The objective of a qualification process is to set a minimum bar of capability for the bidder company or group of companies (bidding consortium) entering into the PPP contract. Setting qualification criteria will reduce the risk of project failure caused by a lack of capabilities and capacity. However, if the criteria are too restrictive this may limit competition too much.
It is true that the higher the bar, the less the competition. However, simply having more competition (in the sense of more pre-qualified bidders) does not necessarily mean better competition. Also, bar levels set too low in terms of qualifications may discourage highly qualified bidders as they perceive they have a very low chance of winning. All projects should customize the levels of qualifications in order to achieve an appropriate balance, bearing in mind the project’s specific needs.
In the common one-stage open tender process, qualifications are submitted alongside the proposal, so any company or consortium of companies may submit a proposal. However, proposals will only be evaluated after checking that the respective bidder has met the qualification criteria (that is, this is a pass/fail exercise).
In some other processes, the procuring authority conducts the qualification stage as an initial stage (the pre-qualification stage) and only issues the RFP (including the invitation to propose) in a subsequent stage to those companies that have been pre-qualified. Any prospective bidder that passes the minimum bar is qualified and able to submit an offer. This is referred to as pre-qualification, and it may offer some benefits to the procuring authority (see table 5.5 ), while usually resulting in a longer period for the procurement process.
However, in some tender processes there is an intention to limit the number of candidates, selecting a certain number of the most qualified bidders as defined in the RFQ (this is referred to as short listing). This is always the case in competitive dialogue, interaction, and many of the negotiated procedures as well as some processes with a straight forward RFP issued after prequalification ( Colombia, India, and Mexico apply this approach in some of their projects).
Open tender (simultaneous submission of qualifications and offer, no short listing).
Governments should only use this approach when it is very clear what they want, and when the project is not too complex in terms of financing and technical aspects.
· Allows for a shorter tender process.
· Easier to handle (only pass/fail).
· Lower costs for bidders and for the procuring authority.
· Theoretically allows for greater competition, but no more than pre-qualification.
· Higher risk of protest by losing bidders as the total number of bidders will likely be greater.
· Dangerously allows for a shorter tender process.
· Uncertainty as to the level of competition (number of competing bidders) may discourage strong and highly qualified parties from bidding.
· Uncertainty of competition may create too much pressure on pricing (creating the possibility of reckless bidders) and discouraging quality.
Pre-qualification approach (an RFQ stage before RFP with no short listing).
The complexity of the project presents the risk of few bid responses, hence the procuring authority wishes to definitively test the market appetite and capacity to meet the requirements.
The more complex and large the project, the more appropriate it is to prequalify bidders.
· Allows more time to prepare the RFP.
· The pre-qualification process is no more difficult than the qualification process in a single-stage, open tender (only pass/fail).
· Low cost for bidders (the same as in a conventional open tender with one stage).
· Allows for a real test of market appetite in advance of issuing an RFP. This means that the procuring authority can react if there are too few responses to the RFQ in advance of calling for proposals.
· Allows time for the correction of any formal errors and other non-material errors in the qualification submission.
· Maximizes competition in circumstances where a significant investment is required to respond to the RFP (bidders will be more willing to make that investment if they know they are pre-qualified).
· Allows the procuring authority to clarify who the actual prospective bidders are, if it is desirable to do so. This may, for example, be helpful if the project is part of an ambitious program that is intended to be developed (and tendered) in a short period of time, making some tender processes overlap in time.
· Lower risk of protest by losing bidders.
· Theoretically a longer process.
· If a large number of bidders are pre-qualified, some strong bidders may perceive there is too much competition and be discouraged from submitting a sound and competitive proposal.
· Alternatively, if a large number of bidders are pre-qualified, this may create too much pressure on pricing (creating space for reckless bidders) and discourage quality.
Usually short listing is required by the legal framework for some types of process, such as competitive dialogue.
Short listing is appropriate for highly complex projects — projects that really need a structured and proactive, formal interaction with a small number of bidders to be effective — or where there is a need to retain the interest of highly qualified bidders.
· More time to prepare the RFP.
· Maximizes further competition in circumstances where a significant investment is required to respond to the RFP. Bidders will be even more willing to make that investment if they know they are competing with a short list of rivals.
· Allows the procuring authority to clarify who the actual prospective bidders are. Allows for better handling of large and complex programs.
· Lowest risk of protest by losing bidders.
· May result in reduced competition, especially if some of the short-listed bidders abandon or do not submit an offer.
· Longer tender process, and longer time to sign contract.
· Higher costs for both parties (in dialogue or interactive processes).
· More complex to handle, as short listing requires evaluation and selection.
Whether the RFQ is a separate document or a different and previous phase to the RFP, or indeed whether qualification is inherent in the RFP and submitted within one tender package, pre-selection or qualification should always be done in advance of opening the bid.
The RFQ (which in some countries is called an Invitation for Expressions of Interest – EOI) will cover the qualification criteria (or selection criteria for short listing) and the requirements for submission of the qualifications (SoQ). It includes time to submit, formats and documents, and the form of evidence of the qualifications (especially experience) required. It will also contain rules in relation to issues such as conflict of interest, incompatibilities or changes in the composition of a qualified consortium in the bid submission stage, and a summary description of the project and the future contract structure.
It is highly desirable (good practice) that the structure and general form of the RFQ (as with other tender documents) is standardized by the respective government (be it national, regional/state, or local), by means of general PPP guidelines, including the evidence that will be needed to qualify the indicators and factors that show financial capacity, and so on.
The intention of this section is to bring attention to, and provide knowledge about, common practices regarding the following issues.
- The problem of setting the bar for the qualification criteria as a pass or a fail. This is a common issue for both situations: open tender (with no restriction on the number of bidders) and a short-list approach. This will be explained in sections 6.1 to 6.3.
- For short listing, the problem of selection criteria so as to define the short list if the number of candidates exceeds the defined maximum number (either as established in the process, or by the law when applicable). This will be explained in section 6.4.
- In all cases, matters specifically related to the qualification of companies acting as a qualifying or bidding consortium.
The customary classification of qualification criteria is represented by three main categories.
- Financial-economic capacity.
- Technical capability or experience.
Only the latter two are considered for evaluating and selecting a short list, as the administrative and legal criterion is always a pass/fail requirement.
 See chapter 5A for additional information on why and how companies can form consortiums to bid for and jointly manage PPP contracts.
 The National Treasury PPP Manual in South Africa (South Africa National Treasury, 2004) presents in Module 5 (PPP procurement) a template for RFQ contents. Infrastructure Resource Centre (PPPIRC) at http://ppp.worldbank.org provides examples of PPP documents, including a RFQ and a RFP for some sectors in PPP by Sector.