Australia: Incumbent Contractors: Levelling The Playing Field

Last Updated: 7 July 2009
Article by Steven Power

Key Points:
Early identification and management of incumbent contractor issues will make the tender process more effective.

Long-term contracts between government and the private sector for the provision of services or support to government are common. When it comes time to re-tender the service or support function, government may face a number of challenges in conducting an effective tender process due to the existence of the incumbent contractor. The incumbent contractor will already have the personnel, equipment, business processes and know how to perform the new contract. This perceived advantage of the incumbent contractor can result in prospective contractors in the market not tendering for the new contract. We have seen a number of instances where the only tender (or the only tender with the potential to offer value for money) submitted for the new contract is from the incumbent contractor.

This article looks at some of the issues which arise from having an incumbent contractor participate in a tender process in these circumstances and some practical steps which can be taken by government to manage these issues and to level the playing field for bidders.

Adopt An Effective Disclosure And Bidder Engagement Process

The incumbent contractor will typically have an in-depth understanding and working knowledge of the service or support function. Providing bidders with detailed information about the service or support function and the opportunity to ask questions and clarify government's requirements prior to the submission of tenders will help ensure that all bidders have an appropriate understanding of government's requirements. Detailed information about the service or support function (including performance data in relation to the existing contract such as volume or demand levels) can be included in the tender documentation or disclosed through a virtual or physical data room and bidders can be given the opportunity to ask questions throughout the tender preparation phase. Any disclosure of information will need to have regard to any obligations of confidentiality owed to the incumbent contractor and government will need to ensure that it disseminates information in an even-handed manner.

For more complex procurements, an interactive bidder engagement process can also be adopted during the tender preparation phase by conducting a series of one-on-one workshops with bidders on key issues to allow bidders the opportunity to discuss their proposals with government and ask questions. Obviously, probity issues associated with such workshops will need to be managed carefully to ensure that all bidders are treated fairly. This approach may necessitate starting the tender process earlier and giving bidders more time to prepare and submit tenders than would otherwise be the case in order to allow bidders sufficient time to digest the greater volume of information. This approach will also provide bidders with comfort that they are getting access to all relevant information.

Ensure The Existing Contract Contains An Effective Transition-Out Provision

Government should never underestimate the effort and time required to achieve a seamless transition from an incumbent contractor to a new contractor, particularly if there is an end-user customer. When drafting a contract, the focus is typically on what happens under that contract and rarely on what happens on the expiry of that contract or on any transition from that contract to a replacement contract. Contracts often do not contain provisions which effectively deal with the transition from the incumbent contractor to a new contractor on the expiry of the contract. This can make life difficult for government trying to re-tender contracts. Long-term service or support contracts should contain a detailed and enforceable transition-out provision which provides for the contractor to prepare and implement a transition-out plan which meets government's minimum requirements as specified in the contract.

The content of a transition-out plan will vary from contract to contract but will typically deal with the incumbent contractor disclosing information to both government and other bidders, the potential transfer of employees from the incumbent contractor to the new contractor, the potential for a phased transition to the new contractor, data transfer provisions (where applicable) and a general obligation for the incumbent contractor to co-operate with the new contractor. Consideration needs to be given as to how the incumbent contractor will be compensated for implementing the transition-out plan. If the incumbent contractor has not already priced the cost of compliance with the transition-out plan in the contract price or is not otherwise compensated, the level of compliance or co-operation may not be satisfactory - you get what you pay for.

Prior to commencing any tender process, the existing contract will need to be reviewed to determine whether the transition-out provisions are appropriate. If they are not, government may need to negotiate appropriate transition-out arrangements with the incumbent contractor prior to commencing the tender process.

Effectively Manage The Tender Process

Appropriate tender management strategies should be implemented where government anticipates receiving a limited number of tenders due to the existence of an incumbent contractor. Avoid committing to hold an industry briefing in the tender documentation without first being assured that at least two serious bidders will attend. Also, consider how to engage with the preferred bidder in the event that only one tender with the potential to offer value for money is received. If the preferred bidder becomes aware that it is the only effective bidder, it will be extremely difficult for government to negotiate an optimal outcome with that bidder. Resolving key issues with that bidder prior to notifying the bidder that it is the preferred bidder might be one option.

Adopt Strategies To Facilitate A New Contractor Resourcing The Contract

The incumbent contractor will have established a workforce, equipment, business processes and know-how in order to provide the service or support function to government. In respect of some contracts, this may have entailed the incumbent contractor developing resources which are unique to that contract. For example, in order to provide services or support in a remote location, the incumbent contractor may have established a uniquely skilled workforce at that location over a long period of time. It may be difficult for other bidders to demonstrate how they will establish their own workforce at that location in the event they are successful. In such circumstances, consider how government can facilitate a transfer of employees from the incumbent contractor to a new contractor. For example, provisions can be included in the incumbent contractor's transition-out plan to facilitate a transfer of employees by requiring the incumbent contractor to allow the new contractor to meet with prospective employees. Consideration also needs to be given to the application of the Fair Work Act 2009 which commences on 1 July 2009 and the potential implications in relation to a transfer of employees from the incumbent contractor to a new contractor in these circumstances - which warrants a separate paper in itself.

Another example is where unique, high-value assets are required in order to provide the services or the support function. Other bidders will most likely need to acquire these assets if they are successful whereas the incumbent contractor will already have the required assets. Unless there is a liquid market for the assets, the other bidders may seek to recover the full cost of the assets in their tender price, potentially making their tenders uncompetitive. In such circumstances government should consider making the term of the new contract sufficiently long to enable the successful contractor to recover the cost of the assets over the life of the contract, giving the new contractor the flexibility to lease the assets or provide some of the assets as government-furnished equipment.

Ensure That IP Rights Are Sufficiently Broad

Incumbent contractor IP can be a significant sticking point for government. The incumbent contractor often will have brought background IP to the existing contract and developed foreground IP for the purpose of performing that contract. This IP can be critical to the ongoing service or support function and necessary for the new contract. Prior to commencing any tender process, it is important to ensure that government has appropriately broad rights to use critical IP and to sub-license and disclose that IP to any new contractor. If the IP rights are not sufficiently broad, government may need to negotiate appropriate rights with the incumbent contractor prior to commencing the tender process. This can be a difficult process as contractors often vigorously protect their IP.

Early identification of issues which arise from having an incumbent contractor participate in a tender process and the implementation of strategies to manage these issues and to level the playing field for bidders will assist government to conduct an effective tender process. Where these issues are not effectively managed, potential bidders may be reluctant to go to the expense of participating in the tender process, resulting in government receiving a limited number of tenders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.