Governments and vendors share common pain points around procurement: the competitive bidding process is slow, expensive and redundant, stemming from archaic regulation that is too often optimized for following rules instead of solving problems. A great illustration of this is that the current IRR of the Procurement Law currently only requires either a credit line, a certificate of a hold-out on Cash Deposit or a Net Financial Contracting Capacity (NFCC) score that is equal to the approved budget contract to establish the bidder’s liquidity, its capacity to absorb the additional obligations in connection with the project and to finance its implementation/completion.

Updating the requirements to include a full financial condition analysis of a contractor or vendor would ensure that only those with appropriate and adequate financial capacity, proven financial performance and acceptable financial condition rating, as assessed against a qualification criteria, will have its bids and proposals progress into the next stage of evaluation.

The World Bank Criteria

This is demonstrated in the Procurement Guidance Evaluation Criteria of the World Bank (2016), which highlights the need for a complete assessment of possible vendors on the prequalification and initial selection phase. It's prequalification criteria to shortlist bid applicants includes a review of the financial situation and performance of an applicant including it's Financial Capabilities and Average Annual Turnover. On the subsequent initial selection stage, the applicants are then asked to substantially meet the qualification requirements which include the financial, budget and risk management capabilities of the vendor for the project.

This ensures that only qualified bidders that are capable of meeting the contract requirements are short listed and only those that meet basic financial requirements for the bid are pre-qualified. This also helps organizations optimize returns while cutting costs, enhancing competition and accountability, fostering a culture of fair play in the business industry and eradicating government corruption.
Download: Procurement Guidance Evaluation Criteria of the World Bank (2016)

Suggested Initiatives

Improvements in the manner of evaluating contractors and suppliers should be reviewed by all stakeholders and involved decision-makers. A technology-driven financial condition analysis tool that can quickly and affordably assess a company’s financial condition and capability is a tool that can jumpstart such an improvement. Once such a tool has been tested and given positive feedback by users from procuring entities, existing implementing rules must not be obstacles to its adoption toward better risk management and timely delivery of public projects. Current implementing rules that award projects to applicants only on the basis of lowest bids without the benefit of proper in-depth financial condition analysis have led to delays, cost overruns, even non-completion of important development projects. This flies in the face of true public service.

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