Most bidding processes set out 'qualification criteria' that all participating firms must meet. Requiring bidders to set out their qualifications helps ensure a competent firm is selected, with the capacity to implement the project. Clear qualification requirements can also encourage experienced firms to participate, and to invest in preparing quality proposals, as it reduces the risk that the bid process will be undermined by low-quality firms submitting very low bids.
Most governments require bidders to 'pre-qualify'-that is, check bidders' qualifications before the start of the tender process, with a view to capping the number of bidders. Typically pre-qualification involves ranking potential bidders according to specified qualification criteria. The top-ranking bidders-typically between three and six-invited to submit proposals.
The alternative is to set pass/fail qualification criteria, and qualify and invite proposals from all firms that pass. While this approach can be used in a pre-qualification process, it is more typically done simultaneously with the bidding process-sometimes called 'post-qualification'. Under this approach, bidders can self-screen against the published qualification criteria before investing resources in preparing a proposal. For a few, large and very complex process the self-selection process (aided by the due-diligence that financing parties will exert upon prospective bidders) may be sufficiently stringent that no qualification is needed.
Prequalification has both advantages and disadvantages:
• The main advantage is in limiting the number of bidders. By reducing the number of bidders, the probability of success increases, and bidders may be incentivized to invest more effort in developing an efficient project and presenting a competitive bid. At the same time, the effort and resources required from government to evaluate bids can be reduced
• The main disadvantage is that making public the list of pre-qualified bidders may enable collusive behavior. Moreover, pre-qualifying a set number of bidders, in particular, can mean the same top-ranking firms tend to be invited to bid in a given sector, providing further temptation to collusion in the bidding process.
In some developing countries (particularly with new PPP programs) the problem can be too few rather than too many bidders-in this case, there may be no advantage to pre-qualification, and it may unnecessarily extend the procurement process.
The following resources provide more discussion and detail on the pros and cons of pre-qualification:
• PPIAF's Toolkit for PPPs in Roads and Highways [#282], which includes a section on 'Concessions: Main Steps in competitive bidding'
• A World Bank Technical Note on Procurement of Management Contracts [#278, pages 9-21] describes the pros and cons, and how some of the problems of pre-qualification can be overcome
• Farquharson et al [#95, pages 118-120] describes the pre-qualification process, some of its advantages and disadvantages, and the possible pitfalls. The authors also describe the option of a "pre-revision" phase, in countries where pre-qualification is not allowed by procurement law.
In practice, country approaches vary. For example, Infrastructure Australia Practitioner's Guide [#16, page 16] recommends using pre-qualification to select a particular number of bidders-at least three, sometimes more. On the other hand, Singapore PPP Handbook [#216, page 60] precludes pre-determining the number of qualified bidders, because this would limit competition. Table 3.3: Examples of PPP Procurement Procedures provides more examples of PPP procurement processes, including whether and what type of pre-qualification process is included.