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

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

PrequalificationSPECIALLY SUITABLE FORLarge or complex civil workCustom designed equipmentIndustrial plantSpecialized servicesComplex information technologyTurnkey,design and build, management contracting

PQ Why do it?ADVANTAGESEnhances participation of serious contractors (since unqualified bidders are excluded)Reduces high cost of biddingGives early warning of competition potentialReduces complaints of disqualified biddersGives Peace of Mind to Employers

Prequalification MORE ADVANTAGESBorrower able to assess interest of qualified firmsIdentifies potential conflict of interest (contractors with business association with consultants)Reduces time in evaluating bids from unqualified biddersReduces potential for controversyEarly Detection of Employers capacity to manage procurement

PrequalificationDISADVANTAGESIncreases 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 collusionADVANTAGES OUTWEIGH DISADVANTAGES

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.

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.

PQ Criteria (Slide 2 of 3)Financial RequirementsSound 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!

PQ criteria (Slide 3 of 3)Construction ExperienceCompleted 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!

Prequalification (& the new PQ document)REVISED PREQUALIFICATION DOCUMENT DESIGNED TOSimplify Employers preparation timeReduce Applicants preparation timeSimplify evaluation of applications by EmployerMinimize Banks review time

Prequalification PQ DocumentPART I -APPLICATION PROCEDURESSection I:Instructions to Applicants(ITA)Specifies procedures to be followed by the ApplicantsNo modifications permitted in Section ISection II- Application Data Sheet (ADS) Provisions specific to given packageSection III -Qualification CriteriaSection IV- Application Forms

PrequalificationPART 2: WORKS REQUIREMENTSection VBriefly describes scope of works, time for delivery and completion, technical specification ,etc.EMPLOYER REQUIRED TO FILL ONLYSECTION II - Application Data SheetSECTION III- Qualification criteriaSECTION V - Scope of workUSERS GUIDE Not a part of prequalification document

PrequalificationIMPORTANT CLAUSES OF INFORMATION TO APPLICANT (ITA)Source of FundCorrupt PracticesEligible ApplicantWhat comprises PQ DocumentProcedure for preparation of application

Prequalification Important Clauses in ITA (Information to Applicants)Submission of application( deadline,late application ,etc.)- Late applications to be returned unopenedProcedure for evaluation of application (clarifications,domestic preference, specialist subcontractor ,etc..)Evaluation and notification

PrequalificationQUALIFICATION CRITERIAELIGIBILITY CRITERIANo conflict of interest, government owned entity restrictions, Nationality,Bank ineligibility, UN Resolution,etc. (each partner of Joint Venture to meet each eligibility criteria)

PrequalificationEXPERIENCE 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 yearskey 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

PrequalificationFINANCIAL 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 US$200 million);for JV each partner must meet a percent (say 25%) and one partner must meet a percent (say 40%) of requirement

PrequalificationCriteria for historical contract non-performance and pending litigationPending litigation not to exceed 50% of Applicants net worth( each partner of JV to meet this requirement)OTHER IMPORTANT ASPECTSEmployer to set pass/fail criteriaJoint Venture must satisfy collectively specified qualification requirement in full, in addition to each partner meeting specified minimum

PrequalificationVerification of liquid asset/line of credit,key personnel and equipment at time of awardMultiple Contracts: Qualification criteria to be indicated for each contract and applicants to be qualified for one or more contractsBasis for multiple contract awards:consider combination of bids offering lowest evaluated cost to Employer for all contracts

PrequalificationWill 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 numbersConditional 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)

PrequalificationNo upper limit on numbers: all firms that meet criteria must be prequalifiedNotify each disqualified Applicant giving an indication for reasons for disqualificationInvite all qualified Applicants to bidChanges in structure or formation of Applicant after prequalification : requires prior written approval of Employer/BankRe-verify critical qualification information at time of award

vs. Postqualification !Only for selected bidderCriteria (Goods)EligibilityExperience of supply of similar items over a specified periodManufacturers authorization to supplyProduction capacity

PostqualificationProduction capacityTechnical capabilityFinancial resourcesSpare parts and servicePast performance

PostqualificationCriteria (works)EligibilityPast experience (size/complexity)Personnel resourcesEquipment resourcesFinancial capacityLitigation/arbitration historyIf there was prequalification, confirm that bidders status is substantially the same as at prequalification