What is a Statement of Contractual Compliance

TRANSCRIPT OF THE VIDEO

Statements of contractual compliance. What are they and why do you need to do them?

Well, stick around and I will tell you. Hi everyone, Simon here from Shrewd. We provide commercial support to the Commonwealth to help the Commonwealth successfully deliver value-for-money projects.

What is a Statement of Contractual Compliance?

So, statements of contractual compliance, what are they? Well, in short, when you go out to market, nine times out of 10 in your market documentation or in your tender pack, you are going to include a draft contract.

What then happens is the tenderer lodges a response with their services or proposed solution, but they will also tell you what they think of your draft contract and how they want to change it.

Risk Rating

Then what you need to do is you need to capture the potential changes that the contractor or the tenderer, I should say, wants to make to the draft contract. And you need to make a risk rating or make a risk determination about the changes that they want to make.

So, that's what a statement of contractual compliance does. It's a document that you create for your tender and you fill it in for each tenderer and you might have one like this.

You might have a table in the document that needs to be completed for each tenderer setting out what the issue is, the legal risk if the Commonwealth accepted the amended clause as proposed by the tenderer, and then the risk rating.

So, a statement of contractual compliance then allows you to make a determination or give a risk to the tenderer as a whole.

Now, these statements of compliance that I've done and our team do are, what I'd say are based in reality. What I mean by that is we go out to market with a contract. It has certain clauses in it, the tenderer comes back and says it wants to change those clauses.

We then give a risk rating to the change that the contractor wants to make. In other words, we say, "Okay, let's assume that we accept the amended clause as drafted by the tenderer. What sort of risk does that expose the Commonwealth to?" And then that is the risk rating that we would include in this sort of table.

Negotiations

But it's not the end of the story, really, because you never end up agreeing that final position because you go into negotiations, and invariably, you negotiate a middle ground that's somewhere between the proposed change that they had put forward in their tender response and what you end up agreeing.

But in saying that, the purpose for me of these statements of contractual compliance is that you need to be consistent with all tenderers. I think it's good to try and come up with, "Well, what is the worst position that the Commonwealth could be in?"

And that is, the Commonwealth is in the worst position if it just accepts the amended change or the change proposed by the tenderer without negotiation.So, you do that for all tenderers and you do it for all points or for all clauses that they want to change in the contract.

And then the way I like to do it is you'd give a risk rating, just a low, medium, and high-risk of that clause and what it means.

The Tenderers

And then I like to capture that for each tenderer. I would rank the tenderers based on how easy or hard they're going to be to deal with. When I say how easy or hard, what I mean by that is how much effort is going to be involved in negotiating a contract that is acceptable for both parties.

So, you might have tenderer A, they might have five low-risks and one high-risk. And then you might have say tenderer B, who's got three low-risks, but two high-risks or something like that.

And then you would rank them appropriately in terms of how hard or how difficult or how much effort is involved to get to a contract that is acceptable to both parties.

Now, some agencies will have a scoring or a risk rating that might be high or extreme or something like that. If a contract is deemed to be at that level, then you can't enter into a contract with a tenderer.

So, I have never actually ever excluded a tenderer on the basis of the changes they want to make to a contract. The reason for that is simple. They come back and tell us what they want to make or what clauses they want to change to make them more favorable to them, but that's not the end story.

And you never end up in that position once you've had the negotiation. And so then to me, it doesn't seem appropriate that you would exclude them when you know that you can always agree or negotiate a position that's a middle ground between the original drafting that the Commonwealth put forward and their view and the tenderer's amended drafting that they came back with, which might be the other end of the spectrum, and the reality is going to be somewhere in the middle.

So, in my personal view, it's not good form to exclude them on the basis of the contract, but you still need to determine or judge how difficult or how much effort is going to be involved to getting to a contract that is acceptable to both parties.

And that's why, for me, the only way really of doing that is to try and capture the number of low-risks, medium-risks, and high-risks that they have put in their contract, or they have asked to be...

Well, sorry. Their low, medium, and high-risks that you have determined based on the changes to the clauses that they want to make, then you simply tally those up and then rank tenderers appropriately.

Now, often, you'll need to use a little bit of judgment here because you might have one tenderer who's only got, say, one high-risk issue, but you might have tenderer number two, who might have say 5, 10, 15 low-risk issues.

But in fact, 15 low-risk issues might be easier to negotiate with than one high-risk issue and so you might want to rank that tenderer first.

Now, really the tender ranking doesn't do much, except for my mind, it helps populate the evaluation report, but it's just one of the factors that goes into the mix to determine who actually ends up being the successful tenderer.

In Summary

Anyway, that's what I like to do with statements of compliance. We like to make them as practical and as useful as possible.

And as I said, this is the reason you need them is because if you've gone out to market with a tender and the tender includes a draft contract and tenderers respond telling you how they want to amend the draft contract, then you need a process to capture all those amendments, not only for one tenderer, but for all tenderers.

And then you need a method of actually ranking or comparing tenders. The only way to my mind you can do that is by giving a risk rating to each individual issue and then tallying up the risks and then tallying up the total of risks and then forming a ranking.

Anyway, that's how we do things at Shrewd. Each agency I know just from experience will do things slightly differently.

And in fact, lawyers involved or engaged for each agency in terms of the in-house team will also potentially do it a little bit differently, but this is how we like to do it and why we think it is a good idea.

Anyway, I hope that helps. If you have any questions, feel free to get in touch simon@shrewd.com.au. Or 1-800-Shrewd, which is 1800-747-393. Thanks very much.