The importance of Heads of terms
Welcome to the second blog in our new series on contract management. Today, we’ll tell you all about the Heads of terms: an instrument you can use to keep track of what exactly bidders have committed to, so you can ensure they deliver on their promises.
The period of preparing a bid is a stressful and labor-intensive one, which can result in documents of more than a thousand pages. Because the project is so hefty and the time frame is confined, bid management is inevitably teamwork: content is delivered by a team of writers and consultants. The process itself can be shaped like a hockey stick – where the various strands in the bid come together at the end, and final decisions are made in rapid succession.
Once complete, bid documents are filled to the brim with promises, all intended to seduce you – their much-desired client. But because of the nature of the writing process, it can easily happen that an overzealous writer makes commitments that are not reflected in the financial model or the implementation planning. They might even hope to be rewarded for fluffy language and promises which, when push comes to shove, they cannot really be pinned down on.
For that reason, keeping a close eye on the commitments of your bidders and ensuring they will be delivered is anything but trivial. We propose the following five steps for governments who want to keep a better handle on their contracts.
Step 1: Demand a Heads of Terms
A Head of terms is a structured list of commitments that a bidder has made for the contract. This is the bid text boiled down to its essence: without woolly self-celebration, reasons why methods to. What remains is the bare bones: the promises made in writing. A Heads of terms structures your bidders’ commitments in a clear way, linked to the evaluation criteria. This makes it easier to compare and contrast the commitments that bidders make.
Step 2. Check the Heads of terms against the bid text
The next step is to check the Heads of terms against the bid text. Are there any textual elements that suggest real commitments on the bidder’s part, but which do not return in the Heads of terms? Have any points (in the evaluation model) been allocated to such parts of the bid text? A close check will help you differentiate between what is merely enthusiastic writing and what is promised – and enforceable – on paper.
Step 3. Check the Heads of terms against the bid text
Third, you can use the Heads of terms as a check of the bid’s integrity. For any commitment in the Heads of terms, you will want to consider whether you would expect to see it in a risk overview, Gantt or calendar planning, and/or the budget specifications. Of course, not all commitments will be relevant in each of these regards – some commitments are risk-free, others cost basically nothing, and others again can be implemented in the blink of an eye. However, for the more significant items it is worth your while checking if these are present and, importantly, realistic. This gives you an idea how much thought went into these particular aspects of the bid.
Step 4. Check the Heads of terms against the requirements
Finally, you can use the Heads of terms as a check whether every requirement has been covered. As we mentioned in our last blog, there tends to be a number of requirements that requires explicit action on the bidder’s part. By checking whether each of these requirements is covered by one of the commitments in the Heads of terms, you can double-check whether your bidder has fully taken your demands into account.
Step 5. Implement a monitoring process during the contract period
As a contract manager, you’ll want to have access to the most recent state of affairs in the concession at any time. Which commitments and requirements have we fulfilled? Which remain open to be addressed? Ensure that the operator submits regular reports, so that it is clear at any time which commitments require attention. This also enables you to negotiate with your operator more effectively: after all, you are only demanding what has been explicitly promised to you.