Prequalification

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Prequalification
WORLD BANK
Seminar on Procurement of Goods, Works and
Consultancy Contracts financed from World Bank
Loans and IDA Credits, February 27 - March 3,
2006, Zagreb, Croatia
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Prequalification

• Definition
• Capability assessment of firms to carry out a
  particular contract prior to being invited to
  submit a bid is a process called prequalification

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Prequalification

• SPECIALLY SUITABLE FOR
• Large or complex civil work
• Custom designed equipment
• Industrial plant
• Specialized services
• Complex information technology
• Turnkey,design and build, management contracting

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PQ Why do it?

• ADVANTAGES
• Enhances participation of serious contractors
  (since unqualified bidders are excluded)
• Reduces high cost of bidding
• Gives early warning of competition potential
• Reduces complaints of disqualified bidders
• Gives Peace of Mind to Employers

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Prequalification

• MORE ADVANTAGES
• Borrower able to assess interest of qualified
  firms
• Identifies potential conflict of interest
  (contractors with business association with
  consultants)
• Reduces time in evaluating bids from unqualified
  bidders
• Reduces potential for controversy
• Early Detection of Employers capacity to manage
  procurement

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Prequalification

• DISADVANTAGES
• Increases procurement lead time (minimized by
  undertaking prequalification while preparing
  bidding document)
• Review of all application is mandatory whereas
  post-qualification requires review of only
  winning bid (BUT VERIFICATION OF INFORMATION
  SUBMITTED IS NOT REQUIRED FOR THE PQ EXERCISE)
• Possibility of collusion
• ADVANTAGES OUTWEIGH DISADVANTAGES

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PQ If you meet the Criteria you may
enter in contest!

• Every firm or JV that meets the PQ criteria,
  which is always Pass or Fail, does become
  pre-qualified. Employer can not modify the
  criteria to increase or decrease the number of
  pre-qualified firms during evaluation.
• The worst problems in civil works usually arise
  from contractors lacking knowledge, means, funds,
  equipment or personnel.

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PQ CRITERIA (Slide 1 of 3)

• History of Non-Performing Contracts. The Employer
  must ensure that the prospective Contractor
  doesnt have a history of litigation an
  non-performance.
• Failure to Sign Contract Not being under
  execution of a Bid Securing Declaration.
• Pending Litigation All pending litigation shall
  in total not represent more than insert number
  , insert percentage in words of the
  Applicant's net worth and shall be treated as
  resolved against the Applicant.

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PQ Criteria (Slide 2 of 3)

• Financial Requirements
• Sound position long term profitability.
• Cash Flow (on hand) of about 4 months (to finance
  work unpaid) Straight line calc.
• Annual turn-over for a number of years of no less
  than 2 times annual disbursement of contract.
  (used to be 10 and then 5, 3, and now 2) This
  reduces chance of contractor going broke on your
  job! Borrowers may use 3 which is more
  conservative.

We will see an example of how to calculate these
figures later in this presentation!
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PQ criteria (Slide 3 of 3)

• Construction Experience
• Completed one or 2 Contracts of similar type
  and value (80) during last 5 years.
• Executed similar work of same key items of BOQ in
  similar periods, at a 80 of the rate required.
  Including peak periods if needed.

We will see an example of this later in this
presentation!
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Prequalification ( the new PQ document)

• REVISED PREQUALIFICATION DOCUMENT DESIGNED TO
• Simplify Employers preparation time
• Reduce Applicants preparation time
• Simplify evaluation of applications by Employer
• Minimize Banks review time

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Prequalification PQ Document

• PART I -APPLICATION PROCEDURES
• Section IInstructions to Applicants(ITA)
• Specifies procedures to be followed by the
  Applicants
• No modifications permitted in Section I
• Section II- Application Data Sheet (ADS)
  Provisions specific to given package
• Section III -Qualification Criteria
• Section IV- Application Forms

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Prequalification

• PART 2 WORKS REQUIREMENT
• Section V
• Briefly describes scope of works, time for
  delivery and completion, technical specification
  ,etc.
• EMPLOYER REQUIRED TO FILL ONLY
• SECTION II - Application Data Sheet
• SECTION III- Qualification criteria
• SECTION V - Scope of work
• USERS GUIDE Not a part of prequalification
  document

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Prequalification

• IMPORTANT CLAUSES OF INFORMATION TO APPLICANT
  (ITA)
• Source of Fund
• Corrupt Practices
• Eligible Applicant
• What comprises PQ Document
• Procedure for preparation of application

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Prequalification Important Clauses in ITA
(Information to Applicants)

• Submission of application( deadline,late
  application ,etc.)- Late applications to be
  returned unopened
• Procedure for evaluation of application
  (clarifications,domestic preference, specialist
  subcontractor ,etc..)
• Evaluation and notification

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Prequalification

• QUALIFICATION CRITERIA
• ELIGIBILITY CRITERIA
• No conflict of interest, government owned entity
  restrictions, Nationality,Bank ineligibility, UN
  Resolution,etc. (each partner of Joint Venture to
  meet each eligibility criteria)

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Prequalification

• EXPERIENCE CRITERIA
• (a) General Construction Experience-normally 5
  years or more 3 years under special
  circumstances to allow new entities (Each partner
  of JV must also meet this criteria)
• (b) Specific construction experience similar
  contracts based on physical size,complexity,
  methods/technology, etc. (1 to 3.. normally 2)
  Applicant to have completed or substantially
  completed one or more contracts of a value(not
  less than 80) of the proposed contract over the
  stated period say five years
• key construction activity( earthwork, concrete
  etc)Applicant to demonstrate experience example
  pouring or placement of rock or concrete of 80
  of peak monthly or annual rates expected under
  proposed contract over stated period say 5 years

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Prequalification

• FINANCIAL CRITERIA
• (a) Applicant to establish financial soundness
  and long term profitability for last 5 years
  (exceptionally 3 years) each Joint Venture
  partner must meet this requirement
• (b) Minimum cash-flow for specified amount
• (c) Average Annual Construction Turnover within
  last five years or more (three years
  exceptionally) for not less than twice the
  estimated annual turnover of proposed
  contract(may be reduced to 1.5 for contracts over
  US200 million)for JV each partner must meet a
  percent (say 25) and one partner must meet a
  percent (say 40) of requirement

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Prequalification

• Criteria for historical contract non-performance
  and pending litigation
• Pending litigation not to exceed 50 of
  Applicants net worth( each partner of JV to meet
  this requirement)
• OTHER IMPORTANT ASPECTS
• Employer to set pass/fail criteria
• Joint Venture must satisfy collectively
  specified qualification requirement in full, in
  addition to each partner meeting specified minimum

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Prequalification

• Verification of liquid asset/line of credit,key
  personnel and equipment at time of award
• Multiple Contracts Qualification criteria to be
  indicated for each contract and applicants to be
  qualified for one or more contracts
• Basis for multiple contract awardsconsider
  combination of bids offering lowest evaluated
  cost to Employer for all contracts

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Prequalification

• Will need to Address the Slice and Package size
  of package , preferably to be similar and number
  of slices not to exceed 4 complexity of
  evaluation increases with more numbers
• Conditional Prequalification ( examples,
  provision of additional critical information,
  revision of preliminary JV Agreement, proposal
  for subcontracting specialized elements,
  questionable ability to undertake subject
  contract along with pending contracts)

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Prequalification

• No upper limit on numbers all firms that meet
  criteria must be prequalified
• Notify each disqualified Applicant giving an
  indication for reasons for disqualification
• Invite all qualified Applicants to bid
• Changes in structure or formation of Applicant
  after prequalification requires prior written
  approval of Employer/Bank
• Re-verify critical qualification information at
  time of award

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vs. Postqualification !

• Only for selected bidder
• Criteria (Goods)
• Eligibility
• Experience of supply of similar items over a
  specified period
• Manufacturers authorization to supply
• Production capacity

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Postqualification

• Production capacity
• Technical capability
• Financial resources
• Spare parts and service
• Past performance

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Postqualification

• Criteria (works)
• Eligibility
• Past experience (size/complexity)
• Personnel resources
• Equipment resources
• Financial capacity
• Litigation/arbitration history
• If there was prequalification, confirm that
  bidders status is substantially the same as at
  prequalification