (at the stage where the bid solicitor announces the results of error correction and discrepancy adjustment), cannot be changed. This means that there is no change in the execution price, and there are no demands or pressure to reduce the price as mentioned earlier.
  3. Regarding surplus or deficit in quantities, this is an important step for both parties to review again to have the opportunity to add or correct, avoiding situations where these issues are only discovered during contract execution, leading to complex supplementary procedures and sometimes even legal implications. This step is even more critical in lump-sum contracts, where contractors must carefully review the bidding documents and accompanying materials, check the quantities and detailed technical requirements against the bidding package quantities, and can only make additions at this stage. For some surplus or deficit quantities already identified by the contractor and proposed in the bid documents, this also needs to be negotiated at this stage to prevent issues affecting the schedule, finances, and other factors during contract implementation.
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Three principles to grasp in contract negotiation

When Does Contract Negotiation Fail?

Usually, in the contract negotiation stage, for the parties to agree that the negotiation has failed is quite impossible because the bidding documents are standardized, and the information has been made public and transparent. Right from the start of the bidding process, if the contractor has any unclear content, they must have requested clarification of the bidding documents, so it's hard to use any reason for the failure at the negotiation stage.
Failure in negotiation typically revolves around a few issues:

  1. Contradictory content in the bidding documents (usually technical issues), which were not detected during the bidding stage, and the contractor bid based on the forecast and technical instructions of the bidding documents.
  2. The responsibilities of the parties during contract execution, often related to the scope of work interface.
  3. Contractor proposals for identified discrepancies that are not accepted, for some reason, even though these proposals are reasonable and feasible.
  4. Changes in the contractor's proposed personnel due to the prolonged evaluation of the bid documents, leading to personnel changes or reassignment.
  5. Other issues deemed outside the provisions of the bidding documents and bid documents, aimed at completing the tender package.

*** Note: In case the negotiation fails, the bid solicitor will report to the investor to invite the next-ranked contractor for negotiation. If the parties unanimously agree that the negotiation fails not due to the contractor's fault, then the contractor will not lose the bid bond and will not be negatively rated for reputation in other later bidding activities (if any)

In the above article, we have analyzed when contract negotiation fails and what to note in case of unsuccessful negotiation. We hope this article is useful for both contractors and bid solicitors still pondering over this issue. DauThau.info always accompanies and brings a wealth of useful information to interested contractors, and for support, please contact:

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