Tip Sheet 3 – Rules of Engagement

© 2010 Richard Pryor & Associates

Intended Audience – This FAQ is for the assistance of people involved in the procurement or the supply of ICT products and services.

What are rules of engagement?

Rules of engagement specify the obligations of the parties with respect to their dealings with each other during the procurement process.

The rules should be worded to ensure that each party clearly understands permitted and forbidden activities.

Rules can vary from a simple statement limiting the lines of communication between the parties to a detailed listing of probity requirements.

Why and when are rules of engagement required?

Rules of engagement are required in all but the most minor procurements to ensure that there are no misunderstandings about what will or may be considered unacceptable behavior by a party. They also serve as a clear guide for communication between the parties to ensure that any significant issues are always brought to the attention of the key representatives of each party. In some circumstances, audit or probity requirements will require that rules of engagement be in place.

It is usual and preferable for rules of engagement to apply from the commencement of the procurement process. If rules of engagement are not introduced until later in the procurement process (e.g. after a preferred supplier has been selected), then it is possible that problem dealings may have already occurred which the rules of engagement cannot retrospectively remedy.

How are rules of engagement typically documented?

Rules of engagement are most commonly incorporated as a section in the RFP or tender documents. For major procurements, the rules of engagement may be dealt with in a separate document (a letter, agreement or deed) which one or both parties must sign.

In either case, a key issue will be whether the rules of engagement become contractually binding and enforceable. Without benefit for both parties, the rules of engagement may not be enforceable. This benefit is typically referred to by lawyers as “consideration”.

Where both parties mutually agree to comply with the rules, then there should be no issue relating to adequacy of consideration.

However, it is not uncommon for the rules of engagement to be prepared by the customer on terms which only impose obligations on the supplier. If the rules of engagement are entirely one-sided, there needs to be some benefit for the supplier in order for the supplier to be bound and potentially liable. Typically, this is achieved by specifying that the supplier benefits by being permitted to participate in the further steps of the procurement process.

What are typical topics for rules of engagement?

There is considerable variance in the approach taken to the rules of engagement. In some cases, the topics included in rules of engagement would more commonly be dealt with in other sections of the RFP or tender materials (e.g. confidentiality obligations).

Some of the rules of engagement topics identified in the following paragraphs are often dealt with in other sections of the RFP or tender documents:

• Single nominated point of contact – Each party should nominate one person to serve as the sole point of contact for any communications between the parties during the procurement process. Communication with other representatives of a party should be forbidden except to the extent that such communication is specifically approved in writing by the nominated representative of that party.
• Clarifications – If a prospective supplier requests clarification or further information, the rules may stipulate that the customer is permitted to provide the clarification or additional information supplied in response to this request to any other prospective suppliers.
• Change in process – The customer usually specifically reserves the right to cancel, suspend or modify the procurement process at any time.
• No obligation until formal contract executed – The rules usually provide that selection of a preferred supplier confers no rights and that there will be no agreement between the parties regarding the procurement until a formal contract is executed.
• Selection of preferred supplier – The rules often provide that the customer need not select the lowest proposal and that the customer may enter into negotiations with one or more of the potential suppliers in its absolute discretion.
• No warranty of accuracy of customer information – The customer usually excludes any warranties and representations regarding the accuracy or completeness of the customer information made available to the supplier during the procurement process and requires that the supplier confirm all required information through its own enquiries. This can be problematic if the only source of critical information is the customer. In such cases, the supplier will need to qualify its RFP/tender response by reference to the assumptions it has made regarding the accuracy of this information.
• Costs – Each party must bear its own costs associated with participation in the procurement process.
• Confidentiality – The parties sometimes agree that all communications and information exchanged relating to the proposed procurement must be kept confidential.
• Use of proposal/tender contents – The customer sometimes requires the prospective supplier to agree that the customer is free to use and disclose the content of the supplier’s proposal. This is often a point of concern for a supplier, as it allows a customer to cherry pick the good ideas of several prospective suppliers and then disclose those ideas to a preferred supplier.
• Media releases – The parties often agree not to make any media release or respond to any media enquiry relating to the procurement without first agreeing the approach and content with the other party.
• Conduct of negotiations – The rules of engagement may include provisions relating to the conduct of negotiations. These rules may stipulate where negotiation meetings will be held, who may attend the meetings and who will be responsible for production and issue of the agenda and minutes.
• No socialising – The rules may provide that representatives and employees of a party must not engage in social activities with the representatives and employees of the other party. Exceptions may apply for particular kinds of function or for functions which have been approved in writing by the nominated representative of each party.
• No gifts – The rules may prohibit a party from offering gifts, hospitality or benefits to the other party’s representatives or employees.

How should I promulgate rules of engagement?

In the case of the customer, it is essential that the rules of engagement are made known to all personnel directly involved in the procurement and also to more senior management who may have no involvement in the process but who need to know that they should not engage in any discussions with a prospective supplier about the project.

It is not uncommon for senior management of the customer and the supplier to mix in other business or social contexts and there have been several major procurements which have taken an unexpected and ultimately unsatisfactory direction as a result of discussions between senior executives in other forums. Senior management should be encouraged not to participate in any discussion and should be asked to immediately notify the customer’s nominated contact person if they receive any communication from a prospective supplier.

Suppliers are usually more familiar with the management of rules of engagement but should also ensure that all personnel involved in the procurement are made aware of the rules of engagement.

A particular risk exists that the supplier’s technical personnel will be tempted to make direct contact with the customer’s technical counterpart to discuss an issue. Sometimes this is the most logical way for an issue to be addressed, but direct communication should not occur unless it has been approved by the nominated representatives of both the supplier and customer. Any such communication should be limited to the specific technical issues which require discussion.

© 2009 Richard Pryor & Associates – The content of this FAQ is subject to copyright and may not be translated, adapted, reproduced, broadcast or transmitted in whole or part without the express written permission of the author.

Important disclaimer – This FAQ provides general comment. It does not constitute advice on any matter. No reader should act on the basis of any content without obtaining and considering professional advice upon their own circumstances. Richard Pryor & Associates and its officers and agents hereby disclaim any liability to any person with respect to the consequences of anything done or omitted to be done in reliance upon any of the content.

For further advice on ICT procurement and supply negotiations, contact Richard Pryor – richard@pryor.com.au