10 Tender Red Flags You Should Never Ignore

The Tender Lifecycle Series - Part 1 of 5

There's something rather exciting about finding a tender that looks perfect for your business.

The scope sounds right. The contract value is attractive. The client is an organisation you've been hoping to work with. And suddenly you're picturing the extra revenue, the new staff, the opportunities for growth and perhaps even a celebratory glass of something bubbly.

Then you open the tender documents. All 247 pages of them.

Somewhere between the scope of services, the pricing schedule and Clause 38.7(b), you discover a few things that weren't quite so obvious in the original advertisement.

The mobilisation period is ridiculously short. The insurance requirements are enormous. The scope is vague. The penalties are substantial.

And the contract appears to expect you to accept responsibility for just about everything except the weather.

Welcome to the wonderful world of tender red flags.

Introducing Our Tender Lifecycle Series

This is the first article in a new five-part TenderWise series exploring some of the decisions, risks and practical challenges businesses encounter throughout the tendering lifecycle.

Over the coming weeks, we'll look at identifying tender red flags, asking effective clarification questions, understanding evaluation criteria, handing over a winning tender to your delivery team, and learning from tender feedback.

Each article will introduce a free, practical resource you can download and use in your business.

No procurement waffle. Just useful advice about making better tendering decisions.

And we're starting with something particularly important: recognising when a promising opportunity might turn into a very expensive headache.

1. The Scope Is About as Clear as Mud

A tender should give you enough information to understand what the buyer expects you to deliver.

That doesn't mean every detail will be perfectly defined. But if you can't reasonably establish the work involved, the resources required or the assumptions you need to make, there's a problem.

Watch for phrases such as:

• All associated services as required.

• Any additional activities necessary for satisfactory performance.

• Other duties as directed by the Principal.

• The Contractor shall allow for all foreseeable requirements.

Those phrases aren't automatically unreasonable. Their meaning depends on the full contract.

But if the scope is open-ended while the price is fixed, you need to understand where your obligations begin and end.

The risk: You price what you think is required, then discover the client expected considerably more.

What to do: Seek clarification, document assumptions where permitted and identify how variations will be managed.

2. The Mobilisation Period Is Optimistic. Very Optimistic.

The tender closes on Friday.

The contract is expected to be awarded the following Wednesday.

Services commence on Monday.

Wonderful.

Except you need to recruit staff, organise equipment, complete inductions, establish systems, confirm suppliers, arrange insurance and possibly obtain licences or clearances.

A short mobilisation period isn't necessarily impossible. Sometimes an incumbent supplier or an established local contractor can genuinely meet it.

But don't promise a two-week mobilisation simply because the tender asks for one.

The risk: You're in breach, or seriously underprepared, before the contract has properly started.

What to do: Develop a realistic mobilisation schedule before bidding. Identify dependencies, lead times and what must be in place before commencement.

3. The Liability Provisions Could Swallow Your Business

Some contracts contain broad indemnities, uncapped liability or obligations that go well beyond what a supplier would ordinarily expect to control.

The important question isn't simply whether a clause looks frightening.

It's whether you understand the exposure, whether it's proportionate to the work, and whether your insurance responds to it.

For example, a $200,000 contract with potentially multimillion-dollar liability exposure deserves serious attention.

The risk: A relatively modest contract creates financial exposure far greater than the revenue it generates.

What to do: Have significant liability and indemnity provisions reviewed by a suitably qualified legal adviser and discuss insurance implications with your broker.

And don't assume a contractual obligation is insured simply because you have a policy with a large number printed on the certificate.

4. The Insurance Requirements Don't Match the Work

Insurance requirements should be reviewed carefully, particularly where a contract requires unusual coverage, high limits or policies your business doesn't currently hold.

Some requirements may be perfectly appropriate for the risks involved.

Others may be generic provisions carried over from a much larger or entirely different procurement.

The risk: Additional premiums, unavailable cover or uninsured obligations make the contract commercially unattractive.

What to do: Confirm availability, cost, exclusions and policy suitability before submitting your price.

Insurance is not something to sort out after you've won and hope for the best.

5. The KPIs Sound Great Until You Read the Fine Print

Performance measures are normal. Buyers need to know whether contractors are delivering what they promised.

But KPIs should be clear, measurable, achievable and reasonably within your control.

Look closely at response times, rectification periods, availability requirements, reporting obligations and performance deductions.

A requirement to respond within 30 minutes might be perfectly reasonable in one contract and completely unrealistic in another.

The risk: You're penalised for failing to meet obligations that were never practical, properly defined or adequately priced.

What to do: Test each KPI against your actual delivery model. Understand how performance is measured, what exceptions apply and the financial consequences of non-performance.

6. The Pricing Structure Leaves You Carrying All the Risk

Fixed pricing is common in tendering.

But fixed pricing combined with uncertain volumes, fluctuating costs, unclear quantities or significant additional obligations can be a different proposition altogether.

Consider whether the contract provides mechanisms for price adjustments, variations, changes in legislation or other material cost movements.

The risk: Your costs increase while your revenue stays exactly where it was.

What to do: Model realistic scenarios, including the less cheerful ones. Understand what is included, excluded and subject to variation.

A profitable contract on a spreadsheet is only useful if the assumptions behind the spreadsheet survive contact with reality.

7. The Payment Terms Could Create a Cash Flow Nightmare

A contract might be profitable over its full term but still create serious cash flow pressure.

Perhaps you need to purchase equipment, recruit employees and pay suppliers before receiving your first payment.

Perhaps payment depends on lengthy approval processes or milestones that are difficult to achieve.

The risk: You're financing the client's contract from your own working capital.

What to do: Prepare a cash flow forecast, not just a profit estimate. Check invoicing conditions, payment milestones, retention arrangements and any security requirements.

Because employees tend to prefer being paid in actual money rather than reassurances about future contract profitability.

8. The Contract Allows Major Changes Without Clear Compensation

Buyers need some flexibility, and many contracts include provisions for variations or changes to service requirements.

But pay attention to clauses that allow substantial changes to scope, locations, hours, quantities or delivery requirements without a clear mechanism for adjusting price or time.

The risk: The contract you end up delivering is materially different from the one you priced.

What to do: Understand the change-control provisions and whether adjustments require written approval. Seek clarification about unclear or potentially disproportionate obligations.

9. The Tender Documents Contradict Each Other

The specification says one thing.

The pricing schedule suggests another.

The draft contract introduces a third interpretation.

And the response schedule asks you to confirm something that doesn't appear anywhere else.

This happens more often than anyone would like.

The risk: You price or commit to an interpretation that the buyer doesn't share.

What to do: Check the document precedence provisions, review all addenda and submit clarification questions through the prescribed process.

Don't assume that because something appears in one document, it automatically overrides a conflicting requirement elsewhere.

10. The Contract Doesn't Fit Your Business

This one is easy to overlook because it doesn't necessarily involve a nasty clause.

Sometimes the opportunity simply isn't right.

Perhaps the contract requires capabilities you haven't developed, stretches your resources too far, exposes you to unfamiliar risks or pulls you away from the work your business does best.

Maybe the revenue looks impressive, but the margin doesn't.

Maybe winning would require so much management attention that your existing clients would suffer.

The risk: You win a contract that damages the business you were trying to grow.

What to do: Be realistic about strategic fit, delivery capacity, profitability and opportunity cost.

Not every contract worth winning is worth pursuing.

And not every contract you can deliver is one you should deliver.

A Red Flag Doesn't Automatically Mean Walk Away

This is important.

Finding a red flag doesn't necessarily mean the tender is a disaster.

It means you've identified something that requires attention.

Depending on the issue, your options might include:

• Seeking clarification from the buyer.

• Obtaining legal, insurance or specialist advice.

• Confirming whether departures or alternative offers are permitted.

• Pricing the risk appropriately.

• Developing additional controls or contingency arrangements.

• Deciding that the exposure is simply too great.

Some requirements may be non-negotiable. Others may be clarified or amended through the procurement process.

The important thing is to make an informed decision rather than discovering the problem after contract award.

Download Our Free Tender Red Flags Checklist

To accompany this article, we've created a free Tender Red Flags Checklist covering common contractual, commercial, financial and operational warning signs.

It includes practical prompts, suggested actions, a risk register and a decision worksheet to help you determine whether to bid, bid subject to further action or walk away.

You can find it in our Free Tender Resources collection, alongside our Bid/No-Bid Checklist and other practical tendering tools.

Winning the Wrong Contract Isn't Winning

Tendering takes time, money and considerable effort.

It's understandable that businesses focus on putting together a competitive response and securing the contract.

But the best tendering decisions aren't always the ones that result in a submission.

Sometimes they're the ones that stop you making a very expensive mistake.

Winning the wrong contract can be considerably more expensive than walking away.

And recognising that before you submit might be one of the smartest tendering decisions you ever make.

Next in our Tender Lifecycle Series: The Tender Questions You Should Ask Before You Submit.