To limit the number of firms allowed to submit tenders on a project, some owners require that contractors be pre-qualified. They must submit information about their experience, competence and financial condition, after which the owner decides whether they are qualified. The advantages are obvious; as suggested by Bockrath (1999):
As a general proposition, it is preferable to disallow unqualified contractors to bid at all rather than to refuse to award the contract after they have gone to the trouble and expense of putting together proposals. In addition, the prequalification procedure may prevent some bidders from being awarded a contract that, because of its scope and complexity, would likely prove disadvantageous for them, not withstanding their personal beliefs to the contrary.
But there are arguments on the other side as well; some feel that in a free business world, all interested contractors should be given a chance. Also, if bonding is required, one might argue that only qualified contractors will be underwritten by surety companies and these companies protect the owner sufficiently if the contractor fails to perform or fulfil its financial obligations. In addition, pre-qualification tends to lengthen the contractor selection process by as much as a month or two and it also precludes consideration of the well-qualified contractor who appears, for some reason, at the last moment. Three approaches can be used.
An owner anticipating several projects over a certain period, say a state transportation department, might pre-qualify contractors for that period. In this case, for example, highway contractors wishing to be invited to bid on projects in 2005 would submit information by a specified deadline in 2004; the qualifications would be evaluated and successful contractors would be placed on the list for 2005.
Pre-qualification could be accomplished on a project-by-project basis; those wishing to submit tenders for a particular project would submit completed questionnaires and then await an evaluation that determines whether they are qualified to tender for that one project.
Each contractor submitting a tender on a particular project could be asked to submit an individualised qualification outline with its tender. Clough and Sears (1994) call such an outline essentially a sales document [containing] information designed to enhance the contractor in the eyes of the owner.
According to Russell (1996)
. . . a properly designed pre-qualification process should:
1 Assure that the constructor and major subcontractors, vendors, and material suppliers will be competent, responsible, and experienced, with adequate resources to complete the job.
2 Eliminate constructors with limited financial resources, overextended commitments, and/or inadequate or overly inexperienced organisations.
3 Maximize competition among qualified constructors and subcontractors.
The Virginia Department of Transportation in the US state of Virginia (VDOT) includes the following statement on its website (Virginia Department of Transportation, 2001):
VDOTs Contractor Prequalification Program ensures that all contracts for the construction, improvement and maintenance of Virginias transportation system are awarded to the lowest responsible bidder. Virtually all construction and maintenance contracts advertised and let by the department require prospective bidders to be prequalified. In addition to prime contract work, contractor prequalification is also necessary for subcontractors unless otherwise noted in the contract specifications.
VDOT utilises a 12-page form (Virginia Department of Transportation, 2001) for pre-qualifying
contractors; applicants must provide the following information:
companys contact information
firms legal status and history
ownership information
names of individuals authorised to transact business with VDOT
information on affiliated, financially associated and subsidiary companies requested classes of work (drilling and blasting, landscaping, major structures and so on)
prior work experience
equipment available to the applicant
financial information
balance sheet
gross receipts summary
income statement
notarised affidavit.
A similar 11-page form is used for pre-qualifying contractors for any of several projects sponsored yearly by the Louisville and Jefferson County Metropolitan Sewer District (Metropolitan Sewer District, 2001); in addition to the information outlined above, it requests safety and insurance data and information on employee training programmes. An interesting study conducted at Hong Kong University (Palaneeswaran, 2000) ranked prequalification criteria for designbuild projects. The results were based on a questionnaire survey of 101 respondents from 11 countries, 80% of whom were from the construction industry. The following criteria, in order, emerged as the five most important from among a total of 16 criteria: (1) past experience, (2) past performance, (3) financial strength, (4) quality and (5) organisation and management systems. The study also ranked various subcriteria within each of the 16 criteria. Certainly this approach can be used in the private sector as well, with similar procedures and information, although the process might be somewhat less formal than in the public arena. Post-qualification is another option. If a contractor is the apparent low tenderer for a project, it will then be asked to submit information demonstrating its qualifications. The disadvantages of such an approach include the potential for wasted effort throughout the tendering process, if the low bidder is found not to be qualified, and the prospect of favouritism in rejecting the low bidder by claiming unjustly that it is not qualified. However, owners do have the right to choose responsive and responsible tenders, according to all well-written contract documents, so there is always the chance for claims of unfairness when the owner decides whether a contractors tender is responsible. In most cases, an open pre-qualification process would appear to be the fairer method for all concerned. Certainly pre-qualification requires contractors to meet only a minimum level of qualification. In evaluating tenders, owners can then rank contractor qualifications according to specified criteria in deciding which one of the qualified contractors to select; these procedures will be considered in a later section.
