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Prequalification: User's Guide

Introduction

The Standard Prequalification Document for Procurement of Works (SPD) and User’s Guide have been designed to: (i) simplify the Employer’s preparation of a specific Prequalification Document (PQD) for Procurement of Works;  (ii) reduce the Applicants’ preparation time and effort; and (iii) facilitate and simplify the Employer’s evaluation of applications; and (iv) minimize the Bank’s time required for the prior review of the PQD.  Another important feature of this document is that it can be used with minimum changes, as it does not contain explanations, footnotes or examples that should not form part of the PQD.

The purpose of the Users’ Guide (the Guide) is to provide guidance to Employers on how to prepare prequalification documents for works based on the standard procurement document. The Guide includes an initial section on how to prepare the Invitation for Prequalification (IFP).  The provisions in Section I, Instructions to Applicants (ITA) of the SPD must be used without any modification to its text or format. Any data and provisions that this section requires for a specific prequalification shall be included in Section II, Application Data Sheet.

The remaining sections of the SPD, which are also explained in the Guide are: Section III, Qualification Criteria; Section IV, Application Forms; and Section V, Scope of Works.

At the end of each section of the Guide, “Guidance Notes for  Users,” explain the rationale for certain clauses of the SPD, and provide guidance to executing agencies and their consultants in preparing a particular prequalification questionnaire and evaluating the submissions of applicants.  The last section of this Guide provides more guidance on the evaluation of applications.

Procurement under projects financed by the International Bank for Reconstruction and Development and the International Development Association (hereinafter interchangeably called “the Bank”) is carried out in accordance with policies and procedures laid down in the Bank’s Guidelines: Procurement under IBRD Loans and IDA Credits, hereinafter referred to as the “Guidelines.”

The Standard Prequalification Document in this publication has been prepared for use by the Bank’s Borrowers and their implementing agencies in the procurement of works primarily through International Competitive Bidding (ICB), but the principles may also be applied if prequalification is needed under National Competitive Bidding (NCB).  The procedures presented are based on good international practice, and are in compliance with the Bank’s Guidelines.

When ICB is the appropriate method for procurement, the use of the Bank’s Standard Bidding Documents (SBDs) is mandatory.  For large Works (customarily regarded as more than US$10 million equivalent) or complex Works, prequalification is usually necessary, and would be mandated in the Loan/Credit Agreement.  Accordingly, the Bank’s SBD for the Procurement of Works has been prepared on the basis that prequalification, in accordance with this document, will have taken place prior to bidding.  The Bank has also issued an SBD for smaller contracts (normally less than US$10 million and/or simple Works), for which prequalification is optional; if, however, prequalification is required, it should be carried out in accordance with this document.


Contents

Acronyms & Abbreviations
Glossary
Why Prequalification?
The Prequalification Process
Invitation for Prequalification

Section I. Instructions to Applicants
Section II. Application Data Sheet
Section III. Qualification Criteria
Section IV.  Application Forms
Section V.  Scope of Works
Evaluation of Applications 


Acronyms & Abbreviations

ADS

Application Data Sheet

FIDIC

Federation Internationale des Ingénieurs-Conseils; an association based in Switzerland that produces General Conditions of Contract for different classes of works construction.

ICB

International Competitive Bidding

IFB

Invitation for Bids

IFP

Invitation for Prequalification

ITA

Instructions to Applicants, in the SPD

JV

Joint Venture

NCB

National Competitive Bidding

PQ

Prequalification

PQD

Prequalification Document

SBD

Standard Bidding Document

SPD

Standard Prequalification Document

 

Glossary

Employer

One of the two parties to a works contract, the other party being the “Contractor.”

Contractor

The legal entity that is party to and performs a works contract, the other party to the contract being the “Employer.”

joint venture

An ad hoc association of firms that pool their resources and skills to undertake a large or complex contract in the role of “Contractor,” with all firms (partners in the JV) being legally liable, jointly and severally, for the execution of the contract in the event of a partner’s withdrawal.

management contractor

A firm, acting in the role of “Contractor,” that does not normally usually perform contract construction work directly, but manages the work of other (sub) contractors, while bearing full responsibility and risk for price, quality, and timely performance of the work contract.

construction manager

A consultant, acting as agent of the Borrower/Employer, engaged to coordinate and monitor the timing of preparation, bidding award, and execution of a number of different contracts comprising a project, but does not take on the responsibility for price, quality, or performance of those contracts.

nominated subcontractor

A specialist enterprise selected and approved by the Employer to provide a prespecified item in the Bill of Quantities and nominated as subcontractor to the main Contractor for such purpose.

postqualification

An assessment made by the Employer after the evaluation of bids and immediately prior to award of contract, to ensure that the lowest-evaluated, responsive, eligible bidder is qualified to perform the contract in accordance with previously specified prequalification requirements.

prequalification

An assessment made by the Employer before inviting bids, of the appropriate level of experience and capacity of firms expressing interest in undertaking a particular contract, before inviting them to bid.

prime contractor

A firm that performs a substantial part of a contract construction work itself and the balance, if any, by subcontractors, while bearing full responsibility for the whole contract.

provisional sum

A sum included provisionally in the Bill of Quantities of a contract, normally for a specialized part of the Works or for contingencies, which sum shall be used only on the instructions of the Employer/Engineer for payments to the contractor and/or to nominated subcontractors.

slice and package

A procedure whereby a large homogeneous project is sliced into smaller similar contracts, which are bid simultaneously so as to attract the interest of both small and large firms; firms offer bids on individual contracts (slices) or on a group of similar contracts (packages), and award is made to the combination of bids offering the lowest cost to the Employer. Slices comprising a number of similar construction units together in a small area are sometimes referred to as “lots,” which are bid concurrently with other similar “lots” as part of the larger “package.”

turnover

The gross earnings of a firm (in this context, a construction contractor), defined as the billings for contract work in progress and/or completed, normally expressed on an annual basis, and excluding income from other sources.

Works

The total work involvement in a construction contract, including the “Permanent” Works or finished product as specified, and the “Temporary” Works required in by the Contractor for the execution and completion of the contract.

writing

For the purpose of this document, any authenticated handwritten, typed, or printed communication, including telex, cable, electronic mail, and facsimile transmission, with proof of receipt when, and in the form, requested by the sender.


 


Why Prequalification?

Introduction

1. The successful execution of contracts for large buildings, civil engineering, supply and installation, turnkey, and design and build projects requires that contracts are awarded only to firms, or combinations of firms, that are suitably experienced in the type of work and construction technology involved, that are financially and managerially sound, and that can provide all the equipment required in a timely manner.  The assessment by an implementing agency of the suitability of firms to carry out a particular contract prior to being invited to submit a bid is a process called prequalification.

The Requirement for Prequalification of Bidders

2. Most multilateral financing institutions require the prequalification of firms for the construction of large or complex Works contracts, followed by a closed competitive bidding procedure in which only those firms meeting specified prequalification criteria are invited to submit a bid.  The Procurement Guidelines applicable to contracts financed by the World Bank state the requirements for prequalification in paras. 2.9 and 2.10.  It is Bank policy that all applicants meeting the specified criteria shall be allowed to bid. Therefore, prequalification should not be used for limiting competition to a predetermined number of potential bidders.

3. The decision whether to carry out prequalification is a matter of professional judgment based upon a number of considerations about the contract itself, and about the actual process of prequalification.  Contract considerations include size, complexity, limitations on completion time, the critical nature of the works, environmental impact, associated risks, etc.  Considerations regarding the process of prequalification should weigh the potential benefits against the potential disadvantages, which are topics discussed in paras. 4 and 5 below.

Benefits of Prequalification

4. The prequalification process may be of benefit to both bidders and Borrowers[1] alike, in that:

(a) the process enables prospective bidders, who may be insufficiently qualified on their own, to avoid the expense of bidding, or to form a joint venture that may give a better chance of success;

(b)  after with prequalification, well-qualified firms will price their bids with the knowledge that they are competing with against other qualified bidders meeting realistic minimum competence criteria; the assurance that inadequately qualified competitors will be excluded from submitting unrealistically low bids thus encourages leading contractors to bid;

(c)  prequalification enables Borrowers to assess the interest from qualified firms generated by the contract and, in the event that only a limited number of applications are received, to make any necessary adjustments in the procurement process (including, in particular, the special conditions of contract—sharing of risk, payment terms, liquidated damages, or completion times, which may be perceived as onerous by potential bidders);

(d)  it helps to expose potential conflicts of interest by identifying contractors who may have a business association with consultants to the project;

(e) it reduces the amount of work and time involved by Employers in evaluating bids from unqualified contractors;

(f) it encourages local firms to form joint ventures with other local or international firms, thereby benefiting from their resources and experience;

(g) it enables the Employer to assess the likelihood of contractors’ eligibility for domestic bidder price preference in borrowing countries where this is applicable; and

(h) it reduces significantly, if not eliminates, problems of rejection associated with low-priced bids submitted by bidders of doubtful capability; and.

(i) it gives the Bank some indication of an Employer’s ability to manage an important, early procurement function.

Disadvantages of Prequalification

5. On the negative side, prequalification has some potential disadvantages:

(a)  it may increase procurement lead time, although this can be minimized by good procurement scheduling, e.g., undertaking the prequalification process while bid documents are being prepared;

(b) the Borrower is required to review all prequalification applications, whereas postqualification requires the review of the qualifications of, normally, only one (the lowest evaluated) bidder;

(c)  collusion (and the possibility of price-rigging) is easier among a limited number of identified bidders, particularly if they are of the same nationality;

(d)  the element of subjective judgment required by evaluators when applying the prequalification criteria to a number of Applicants, and the discretionary rights reserved to the Employer, provide opportunities for externally influenced deviations from the expected high standards of ethics and impartiality in prequalifying applicants.

6. The Bank, from its own experience, believes that on balance the benefits of prequalification under transparent conditions for large Works contracts outweigh by a considerable margin the potential disadvantages, for both Borrowers and the construction community alike.



 

The Prequalification Process

The prequalification process includes four main phases: (i) Advertising, (ii) Preparation and Issuing of the Prequalification Documents, (iii) Application Preparation and Submission, (iv) Applications Evaluation, and Prequalification of Applicants.

Advertising

The Employer must announce an upcoming prequalification process in the international media (the United Nations publication “Development Business”) and in the national media, giving enough time for potential Applicants to respond with well-prepared applications.

Preparation and Issuing of the Prequalification Document

The Employer and the Applicant should keep in mind that:

  • The Employer is responsible for the preparation and issuing of the Prequalification Document (PQD).
  • The Employer shall use the Standard Prequalification Document for Procurement of Works (SPD) issued by the Bank, as this is mandatory for contracts to be financed by the Bank.
  • The Employer shall prepare the PQD using the published version of the SPD without suppressing or adding text in Section I, Instructions to Applicants (ITA), which does not allow modifications.  All information and data specific to each individual prequalification process must be provided by the Employer in the following sections of the PQD:
  • Section II, Application Data Sheet
  • Section III, Qualification Criteria
  • Section IV, Application Forms
  • Section V, Scope of Works
  • The Employer shall allow Applicants sufficient time for studying the prequalification documents, preparing complete and responsive applications, and submitting the applications.

Application Preparation and Submission

The Applicant is responsible for the preparation and submission of its application.  During this stage, the Employer shall:

  • Promptly respond to requests for clarifications from Applicants and amend, as needed, the PQD
  • Amend the PQD only with the Bank’s “no objection” in contracts subject to the Bank’s prior review. 

Application Evaluation and Prequalification

The Employer is responsible for the evaluation of applications and the prequalification of applicants. To that effect, the Employer shall appoint experienced staff to conduct the evaluation of applications.  Mistakes committed at the application evaluation stage may later prompt complaints from Applicants, hence requiring reevaluation of the applications, with the consequent delays and waste of time and resources.

The Employer, in observance of best practices shall:

  • Maintain the application evaluation process confidential;
  • Reject any attempts or pressures to distort the outcome of the evaluation, including fraud and corruption;
  • Comply with the prior-review requirements of the Bank; and
  • Strictly apply the qualification criteria specified in the Prequalification Document Section III, Qualification Criteria.


Invitation for Prequalification

Notification and advertising of the Invitation for Prequalification (IFP) shall be conducted in accordance with Sub-Clauses 2.7 through 2.10 of the Procurement Guidelines.  The IFP shall follow the Sample Format indicated hereafter, and shall be issued as

(a) an advertisement in at least one newspaper of general circulation in the Borrower’s country and in the official gazette, if any;

(b)  an advertisement in the form of a Specific Procurement Notice in U.N. Development Business if the expected cost of the Works is large, say more than US$10 million equivalent, or when prequalification is required in the Loan/Credit Agreement;

(c) for complex and highly specialized projects, an advertisement in Development Business and/or in well-known technical magazines, newspapers, and trade publications of wide international circulation;

(d) a transmission to all interested bidders who, following the publication of the General Procurement Notice (GPN), have expressed interest in prequalifying for the Works for which the Invitation is issued;

(e) a notice on Development Gateway […..] and

(f) optionally, a notice to embassies and trade representatives of countries in the Borrower’s country, of countries with likely potential bidders.

The IFP provides information that enables potential bidders to decide whether to participate.  Apart from the essential items listed in the Standard Prequalification Document, the IFP shall also indicate any important or specialized prequalification criteria or minimum requirements.

Upon completion of an IFP for publication in Development Business, the implementing agency should forward it to the appropriate World Bank staff (the Task Team Leader or Procurement Specialist) for review and subsequent submission to Development Business for publication.  Development Business is published in paper form twice monthly, and is continuously updated on its Internet Web site at http://www.devbusiness.com.


Sample Format

Specific Procurement Notice

Invitation for Prequalification

[Insert: name of Country]

[Insert: name of Project]

Brief Description of Works

[Insert: Loan/Credit No.]

This invitation for prequalification follows the general procurement notice for this project that appeared in Development Business No. [insert number] of [insert date].[i]

The [insert name of borrower] [has received/has applied for/intends to apply for] a [loan/credit] from the [International Bank for Reconstruction and Development (IBRD)/International Development Association (IDA)] toward the cost of the [insert name of project], and it intends to apply part of the proceeds of this [loan/credit] to payments under the contract for [insert name/no. of contract--if prequalification is being invited for more than one contract, describe each contract and indicate whether applications may be made for prequalification for one or more of the contracts].[ii] The [insert name of implementing agency] intends to prequalify contractors and/or firms for [insert description of Works or goods to be procured].[iii] It is expected that invitations to bid will be made in [insert month and year].[iv]

Prequalification will be conducted through prequalification procedures specified in the World Bank’s Guidelines: Procurement under IBRD Loans and IDA Credits, January 1995 (revised January and August 1996 and September 1997), and is open to all bidders from eligible source countries, as defined in the guidelines.[v]

Interested eligible applicants may obtain further information from and inspect the prequalification document at the [insert name of agency] (address below) [state address at end of document] from [insert office hours].[vi] A complete set of the prequalification document in [insert name of language] may be purchased by interested applicants on the submission of a written application to the address below and upon payment of a nonrefundable fee[vii] of [insert amount in local currency] or in [insert amount in specified convertible currency]. The method of payment will be [insert method of payment].[viii] The document will be sent by [insert delivery procedure].[ix]

Applications for prequalification should be submitted in sealed envelopes, delivered to the address below[x] by [insert date],[xi] and be clearly marked “Application to Prequalify for [insert name of project and the contract name(s) and number(s)].”

[Insert name of office]

[Insert name of officer]

[Insert postal address] and/or [Insert street address]

[Insert telephone number, indicate country and city code]

[Insert facsimile or cable number]

[Insert Email address]

 

Notes for preparation

[i]       Day, month, year; for example 31 January 2002

[ii]       [Insert the following if applicable]. This contract will be jointly financed by [insert name of cofinancing agency]. Bidding will be governed by the World Bank’s eligibility rules and procedures.

[iii]      A brief description of the works or goods should be provided, including quantities, location of project, and other information necessary to enable potential bidders to decide whether or not to respond to the invitation. Bidding documents may require bidders to have specialized experience or capabilities; such requirements should also be included in this paragraph.

[iv]      Insert this sentence if applicable.

[v]       Occasionally, contracts may be financed out of special funds that would further restrict eligibility to a particular group of member countries. When this is the case, it should be mentioned in this paragraph. Also indicate any margin of preference that may be granted as specified in the loan or credit agreement and set forth in the bidding documents.

[vi]      For example, 0900 to 1200 hours.

[vii]     The fee, to defray printing and mailing/shipping costs, should be nominal.

[viii]     For example, cashier’s check, direct deposit to specified account, etc.

[ix]      The delivery procedure is usually airmail for overseas delivery and surface mail or courier for local delivery. If urgency dictates, courier services may be required for overseas delivery.

[x]       The office for bid opening may not necessarily be the same as that for inspection or issuance of documents or for bid submission.  If they differ, each address must appear at the end of the notice and be numbered; as, for example, (1), (2), (3).   The text in the paragraph would then refer to address (1), (2), etc. Only one office and its address may be specified for submission, and it should be near the place where bids will be opened.

[xi]      The time allowed for preparation of the prequalification submission should be sufficient for applicants to gather all the information required, but in any case not less than six weeks after the date the documents are available or the last date of the advertisement, whichever is later. This period may be longer for very large projects, for which more time may be needed for the formation of joint ventures and assembly of the necessary resources.



 Section I.   Instructions to Applicants

The Instructions to Applicants (ITA) specify the procedures that regulate the prequalification process. The ITA contains standard provisions that have been designed to remain unchanged and to be used without modifying their text.  The ITA clearly identifies the provisions that may normally need to be specified for a particular prequalification process and require that such specification be introduced through the ADS.


Section II. Application Data Sheet

 

The Application Data Sheet (ADS) contains information and provisions that are specific to a particular prequalification process. The Employer must specify in the ADS only the information that the ITA requests be specified in the ADS. All information shall be provided; no clause shall be left blank.

To facilitate the preparation of the ADS, its clauses are numbered with the same numbers as the corresponding ITA clause.  This Guide provides information to the Employer on how to enter all required information, and includes an ADS format that summarizes all information to be provided. An * inserted after the briefing notes for certain items indicates that supplemental guidance is given at the end of the section.

Input of Information to be completed by the Employer

 

Section II.  Application Data Sheet

A.  Introduction

ITA 1.1

The identification of the Invitation for Prequalification is: ___[insert name and number]____

ITA 1.1

The name of the Employer is: ___[insert full name]_____________

ITA 1.1

The names, identification and number of the contracts are: ____[insert the full name and identification for each contract, if applicable *] _________________

ITA 1.1

The name and identification number of the ICB are: ____[insert full name and identification number for the international competitive bidding]_________________________

ITA 2.1

 

The name of the Borrower is: ___[insert full name]________________ ________________________________________________________________

ITA 2.1

The name of the Project is:        ____[insert name of Project]________________ ___________________________________________________________

ITA 4.1

(i) The parties in a JV __[insert “shall be”] __ jointly and severally liable.

(ii) Maximum number of partners in the JV shall be:__[insert maximum number]__

B.  Prequalification Document

ITA 7.1

For clarification purposes only, the Employer's address is:

Attention:  __________________________________________________

Number and Street :    _________________________________________

Floor/Room number :  _________________________________________

City: _______________________________________________________

Zip Code: ___________________________________________________

Country: ____________________________________________________

Telephone: __________________________________________________

Facsimile number: ____________________________________________

Electronic mail address:  _______________________________________

[Insert full address, telephone and fax numbers, and electronic mail address for clarification purposes.]

C.  Preparation of Applications

ITA 10.1

The language of the application as well as of all correspondence is:  [Insert language; the language to be used shall be that in which the prequalification and bidding documents are written.  English, French, or Spanish shall be used in International Competitive Bidding (ICB); an official language of the Borrower’s country may be used for National Competitive Bidding (NCB).]

ITA 11.1 (d)

The Applicant shall submit with its application, the following additional documents: [insert any additional document not already listed in ITA Sub-Clause 11.1, that must be submitted with the application]

ITA 15.1

In addition to the original, the number of copies to be submitted with the application  is: _[insert total number of copies]____

D.  Submission and Opening of Applications

ITA 17.1

For application submission purposes only, the Employer's address is :

Attention:  __________________________________________________

Number and Street:  __________________________________________

Floor/Room number:  _________________________________________

City:     _____________________________________________________

Zip Code:  _________________________________________________

Country:  __________________________________________________

Telephone:  _________________________________________________

Facsimile number:  ___________________________________________

Electronic mail address:  _______________________________________

[Insert precise address, and preferably room number, for submission.]

The deadline for application submission is:

Date:  __[insert day, month and year, i.e. 10 October 2002]__

Time:  __[insert time]__

[The time allowed for preparation and submission of the prequalification document should be sufficient for applicants to gather all the information required—preferably eight weeks, but in any case not less than six weeks after the dates when the documents are available for distribution or the date of the advertisement.  This period may be longer for very large projects, where time should be allowed for the formation of joint ventures and assembly of the necessary resources.]

E.  Evaluation of Applications

ITA 23.1

Preference shall apply for Eligible Domestic Bidders: _________

[Insert “Yes” or “No.”  Domestic works preference must be expressly permitted for eligible Borrowers in the Loan/Credit Agreement on the basis of a stated threshold level of GNP per capita determined by the Bank and adjusted annually. *]

ITA 24.2

[In case the Employer intends to use Nominated Subcontractor(s), insert: “The Employer intends to execute the following specialized elements of the Works by Nominated Subcontractors:

1)

2)

Etc” Describe briefly the specialized items to be subcontracted *]

[Insert: “Not Applicable” otherwise.]

ITA 25.3

The prequalification __[insert “will be” if applicable*]__________________________for multiple contracts.  

If the prequalification is for multiple contracts, the methods and qualification criteria to determine the combination of contracts for which the Applicant will prequalify shall be as specified in Section III, Qualification Criteria.

[Insert “Not Applicable” otherwise]


Guidance Notes on ITA and ADS

1.  Slice and Package of Similar Contracts (ITA 1.1 and 25.3)

1.      If a number of contracts of a similar nature are to be bid simultaneously on a “slice and package” basis, the nonstandard, contract-specific parts of the bidding documents (Bill of Quantities, Drawings, etc.) should be prepared for each individual contract (slice) in the event that award of individual contracts will be made to different bidders.  In the prequalification document, Section III should state the prequalification requirements for each slice based upon the Employer’s cost estimates, including contingencies.  Applicants will be asked to indicate in their submissions the individual contract (slice) or combination of contracts (package) in which they are interested, and will be invited to bid on those or similar contracts for which their assessed capacity is sufficient.

Basic Philosophy

2.      The Procurement Guidelines in para 2.4 refer to bidding on a slice and package basis as follows: 

“For a project requiring similar but separate items of equipment or works, bids may be invited under alternative contract options that would attract the interest of both small and large firms, which could be allowed, at their option, to bid for individual contracts (slices) or for a group of similar contracts (package). All bids and combinations of bids shall be received by the same deadline and opened and evaluated simultaneously so as to determine the bid or combination of bids offering the lowest evaluated cost to the Borrower.”

3.      The essential requirement for breaking a large Works construction project into a package of similar individual contracts or “slices” is that the Works, in the first instance, must be reasonably homogeneous, and that the execution of individual slices by different contractors on a “single responsibility” basis would still result in a timely and satisfactory completion of the whole package.  For example: a number of similar building types (such as health clinics, schools, houses, etc.); irrigation canals; pipelines; rural roads; highways in similar terrain, etc. 

4.      The manner in which the Works are sliced is of importance.  A highway sliced “horizontally” into separate radically different elements such as earthworks, culverts, bridges, road foundation, and paving is not suited for bidding such individual elements as separate contracts on a  “slice and package” basis, because of potential problems with contract interfacing and assigning responsibility for any subsequent defects.  However, a highway sliced “vertically” into sections with similar features is suited, since each slice is a complete, self-contained entity in itself. 

5.      The procurement strategy for complex projects, where the risk of planning and coordinating the phasing and site relationships between contractors is high and where such risk is assumed by the Employer should be discussed with the Bank before starting the preparation of the prequalification documentation.  Works under these projects are often divided up in separate contracts of a different nature and with critical completion dates.  Potential contractors for these separate contracts may be simultaneously prequalified and the contracts may also be simultaneously bid, but their packaging for prequalification and bidding purposes may become very complicated.  As an example, the construction of a port could be divided up into several separate contracts for access roads, breakwater and quays, dredging, buildings, etc., with prequalification and bidding each carried out at the same time and the possibility of multiple awards to one or more contractors.

Number of Slices

6.      The number of slices or individual contracts into which the project is divided is also of importance, and will affect the complexity of the prequalification evaluation and, subsequently, the bid evaluation and contract administration.  The complexity of the prequalification and bid evaluation increases very rapidly with the number of slices.  The number of combinations of individual contracts above five may require a complex matrix for evaluation purposes.  Four or five maximum number of slices or individual contracts is recommended. A large number of small slices, while encouraging small domestic contractors, may discourage larger and more efficient contractors from bidding on a package of small contracts. Even with a reasonable number of slices, the evaluation of different combinations may be somewhat complex, particularly if different time periods are permitted for package construction. The Bank strongly recommends against an excessive number of slices.

2. Nominated Subcontractors (ITA 24.2)

In large, complex Works contracts, the construction strategy of the Employer may provide for the execution of certain specialized elements of the Works by Nominated Subcontractors in accordance with the provisions of the FIDIC GCOC.  In such cases, Provisional Sums (representing the estimated cost of each element) are included in the BOQ of the bidding documents.  A typical example would be the supply and installation of the ventilation and lighting systems for a tunnel contract. 

3.   Domestic Bidders Preference (ITA 23.1)

1.      If the Loan/Credit Agreement allow a margin of preference for domestic contractors, and the Employer wishes to use this provision for the contract(s) subject to this prequalification, the PQD (and subsequent Bidding Document) should include the relevant provisions.

2.      A domestic bidder is one that meets the following criteria:

(a)     for an individual firm:

(i)      is registered in the country of the borrower;

(ii)     has more than 50 percent ownership by nationals of the country of the Borrower;

(iii)    does not subcontract more than 10 percent of the contract price, excluding provisional sums, to foreign contractors.

(b)     for a joint venture (JV) of domestic firms:

(i)      individual member firms shall satisfy (a)(i) and (a)(ii) above;

(ii)     the JV shall be registered in the country of the Borrower;

(iii)    the JV shall not subcontract more than 10 percent of the contract price, excluding provisional sums, to foreign firms.


Section III.  Qualification Criteria

 

The purpose of Section III, Qualification Criteria is to specify the criteria that the Employer shall use to evaluate the applications and prequalify the Applicants.  The Employer must prepare the qualification criteria and include them as part of the Prequalification Document. An * inserted after the briefing notes for certain items indicates that supplemental guidance is given at the end of the section.

The four main criteria for qualification are the following:

1.  Eligibility
2.  Historical Contract Non-Performance
3.  Financial Situation
4.  Experience

Within each of these criteria there are sub-criteria, which are specified in the forms presented in the following pages.  In order to make the factor and sub-factors understandable to Applicants, these forms specify who must provide what information, and blank spaces allow the Employer to insert the criterion that will be evaluated.  *1


 

Qualification Criteria

Compliance Requirements

Documentation

No.

Subject

Requirement

Single Entity

Joint Venture

Submission Requirements

All Parties Combined

Each Party

One Party

1. Eligibility

1.1

Nationality

Nationality in accordance with ITA Sub-Clause 4.2.

Must meet requirement

Existing or intended JV must meet requirement

Must meet requirement

N / A

Forms ELI –1.1 and 1.2, with attachments

1.2

Conflict of Interest

No conflicts of interest in ITA Sub-Clause 4.4.

Must meet requirement

Existing or intended JV must meet requirement

Must meet requirement

N / A

Application Submission Sheet

1.3

Bank Ineligibility

Not having been declared ineligible by the Bank, as described in ITA Sub-Clause 4.5.

Must meet requirement

Existing JV must meet requirement

Must meet requirement

N / A

Application Submission Sheet

1.4

Government Owned Entity

Applicant required to meet conditions of ITA Sub-Clause 4.6

Must meet requirement

Must meet requirement

Must meet requirement

N / A

Forms ELI -1.1 and 1.2, with attachments

1.5

United Nations resolution or Borrower’s country law

Not having  been excluded as a result of the Borrower’s country laws or official regulations, or by an act of compliance with UN Security Council resolution, in accordance with ITA 4.8

Must meet requirement

Must meet requirement

Must meet requirement

N / A

Forms ELI -1.1 and 1.2, with attachments

2. Historical Contract Non-Performance

2.1

History of Non-Performing Contracts

Non performance of a contract did not occur within the last __[insert number of years in words and figures]_ (_) years prior to the deadline for application submission based on all information on fully settled disputes or litigation.  A fully settled dispute or litigation is one that has been resolved in accordance with the Dispute Resolution     Mechanism under the respective contract, and where all appeal instances available to the applicant have been exhausted.

Must meet requirement by itself or as party to past or existing JV

N / A

Must meet requirement by itself or as party to past or existing JV

N / A

Form CON - 2

 Number of years specified above should usually not exceed 5.

 

 

 

2.2

Pending Litigation

All pending litigation shall in total not represent more than _____[insert percentage in words and figures]_______ percent (____%)] of the Applicant's net worth and shall be treated as resolved against the Applicant.

Must meet requirement by itself or as party to past or existing JV

N / A

Must meet requirement by itself or as party to past or existing JV

N / A

Form CON - 2

Percentage specified above should not exceed 50 percent.

 

 

 

3. Financial Situation

3.1

Financial Performance

Submission of audited balance sheets or if not required by the law of the applicant's country, other financial statements acceptable to the Employer, for the last __[insert number of years in words and figures]_ [ ] years to demonstrate:

(a) the current soundness of the applicants financial position and its prospective long term profitability, and

(b) capacity to have a cash flow amount of US$___[insert dollar amount in words and figures_ (___)]_ equivalent.

Must meet requirement

 

 

 


(a) Must meet requirement

 

(b) Must meet requirement

N / A

 

 


 


(a) N / A

 

(b) Must meet requirement

Must meet requirement

 

 

 


(a) Must meet requirement

 

(b) N / A

N / A

 

 


 


(a)N / A

 

 

(b) N / A

Form FIN - 3.1 with attachments

Time period specified usually is 5 years; it may be reduced to three years minimum (in agreement with the Bank) under special country circumstances, such as to provide opportunities for a newly privatized construction industry with a limited period of existence, but with suitable experience, etc.  Firms owned by individuals and partnerships may not be required to maintain audited balance sheets by the laws of their countries of origin; in such cases, the Employer may relax the audit requirement, but should request other acceptable financial statements.

3.2

Average Annual Construction Turnover

Minimum average annual construction turnover of __[insert amount in US$ equivalent in words and figures]__, calculated as total certified payments received for contracts in progress or completed, within the last _[insert number of years in words and figures_ (___)] years

Must meet requirement

Must meet requirement

Must meet __[insert percentage in words and figures]__ percent (___%)] of the requirement

Must meet __[insert percentage in words and figures]__ percent (___%)] of the requirement

Form FIN - 3.2

The amount stated should normally not be less than twice the estimated annual turnover or cash flow in the proposed Works contract (based on a straight-line projection of the Employer's estimated cost, including contingencies, over the contract duration).  The multiplier of 2 may be reduced for very large contracts (say, greater than US$200 million equivalent) but should not be less than 1.5.*  

The time period is normally five years or more, but may be reduced to not less than three years (in agreement with the Bank) under special country circumstances, such as to provide opportunities for a newly privatized construction industry with only a short record of experience, etc.

4. Experience

4.1

General Construction Experience

Experience under construction contracts in the role of contractor, subcontractor, or management contractor for at least the last________ [____] years prior to the applications submission deadline. 

Must meet requirement

N / A

Must meet requirement

N / A

  Form EXP-4.1

As for 3.2, the time period is normally five years or more, but may be reduced to not less than three years (in agreement with the Bank) under special country circumstances, such as to provide opportunities for a newly privatized construction industry with only a short record of experience.

4.2(a)

Specific Construction Experience

Participation as contractor, management contractor or subcontractor, in at least _________ (___) contracts within the last ________( ) years , each with a value of at least ____________ (___), that have been successfully and substantially completed and that are similar to the proposed works. The similarity shall be based on the physical size, complexity, methods/technology or other characteristics as described in Section V, Scope of Works

Must meet requirement

Must meet requirement

N / A

Must meet requirement for one contract

Form EXP 4.2(a)

The range of contract numbers should be one to three (and is normally two), depending on the size and complexity of the subject contract, the exposure of the Employer to risk of contractor default, and country conditions.  For example, for small- to medium-sized contracts in a country with newly privatized, but competitive construction firms (which have had some experience as parastatals), an Employer may be prepared to risk an award to an applicant with only one previous similar contract completed. For contracts in a developed environment with a high potential supply of construction services, three similar contracts may not limit applications, but would reduce the risk of Contractor default.* 

The time range is normally five to ten years, and should be related to the number of similar contracts stated above and to the duration of the subject contract, e.g., ten years for two contracts of about five years’ duration, or six years for two contracts of about three years’ duration.*3

4.2(b)

 

b) For  the above or other contracts executed during the period stipulated in 4.2(a) above, a minimum construction experience in  the following key activities:

Must meet requirements

Must meet requirement

N / A

Must meet requirement

Form EXP-4.2(b)

List the monthly or annual production rate for the key construction activity (or activities) in the proposed contract or works, e.g., “one million m3 of rock placed in rockfill dams in one year; X tons of asphalt concrete per month placed in road paving; Y m3 of concrete placed in . .. etc.”  The rates should be a percentage (say about 80 percent) of the estimated production rate of the key activity (or activities) in the contract or Works as needed to meet the expected construction schedule with due allowance for adverse climatic conditions.*3



 

Guidance Notes on Section III.  Qualification Criteria

4.  Qualification Criteria

1.1       The Bank’s policy on prequalification is that all potential bidders that meet predefined minimum requirements regarding (inter alia): general construction experience; particular or specialized experience; financial capabilities; personnel capabilities, and equipment availability should be invited to bid.  The procedure requires the implementing agency (Employer) to set pass/fail criteria which, if all are not met substantially by the Applicants, would cause them to be disqualified.

1.2       The criteria adopted must relate to characteristics that are essential to ensure satisfactory execution of the subject contract (or each contract with slice and package bidding), and they must be precisely stated.  Basically, the criteria must be chosen so that only Applicants that are qualified to carry out the work are permitted to bid.  The criteria must also be set so that they neither inhibit competition nor limit the number of eligible firms to be prequalified.  All Applicants that meet the criteria should be invited to bid.

1.3       The verification of availability of resources (liquid assets or line of credit, key personnel and equipment) should be made at the time of contract award, rather than at qualification stage. Therefore, such criteria have not been included in the SPD.

5.  Average Annual Construction Turnover (sub-criterion 3.2)

2.1       The Applicant’s general capabilities in managing construction contracts should be related to its record of recent experience and to the value of work undertaken.  Experience requirements should be stipulated as a minimum annual value of general construction work carried out over a stated period, normally five years, calculated by applying an appropriate multiplier to the projected annual construction rate on the subject contract.  The recommended multiplier is normally 2.0, but may be reduced to 1.5 for contracts over about US$200 million.

2.2       Example: Estimating required minimum “Average Annual Turnover”

 Subject Contract   
  Description:Port Facility
  Estimated Cost (Including contingencies):US$120m
Duration:4 years
  Contract:  SBDW Unit Rate

           

(a) Average expected annual construction billings (turnover), assuming a straight-line projection:  $120 /4 = $30mpa

(b)  Applying the normal multiplier of 2.0

Required minimum turnover: $30m ´ 2.0 = $60mpa

6.  Specific Construction Experience (Sub-criterion 4.2)

3.1  Applicants should demonstrate that they have successfully carried out work, substantially of a nature, size, value, and complexity similar to that of the contract in question. There are two principal criteria for prequalification.

(a)   The Applicant should have carried out similar work of a magnitude approximating that of the package of Work for which prequalification is sought. Depending on the nature of the Works to be bid, the criterion should be related to the Applicant having completed or substantially completed one or more contracts each of a value (not less than about 80 percent) of that of the proposed contract over the last five to ten years.

(b)  The Applicant (or a subcontractor designated in Forms ELI-1.2 and EXP-4.2b) should have performed operations of a volume, quality, and rate of execution similar to those required for the timely completion of the subject contract. For example, where large-volume earthmoving, tunneling, or concrete placing is involved, the Applicant should demonstrate experience in those operations, having performed them at the rates necessary to meet a percentage (e.g., 80 percent) of the estimated peak monthly and/or annual rates required for the subject contract.

3.2       Applicants should not be required to have had direct experience in the Employer’s country or region, but only under similar climatic, geological, and other general conditions.

 


Section IV.  Application Forms

The Employer shall include in the PQD all application forms that Applicants must complete and submit together with their application.  These forms are as specified in Section IV of the prequalification document:

  • Application Submission Sheet
  • Applicant Information Sheet
  • Applicant Information Sheet for each JV Party/Subcontractor as per ITA 24.2
  • Historical Contract Non-Performance
  • Financial Situation
  • General Construction Experience
  • Average Annual Construction Turnover
  • Specific Construction Experience
  • Specific Construction Experience in Key Activities

 



 Section V.  Scope of Works

The Scope of Works should contain sufficient information for an Applicant to decide whether or not it is interested in competing for that type of works, and whether it will need to use subcontractors for specific parts, and/or form a JV. It should contain relevant information on the three following topics:

1.  Description of the Works

Describe the Works in sufficient detail to identify location, nature, and complexity.  Approximate quantities of major items of work should be indicated, but the estimated cost should not be disclosed.

2.  Construction Period

State expected construction period and time in weeks or months; if variable times are to be invited, give the range of acceptable times.  If prequalification is for multiple contracts, additional time may be permitted for combinations of contracts, and evaluated accordingly on the basis of benefits foregone for the longer times of completion.

3.  Site and other Data

Provide general information on the climate, hydrology, topography, geology, access to site, transportation and communications facilities, medical facilities, project layout, facilities, services provided by the Employer, and other relevant data.


Evaluation of Applications

1.  General Procedure

1.1   The attached flow chart indicates the sequence of evaluating PQ applications, with references to relevant clauses in the ITA and Section III.  It should be studied by the evaluating team and used as a checklist in the evaluation process, together with the list of “Prequalification Topics” in Section III.

1.2       The following notes are intended to give guidance on some of the principal issues confronting the evaluating team, and cover:

  • single and multiple contract evaluation (slice and package)
  • the assessment of an Applicant’s financial soundness
  • analysis of litigation history
  • conditional prequalification
  • prequalification evaluation summary
  • notification to Applicants

Prequalification Evaluation Flow Chart


  

2.   Single and Multiple Contract Evaluation (Slice and Package)

 

2.1  Single Contract Evaluation (Slice)

(a) The average annual amount of the Applicant’s past turnover on general construction stated by the Applicants in FIN-3.2 should be equal to or greater than that stated in Section III-3.2.  If there has been a downward trend in turnover in more recent years over the specified period, a clarification should be sought by the evaluator with a view to a possible weighting of the more recent years in determining the annual average (see example below).

Example:

Year

Turnover

US$ equivalent $m

1.

2002 (to end June)

(completed in different currencies)

20

2.

2001

40

3.

2000

80

4.

1999

120

5.

1998

100

 

Totals: 4.5 years

$360m

Average T/O p.a.:                                360¸4.5 =

$80m p.a.

Minimum Average Requirement stated in Section III-3.2:

$60m p.a.

Note:  Although appearing to pass the qualifying criterion, the Applicant has only averaged $56m/p.a. (140¸2.5) in the last two and one-half years, with decreasing turnover.  In such cases, the Employer should make a thorough investigation of the financial soundness of the Applicant (from data submitted with FIN-3.1) and, failing a satisfactory resolution, the Applicant could be disqualified.

(b)        The particular experience on similar contracts, and minimum key production rates as stated in Section III-4.2, should be compared with information provided in EXP-4.2a and 4.2b.  The contribution of named specialist subcontractors may be a factor in satisfying these criteria.

2.2  Multiple Contract Evaluation (Package)

Alternative I

If Applicants have applied for prequalification on more than one particular contract, the procedure in “2.1 Single Contract Evaluation” above may be used for evaluation by aggregating the specific requirements for each contract, and comparing the totals of different combinations with the information provided in relevant forms.

Alternative II*

1.  The procedure uses the basic information supplied by Applicants to assess the threshold limits or ceilings for the aggregated total of contract value (or bidding capacity) for which Applicants are considered prequalified by the Employer.

2. The information provided by the Applicant in FIN-3.2 gives the average annual turnover; this amount is then divided by the multiplier of two (or other factor) as used by the Employer in Section III-3.2, and gives the limit of annual capacity of the Applicant for construction on the subject contracts.

3. The information provided in EXP-4.2a and 4.2b regarding similar contracts and the annual/monthly key production rates may reduce the ceiling or condition the prequalification.

4.  After refining the initial maximum annual contract amount in the manner stated above, it should be extended over the duration of individual contracts, or over the average durations for multiple contract construction, to provide an indicator of the Applicant's maximum bidding capacity on individual or a group of contracts.

3.  The Analysis of Litigation History (Section III-2)

3.1       The execution of any construction contract will normally result in the payment by the Employer of a number of reasonable claims from the Contractor, e.g., for defaults of the Engineer/Project Manager, delays, unforeseeable ground and climatic conditions, etc.  However, some Contractors have an established business practice of bidding low to obtain award of contract; and then flooding the Employer with excessive or frivolous claims to increase their income.  Employers should be on guard against any Contractor who habitually resorts to excessive claims, arbitration, and litigation in the execution of contracts.

3.2       Applicants with a consistent and significant history of excessive contract arbitrations and litigation resulting in awards or decisions against them should not be qualified to bid.  So that the litigation history may be evaluated, Applicants should be required to list all contracts over a stated period of time (normally five years) that resulted in litigation or arbitration proceedings, with an indication of the matters and amounts in dispute, the parties involved, and the resolution of the dispute.

3.3       The criterion for rejection should be that of numerous arbitral awards or court decisions against the Applicant in relation to awards for the Applicant, taking the number and amount of contracts executed.  As an indicative example, the occurrence of one or two adverse cases over five years for a Contractor handling, on average, ten construction jobs simultaneously, should not be a cause for rejection.  If dispute resolution is found relatively frequently in the business of the Applicant, it may indicate an attitude of the management of the firm that could be dangerous for the Employer if the Applicant were awarded the contract, and further investigation with previous Employers may be warranted.

4. The Assessment of Financial Soundness (Section III-3.1)

General Information

4.1 The purpose of assessing the financial soundness of the Applicants is to reassure the Employer that the individual Applicant’s financial standing in its whole does not have structural weaknesses that may result in the Applicant’s financial inability to perform, and to give an indication of the scope and value of the work the Applicant would be able to undertake.  To place a detailed analysis in context, it is necessary to look at trends in key figures over a number of years and to make comparisons of the firm’s annual activities to the same firm’s results from previous years.

4.2   Because of differing international accounting practices and tax laws, published information on the financial position of companies and financial ratios derived there from do not provide a uniform and satisfactory basis to compare the financial standing of an Applicant with other Applicants for prequalification purposes.  Nevertheless, audited financial statements or balance sheets should be sought as a general guide to the financial situation of the Applicant.  Firms owned by individuals and partnerships may not be required to maintain audited accounts by the laws of their countries of origin.  In such cases, balance sheets should be certified by a registered accountant and supported by tax returns.

4.3  In any case, the Borrower should require applicants to provide the following background information to support the presentation in the Information Forms:

  • audited or certified financial statements for the last five years or for the period stated in the Section III-3.2, supported respectively by audit statements or tax returns; and
  • names and addresses of the Applicant’s banker(s), as well as the names and addresses of clients or organizations familiar with its financial standing.

Development of Indicators and Ratios

4.4  The financial information provided by an Applicant should be reviewed in its entirety to allow a truly informed judgment, and the pass–fail decision on the financial position of the Applicant should be given on this basis.  To assist in this review, the indicators used most frequently are working capital and net worth. The following table summarizes the financial information of an example firm as would be reported by an Applicant in FIN-3.1, as well as an evaluation by the Employer of the Applicant’s working capital and net worth

 

 

EXAMPLE

 

Financial Information (US $ million equivalent)

 

Actual: 

previous five years

 

5

4

3

2

1        

0

1. Total assets

18.5

19.0

20.0

23.0

25.0

 

2. Current assets

12.0

13.0

14.5

14.0

15.0

 

3. Total liabilities

9.0

10.5

10.0

11.0

11.5

 

4. Current liabilities

7.0

6.5

7.0

7.5

7.8

 

5. Profits before taxes

1.4

1.3

1.3

1.4

1.8

 

6. Profits after taxes

1.0

0.9

0.9

1.0

1.3

 

  Overview Analysis

 

7. Net worth   (1) - (3)

9.5

8.5

10.0

12.0

13.5

 

8. Current ratio  (2)/(4)

1.7

2.0

2.1

1.9

1.9

 

9. Return on equity %

 

13.7

15.3

14.0

15.0

 

    (5)/(7 of prior year)

 

 

 

 

 

 

 

4.5       Working capital is the difference between current assets and current liabilities, and measures the firm’s ability to generate cash in the short term.  Current assets are cash and other assets suitable for conversion into cash within one year.  Current liabilities are monetary obligations that must be paid out within the current year.  To help in the interpretation of the adequacy of working capital, the current ratio, which compares the current assets with the current liabilities, is more helpful than a figure for working capital.  In the example, the current ratio of the firm varies from 1.7 to 2.1 over the previous five years and the projected ratios for the next two years are also within this range. This indicates that the firm has had a consistent record of its working capital with at least $1.7 in current assets to back each dollar of its current liabilities. Construction firms normally have small inventories and accounts receivable are easy to collect; they can therefore operate safely with a low current ratio. The example firm appears healthy from its working capital point of view.

4.6       Net worth or net equity is the difference between total assets and total liabilities.  The net worth measures a firm’s ability to produce profits over the long run as well as its ability to sustain losses.  Although the yearly figures for the net worth indicate the growth of the firm, the return on equity gives a better indication of the efficiency with which equity is employed within the firm. This is obtained by dividing the annual profit before taxes by the net worth of the previous year and expressed as a percentage.  In the example, for every dollar of equity, the firm made 13.7 to 15.3 cents during the five-year period.  The example firm shows a rather consistent net worth record.

4.7       Any discontinuities or abnormal features in the above indicators or ratios should alert the Employer to potential financial problems and the need to seek expert professional advice for further review and interpretation.

5.  Conditional Prequalification (GITA 9.2)

5.1       Applicants may not fully meet all the prequalification criteria with their initial applications.  Provided the deficiencies do not materially affect the ability of the Applicant to perform the proposed contract, Applicants should be conditionally prequalified.  In this case, Applicants should be notified of the deficiencies that they must correct to the satisfaction of the Employer before submitting their bids.

5.2       Typical circumstances for which conditional prequalification of Applicants may be appropriate are, inter alia:

  • the provision of additional critical information
  • the revision of a preliminary JV Agreement
  • proposals for subcontracting specialized elements of the Works
  • questionable ability to undertake the subject contract, together with other pending contract awards

6. Prequalification Evaluation Summary

6.1       After evaluating the applications received, the implementing agency of the Borrower should prepare a summary to be submitted to the Bank for review and comment.  The summary should address each of the pass–fail criteria set in the documents.  Disqualification of Applicants who fail to meet the criteria should be explained, and details of any conditional prequalified Applicants should be submitted.  The Bank may ask the Borrower to justify the evaluation and provide further information or clarification.

7.  Notification to Applicants (ITA 28.1)

7.1       The implementing agency of the Borrower should await the Bank’s “no objection” to the proposals in the evaluation summary before notifying Applicants of its decisions.  After receiving the Bank’s no objection, the implementing agency should:

  • notify each disqualified Applicant, giving an indication of the reasons for disqualification, and
  • invite all qualified Applicants to bid. 

7.2       All Applicants, whatever their classification, should be provided with a list (and addresses) of the qualified category and the conditionally qualified category of Applicants (without disclosing details of the conditions).  Conditionally qualified Applicants should be invited to submit a bid upon satisfactory compliance with the related conditions, whereupon all previously qualified Applicants and the remaining conditionally qualified Applicants should be notified accordingly.

7.3       Bid documents should be issued only to prequalified Applicants.  Verification of the information provided in the submission for prequalification shall be confirmed at the time of award of contract, and award may be denied to a bidder that is judged to no longer have the capability or resources to successfully perform the contract.

7.4       After prequalification, all Applicants are deemed to have the necessary capabilities to carry out the subject contract or contracts.  During the bidding period, however, employers may be approached for approval to changes in the formation or composition of Applicants prior to bid submission.  The provisions of ITA 30 should be followed by the Employer in deciding whether to accept such changes, and the Bank should be notified accordingly.

 Section V. Scope of Works

[1]               “Borrower” denotes a Bank borrower or the executing agency delegated by the Borrower to execute the project, normally the Employer in a Works contract.

*               A similar, but simpler, procedure can be used to compile registers of contractors for different categories of works under NCB procedures.






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