Tender Negotiations with the Indian Government
Prashant Mara and Devina Deshpande
Upon the award of a government tender, there is typically very limited scope for vendors to negotiate contractual terms. In fact, under the general procurement rules and vigilance guidelines, post-tender negotiations are specifically discouraged, and even negotiations with the lowest cost bidder (L1) can only be undertaken for reasons to be recorded in writing.
That said, vendors may still have a small window to protest/clarify/negotiate tender terms:
The procedure to request changes (protest) to tender terms is, in the first instance, available as part of the pre-bid clarifications procedure under the tender. While technically, the pre-bid clarification process is intended to be a clarificatory exercise and not a negotiation, it is not uncommon for bidders to use this procedure (due to lack of any other suitable platform) to obtain as many deviations as possible.
Next, the tender response submitted can contain qualifications or deviations from the tender terms. These may be set out under a specific deviations list (if a format for such a list is provided as part of the tender documentation) or as a separate cover letter, and the bid can be made subject to the requested deviations.
Finally, there may be another opportunity available to seek deviations, post the award of the tender. Certain tender processes will allow for a contract negotiation phase via a Contract Negotiation Committee (“CNC”). The CNC is an empowered committee which may be far more amenable to discussing deviations on the basis of commercial and legal considerations.
However, note that the general approach is for the tendering authority to reject deviation requests (often due to lack of discretion and fear of scrutiny for malpractices). As such, the ability, procedure and risk attaching to any such clarifications/deviations must be assessed on a case-by-case basis, based inter alia on the tender terms, the clause under protest, the potential flexibility of the tendering authority, the sensitivity of the sector and the subject matter under procurement.
Assessment of Deviations - General Risks
Deviations, and requests for deviation, are likely to be assessed both quantitatively (i.e. a greater number of deviations means more negatives in bid assessment) and qualitatively (i.e. based on the nature of clause under negotiation). There is no fixed criteria for such assessment, which is left to the discretion of the assessing officer/committee (reiterating the need for evaluating deviations and the risks they carry on a case-by-case basis).
On account of the lack of discretion available to the assessing officers, lack of a sophisticated commercial approach to contracting and risk of scrutiny or challenge on the basis of alleged malpractices during contracting, most assessing committees/officers take a blanket “no” approach to any requests for changes, except the most basic ones. Often, this could trigger risks for the bidder based on the stage of procurement and the provision under consideration.
In our experience, deviations may generally carry the following risks:
Assessment of Deviations – Specific Risks
In terms of qualitative assessment of deviations, certain terms are held sacrosanct and any deviation from these is highly likely to be assessed negatively.
As a general rule, deviation from any term that deals with integrity or vigilance issues (such as adherence to the integrity pact, confidentiality, use of agents, qualifications etc.) and applicable law and jurisdiction/dispute resolution are viewed unfavourably and rejected outright.
Provisions pertaining to liability and damages (such as limitation of liability (less quantum and more the structure), indemnity, liability waterfalls, liquidated damages, guarantee structures, earnest money deposit etc.) fall in a grey zone. The tendering authority generally takes the approach that any provision that disturbs the liability structure and flow will be rejected, but may be amenable to certain limited change requests.
The tendering authority may be more amenable to deviation requests in commercial terms such as product/service warranties, warranty fixes, scope change mechanisms, acceptance mechanisms, service levels, liability cap, IP treatment etc.
While we have summarized the general approach taken by the tendering authority, it is not possible to predict the treatment with any sort of certainty and we request you to please treat this as guidance only.
To avoid triggering the risks identified above, it is advisable to:
Take a calculated risk-based position in consultation with your legal advisor and only seek deviations from terms that you assess are highly material risks.
Seek deviations following the prescribed procedure (if any) and in nuanced language.
Be prepared to take a go/no-go decision based on the flexibility (or lack thereof) of the tendering authority to negotiate
In addition, be mindful that third parties may rely on any deviations granted in your favour to claim bias (and potentially even probity violations) by indicating that the bid was quoted or assessed in a way that suits you.