The topic of pre-qualification for contractors on large construction projects has always been a concern for municipalities. Most purchasing authorities in Canada have a formal procedure for pre-qualifying bidders, at least for contracts of a given type or amount. Typically, the qualification process will be both forward and backward looking and it seeks to identify a list of potential contractors who meet the criteria to be on the purchasing authorities vendor or supplier list.
The overall purpose of the pre-qualification process is to ensure there is a reasonable prospect that each bidder who participates in a tender will have the demonstrated ability (expertise, capitalization and resources) to perform the final contract in a satisfactory manner. Pre-qualification is not used for all types of contracts.
However, as a general rule some form of pre-qualification is where:
- The contract is considered high risk. For instance, the contract provides for a supply of a type that could result in a substantial cost, a gap in security, and political embarrassment of similar misfortune to the contracting authority if the contract is not performed in a satisfactory manner;
- There is a need to minimize monitoring costs associated with the contract, with respect to the quality of work, the timelines of delivery or potential cost overrun;
- The goods or services to be supplied must meet some defined standard such as safety or level of performance; or
- The performance of the contract involves complex, multi-faceted activity, highly specialized expertise, equipment, materials or financial requirements.
- Where conducted on a forward-looking basis, the pre-qualification process essentially takes the form of request for information from potential contractors. They will be required to demonstrate that they have an existing potential to perform either a specific contract or contracts of a particular type by giving evidence of their:
- Experience on similar work;
- Staff training, experience and other expertise;
- Previous levels of customer satisfaction in relation to similar work often by way of letters of reference;
- Third party verification of the performance characteristics of their products;
- Health, safety or similar policies;
- Staff training; and
- Financial strength.
In the case of a previous supplier, documented instances of poor performance or non-performance on prior contracts will be used to determine eligibility to participate in future tender bids. On the basis of this information, staff within the contracting authority will be called upon to evaluate and rank the submissions and recommend a short list of acceptable bidders, who will be entitled to participate in any subsequent sealed bid tender competition. Where a contract is pre-qualified, the municipality is essentially limited to a consideration of those bidders who have been approved through the pre-qualification process.
Where the contract is for some reason likely to be considered out of the norm, a further advantage of the pre-qualification procedure is that it allows the contracting authority to test the market. It also allow the authority to determine whether there is sufficient market interest in bidding for a possible contract to justify the expense. Where a bid qualification procedure applies a contracting authority may reject a bid received from an unqualified bidder.
The pre-qualification process is distinct from any requirement under law that contractors carrying out any particular kind of work hold some specified licence. There is no general principle that bids will only be accepted from a potential contractor who is licensed to carry out the work in question. It may very well be that a necessary licence can be obtained after the contract is awarded but before the work is performed. Accordingly, an unsuccessful bidder has no right to complain that the tender was awarded to an unlicensed bidder.
Pre-qualification is very common on most major government projects and will continue to be the standard procedure when circumstances require an extra level of expertise.
Stephen Bauld is a government procurement expert and can be reached at firstname.lastname@example.org. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.