Higher appeal costs in public tenders. Are companies financially ready for larger public contracts?

Participating in public procurement can be a major growth opportunity for a company. A larger contract, a stable contracting authority and a predictable scope of work often look like a natural step toward growth. In practice, however, a public tender requires more than a strong offer and a competitive price.

The company needs to be financially prepared before it signs the contract.

This topic returned with the announced changes to Poland’s Public Procurement Law. As Business Insider reported, the cost of appealing a tender decision in the largest investments may increase from the current PLN 20,000 to as much as PLN 150,000. The changes are intended to limit abuse and relieve pressure on the appeal system, but for companies they also mean one thing: participating in larger proceedings may require a larger cash buffer.

It is not only about the appeal itself. This is just one cost that shows the broader picture well. Public procurement is becoming increasingly demanding organizationally, formally and financially. For many companies, the barrier is not a lack of competence, but a lack of funds that would allow them to safely go through the entire process: from preparing the offer, through securities and possible disputes, to contract delivery.

A public tender costs money before the company starts earning

In a large public contract, costs appear much earlier than revenue. The company needs to involve people in analyzing documentation, prepare the offer, collect required certificates, calculate risks and sometimes use legal, technical or cost-estimation support.

There may also be costs of a bid bond, performance bond, guarantees, insurance, technical documentation or formal handling. If a dispute arises over the outcome of the procedure, another cost may be an appeal to the National Appeal Chamber.

From the company’s perspective, this matters because funds are engaged before the contract begins to generate revenue. Even a winning tender does not mean immediate cash. First, the company needs to sign the contract, prepare resources, start delivery and incur initial costs. Payments usually arrive later, according to the schedule or after specific stages have been completed.

Higher appeal costs make the financial decision more important

An appeal in a tender is not an everyday operational decision. A company files it when it believes that the outcome of the procedure or the contracting authority’s action requires verification. Until now, the cost of such a decision has also mattered, but in the largest investments the planned increase may make the entry threshold much higher.

For large entities, PLN 150,000 may be part of risk calculation. For smaller and medium-sized companies, such an amount can already have a real impact on liquidity. Especially if the company is simultaneously financing current operations, wages, suppliers, other contracts or preparation for delivering the order.

This does not mean that every company should use appeals. It means rather that every company participating in larger proceedings should know in advance whether it has funds for scenarios other than the ideal one.

Because in public tenders, financial risk does not begin only after the contract is signed. It begins as soon as the company decides to compete for a larger contract.

A larger public contract may increase pressure on liquidity

For SMEs, a public contract can be a chance to move to a higher level of activity. The problem is that a larger contract often requires a greater commitment of working capital.

A company may need funds to purchase materials, prepare facilities, pay subcontractors, cover transport, logistics, people or equipment. If the contract is divided into stages, payments may appear only after specific parts of the work are completed. If the contracting authority provides for longer settlement terms, the company finances delivery from its own funds for a certain period.

In this scenario, the greatest risk is not the lack of revenue itself. The risk is the time gap between costs and inflows.

On paper, the contract may look very good. It has value, a schedule and a contracting authority. In practice, the company needs to answer a simple question: do we have enough cash to calmly move from the decision to enter the tender to the first real inflows?

Winning the tender is not enough

A common mistake is treating a winning tender as a solution to a financial problem. Meanwhile, a signed contract does not always mean an immediate improvement in liquidity. Sometimes it is the opposite - during the first weeks or months, it may increase pressure on cash.

A company that wins a larger order must be ready to quickly launch resources. If it does not have a buffer, it starts financing delivery at the expense of other payments. It may delay liabilities to suppliers, move other projects or limit operational flexibility.

That is why, before entering a larger procedure, it is worth checking not only whether the company meets formal and technical requirements. It is also necessary to assess whether it has the financial capacity to handle the contract.

In practice, this means asking several questions: how much money needs to be engaged before the first payment, how long the company will wait for inflows, what liabilities will fall due at the same time and whether a possible delay could disrupt the whole business.

How to prepare a company financially for a larger tender?

The first step is to calculate the cost of participating in the procedure. This is not only the price of preparing the offer, but also the team’s time, the cost of documents, advisors, securities, the bid bond and a possible appeal.

The second step is to calculate the cost of delivery. The company should know what expenses will appear before the first payment from the contracting authority. The costs of materials, labour, subcontractors, transport and equipment are particularly important.

The third step is to analyze the payment schedule. A contract in which an advance payment or stage payment appears quickly looks different from one in which most funds reach the company only after a larger part of the work has been completed.

The fourth step is to assess the buffer. The company should know whether, in the event of a delay, dispute or additional cost, it will still be able to settle current liabilities.

Only then is it worth answering the question of whether the company will finance the project from its own funds or whether it needs additional capital.

When can financing help?

Financing does not have to be a reaction only when the company has won the tender and starts running out of funds. In many cases, it is better to treat it as part of preparation for a larger contract.

If the company knows that delivering the order will require earlier purchase of materials, payment to subcontractors or securing project costs, it may consider contract financing. This type of solution helps close the gap between delivery costs and the later inflow from the contracting authority.

If the company plans growth, equipment purchase or scaling its operations, a growth loan may be useful. In larger projects, where a higher amount is needed and the company can offer collateral, a business loan secured by real estate may also be an option.

The most important thing, however, is matching financing to the purpose. A company that wants to finance a specific contract needs a different solution than a company building a larger growth buffer. A business that needs capital secured by a larger investment may need something different again.

A public tender is an opportunity, but also a liquidity test

Changes in appeal costs show a broader trend: participation in large public procurement requires increasing organizational and financial maturity. Knowing the market and having a strong offer is not enough. The company also needs to be able to calculate risk, secure costs and prepare for scenarios in which money leaves the business earlier than inflows arrive.

For SMEs, this is particularly important. A larger public contract can be a growth opportunity, but if the company does not prepare liquidity, the same opportunity can quickly become a source of pressure.

That is why, before entering a large procedure, it is worth looking at a tender not only as a sales opportunity, but also as a financial project. With costs, schedule, risk and the need for capital at every stage.

Want to prepare your company for a larger contract?

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