Quite often some projects are commercially agreed without proper contract review. Some other times, the main technical feature of the project is not in line with the technical capabilities of the contractor. Even worse, both situations can happen simultaneously.
Obviously, there is a first time for everything and a contractor has the right, even the obligation, to learn, to acquire new capabilities and to expand into new territories. But that is not what we are talking about. The issue we discuss here is the huge responsibility in the hands of the commercial area.
There is a first time for everything and a contractor has the right, even the obligation, to learn, to acquire new capabilities and expand into new territories.
The thing is, due to its enormous impact in the company, the commercial area needs to be closely supervised by the senior management. The chief commercial officer (CCO) needs to have full knowledge of the company capabilities, its intended markets and its commercial and contract policies. This includes some idea about the contracting capacity and how and when the commercial area is required to get authorization before issuing a proposal.
The commercial area is the first line in charge of the company strategy. This area researches the market and should identify appropriate opportunities, either in line with the current contractor's capacities or with the capacities planned to be acquired, in the intended markets and within the company's contracting capacity.
Senior management guidelines should be issued detailing target markets, type of work intended to perform, range of contract amounts able to be handled by the company and even type of client. It can be really different to deal with a private mining company, in comparison with a public agency or with an international multilateral entity.
Criteria to ask for previous approval before committing company's resources to prepare a proposal should also be understood, as well as the proposal's review and approval process and the features that can cause to "red flag" a bid.
Client's contractual provisions included in the bid information package could usually be the reason for red flags. It is therefore necessary for the commercial representative in charge of the opportunity to familiarize himself or herself with the contract draft and include some comments before (hopefully!) sending it to the legal area for review.
Some of the client's instructions or expectations included in the technical information package, such as an extremely short delivery time or special technical requirements, can also be reasons for red flags. However, those features could hardly be detected by the commercial area, so it should be a duty of the technical area in charge of the proposal to detect such situations and report them to the commercial area for an integrated assessment.
Regular commercial presentations to the senior management should be held to summarize current commercial opportunities, its status and red flags and discuss if some of those opportunities should be abandoned or there will be a conscious and integrated effort by the company to acquire the capabilities and resources needed, and secure the financial means to pursue any challenging opportunity. Whatever the decision, the risk must be properly assessed and the approval of senior management formally issued.
Finally, the commercial area and the CCO should be held accountable for their work and for the consequences of failing to analyze, assess and obtain approval for red-flagged opportunities or the lack in the detection of risks due to not following an existing proper procedure.
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