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Managing Risk: The Flexible Approach

Risk is an inherent part of all but the simplest of procurements. To successfully manage risk during your procurement, you will need to make sure that the process you go through, and the scoring methodology you apply, allow and encourage the best behaviours and secure the best outcomes from your bidders.

How do you best manage risk?

In our ‘4 Tips for Managing Risk with your Bidders’ guide, we partnered with Risk Decisions to offer expert advice on exactly that. In the guide, we provide you with 4 steps you can take to successfully mitigate risk.

Our first tip focuses on the importance of adopting a flexible attitude and approach to fixing your requirements.

Some of the benefits of dialogue with bidders and the need for flexibility around setting the requirement, are generally well understood by procurement teams, they include:

  • allowing innovative solutions to be proposed, and
  • preventing the route to cost-effective solutions being inadvertently closed down by restrictive or prescriptive requirements.

Whilst public procurement legislation offers several procedures that allow this approach, the challenge is often gaining the buy-in and support of the end-user stakeholders responsible for defining the technical requirements. Can you persuade them to retain the flexibility needed and engage in meaningful dialogue with bidders?  

The traditional approach of establishing a “level playing field” by requiring all bidders to accept a predetermined set of contract terms and conditions is unlikely to ensure risks will reside with the party best able to manage them.  This will almost certainly drive up your bidders’ contingency costs, which will, of course, be passed back to you anyway. It may also make it more difficult, or even impossible, for some of your bidders to compete at all, reducing competitive pressure and increasing your costs further. 

Instead, you will need to adopt a more flexible and consultative approach to developing and agreeing contract terms and conditions. The key to any successful negotiation is securing win-win outcomes where the underlying needs of both parties are understood and satisfied.

By learning how to manage risk with bidders, you can simultaneously encourage open and honest engagement for better procurement outcomes. Access the full Managing Risk guide here to find out what else you can do to improve the outcome of your next project.