Eligibility criteria in Procurement

Public procurement has some unique features which makes it different from personal purchase and private procurement which are

1. Providing equal opportunity,
2. Transparency in decision making
3. Declaring selection criteria in advance to all bidders
Which means that while private procurement is intended to get best offers by holding multiple rounds of negotiation with different bidders. It involves flexible selection criteria which are often changed to suit needs of private organisation/ individual. Therefore specifications for procurement are not required to be firmly set before inviting tenders/offers. This is not so in public procurement.

Therefore, lot of home work is required in public procurement at specification setting stage so that tender bids are as per requirement of public organisation. Many times, we (procurement officials) get complaints from the users/consumers that materials/services purchased are of inferior quality and decision is alleged to be made on basis of L1 (financially lowest) offer. But procurement officers claim that they have selected the lowest offer meeting tender specifications. This leads us to the problem of specification setting/defining eligibility criteria...



Some organisations try to limit the eligible vendors/contractors by approval process. However, non tender specific pre-approval of vendors leads to cartel formation because large number of tenders with same approved list of vendors can be easily/ equally split among these approved vendors.

Possible solution (Eligibility criteria):

Solution to the problem lies in introducing contestability in procurement. This can be done by proper specification setting(defining eligibility criteria) for tenders.
Specification setting has an important role in deciding the number of qualified vendors. A very tight specifications result in very few eligible vendors and create monopoly situation, while a loose specifications lead to large number of suppliers resulting in poor quality/ control. Therefore, a review should be carried out to relax the specification in case where there are less than 4-5 qualified vendors and capacities are inadequate.

Similarly, specifications should be strengthened in cases where there is very large number of qualified vendors. These vendors compete on very low prices and ultimately delay supplies due to inadequate margins and look out for scrap materials as inputs.
The specifications can include list of minimum machinery and plant, qualified personal, quality control systems in place and financial capability. Past performance can be given adequate consideration before awarding of contacts.

For example, World Bank has prepared standard pre qualification document for use of its borrowers. As per Para 2.9:
Prequalification of Bidders
Prequalification shall be based entirely upon the capability and resources of prospective bidders to perform the particular contract satisfactorily, taking into account their (a) experience and past performance on similar contracts, (b) capabilities with respect to personnel, equipment, and construction or manufacturing facilities, and (c) financial position.

Processes of vendor qualification and procurement need to be integrated into a single process so that any vendor investing in capacity is also sure of getting order. Further, the orders should be for longer-term even if quantity is not completely specified. At the time of procurement of these items, sufficient quantities need to be put into tender so that participating parties can recover their fixed costs. Length of contact may vary 3-5 years depending on time required for vendor to recover initial investment. Long-term contracts would reduce uncertainty of order for vendor Vendors would not under invest in technology and quality of products would improve. However, any long term contract would need suitable price variation clause as described earlier and this may be agreed in pre-bid meeting.

Advantages:

1. This would introduce contestability in the process even though entry barriers may be high due to initial investments for specific items/works. Cartel formations would be very difficult as these are no fixed pre approved vendors/contractors who can negotiate among themselves to split orders/works.
2. This process has biggest advantage for public procurement in form of
a. transparency in decision making and
b. Providing equal opportunity for new entrants rather than making them run in offices for years to get approvals.