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

2 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

3 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

4 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

5 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 Employer’s capacity to manage procurement

6 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

7 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.

8 PQ CRITERIA (Slide 1 of 3) History of Non-Performing Contracts. The Employer must ensure that the prospective Contractor doesn ’ t 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.

9 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!

10 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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12 Prequalification (& the new PQ document) REVISED PREQUALIFICATION DOCUMENT DESIGNED TO Simplify Employer’s preparation time Reduce Applicant’s preparation time Simplify evaluation of applications by Employer Minimize Bank’s review time

13 Prequalification – PQ Document PART I -APPLICATION PROCEDURES Section I:Instructions 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

14 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 USER’S GUIDE – Not a part of prequalification document

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

16 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

17 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)

18 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

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

20 Prequalification Criteria for historical contract non-performance and pending litigation Pending litigation not to exceed 50% of Applicant’s 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

21 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 awards:consider combination of bids offering lowest evaluated cost to Employer for all contracts

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28 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)

29 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

30 vs. Postqualification ! Only for selected bidder Criteria (Goods) Eligibility Experience of supply of similar items over a specified period Manufacturer’s authorization to supply Production capacity

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

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