One of the first things a business should always do when they receive a set of tender documents is review the conditions of contract that the Client proposes to use.
It is often disappointing to see that good industry standards are still not more widely used, e.g. NEC professional services contract, etc, even with some amendments or additions. Of particular concern are terms that imply unlimited liability.
Where contract conditions imply unlimited liability, I have heard it argued by lawyers that they are protecting a Client’s interests. However, it seems to me that too often, no thought is given to exactly what this means. Clearly, taken literally, liability cannot be unlimited as no organisation has access to unlimited funds. Indeed, what compensation may be available will inevitably differ from organisation to organisation, which begs the question why do Clients not take this into account when assessing tenders?
Often accounts are provided or credit checks undertaken to try and establish an organisation’s financial standing, but these are seldom used to judge a firm’s worth and almost never used to effect a mark that one firm is worth more than another and so may be a more attractive contracting partner. If a Client is including unlimited liability clauses in a contract, should they not be assessing what this means and marking companies accordingly?
I would suggest that, in any event, it is unlikely in the vast majority of cases, that a Client would be able to realise significantly more than the insurance cover offered, so where is the real benefit and is it really in the Client’s long term interest to send a firm into bankruptcy?
In terms of risk management, the Client has not transferred all the risk, although he/she may think the contrary, and so this approach is potentially flawed anyway.
Of course, there is an argument to say that if you do not like the terms on offer, then you do not have to submit a bid. This is undoubtedly true, but this issue is so widespread, that few have the luxury of realistically having this choice if they want to continue in business.
Anyway, this is not the solution. The solution is for Clients to adopt good practice.