Pre-qualification of Suppliers & Contractors

Introduction

In many big organizations or companies, the procurement process including the contracting is not open to every supplier or contractor. In order to provide material or services, the supplier or the contractor is required to be on their panel of approved ones. The exercise required to shortlist the suppliers and contractor to be on the company’s panel is called the Pre-qualification exercise. One of the main objectives of adopting this approach is to ensure the first line of quality check amongst others.

Every big organization has its own system of Pre-qualification. Even the strategy of Pre-qualification differs from circumstance to circumstance. Wherever this approach is adopted, those suppliers or contractors who are on the approved panel can participate in the procurement or tendering process.

To carry out this exercise, many organizations have a dedicated team while others have the part-timers from their procurement and/or contracting team.

Pre-qualification Strategies

In general, there are two types of Pre-qualification strategies, viz., a routine exercise carried out on a regular basis where the suppliers and contractors are accorded approval subject to their fulfilling the eligibility criteria without being specific to any particular procurement or contract while the other one is specific to a particular procurement or contract. However, the exercise non-specific to any procurement or contract is more preferred.

Figure1_Pre-qualification Strategies

Types of Services Covered

Under Pre-qualification, any service to be obtained by the company can be covered, ranging from small to big, simple to complex. This exercise may cover the following amongst others:

  • Material Supplier
  • Manpower Supplier
  • Equipment Supplier
  • Rental Service Providers
  • EPC Contractors
  • Construction Contractors
  • Service Contractors
  • Maintenance Contractors
  • Engineering Consultants
  • Management Consultants
  • Environmental Consultants
  • Quality Control Third Parties

Pre-qualification exercise may be sub-classified in different ways and the following is one of the examples:

  • Suppliers
  • Service Providers
  • Project Executers

Figure2_Categorization

Pre-qualification Exercise Details

Though it varies from organization to organization, the common objective of this exercise is to shortlist suppliers and service providers against a company set benchmark of quality. There are various criteria that form the part of the benchmarking and weightage is assigned to them. Only those suppliers/service providers are shortlisted those who score above the minimum set point or those who are above the benchmark.

The common evaluation criteria for this exercise may include the following amongst others:

  • Similar Past Experience over few years
  • Types of clients served
  • Relevant Quality certifications
  • Number of years passed since establishment in the business
  • Financial stability
  • Assets & Liability
  • Offices and other relevant facilities.
  • Manpower and other Resources.
  • Size of the Business
  • Type and size of the Organization

Based on the evaluation criteria, shortlisting to the approved panel is done. However, being in the approved panel does not guarantee the issue of purchase order or award of contract. It just provides the eligibility to participate in procurement or tendering process.

Also, in many or most organizations, there is a review of the approval on a regular time interval which varies. As part of the review process, suppliers/service providers may be removed from the approved panel if they are unable to maintain the eligibility criteria. Also, any supplier/service provider may be removed from the approved panel if they fail to perform.

Document Requirement & Site Audit

During this exercise, many documents are required to be submitted for company review. These documents form evidence for each criterion of evaluation. Nowadays, the submission may be done electronically but the original is also required at a particular point in time. Some of the examples of the documents which include the submissions are hereunder:

  • Completion Certificate for Procurement/Contract
  • Company’s License to perform business
  • Relevant Quality Certificates
  • Solvency Certificates from Bank
  • Taxation Certificates
  • Organization Charts
  • Copies of Office and other Facilities Registration
  • Financial Audits Documents
  • Quality Audit Documents

When the document verification is complete, and found satisfactory, site audits of offices and other facilities are carried out.

Pre-qualification Cycle

As with any other similar exercise, Pre-qualification also comprises many activities. These activities together are called the Pre-qualification cycle.

Commonly, the following activities form the Pre-qualification cycle:

  • Registration by Supplier/Contractor for Pre-qualification
  • Confirmation of Registration by Company
  • Filling up of relevant form and enclosing the appropriate documents
  • Submission to the Company
  • Review of the form and documents by the Company
  • Issue of queries to Supplier/Contractor by Company
  • Clarification by Supplier/Contractor
  • Acceptance or Rejection by Company
  • If accepted, finalizing the offices and facility audit schedule
  • Carrying out of offices and facilities audit by Company
  • Review of the audit Report by Company
  • According to approval or rejection for shortlisting

This exercise may take months. It also depends on the location as site audit is generally the part of this exercise.

Detail Categorization

Earlier in this article, we defined the types of services covered at a higher level. However, the categorization is down to a very detailed level in order to pick the most appropriate supplier or service provider. To elaborate further, a service contractor may not be able to perform EPC contract works and vice versa. Similarly, A compressor manufacture will not be able to supply a heat exchanger. Hence, a detailed categorization is required where suppliers, contractors and other service providers are sub-categorized. Examples of this sub-categorization are as follows:

  • Suppliers:
    • Pipes
      • Steel Pipes
      • Non-metallic Pipes
    • Steel Plates
    • Equipment like Pressure Vessels, Columns.
    • Equipment like Pumps, Compressors
    • Cables
      • Electrical Cables
      • Instrumentation Cables
    • Diesel Generators
    • UPS System
    • Surface Coating
      • Paints
      • Primers
    • Contractors:
      • EPC Contractors
      • Construction Contractors
      • Service Contractors
      • Maintenance Contractors
    • Service Providers
      • Consultants
        • FEED Consultants
        • Environment Consultants
        • Management Consultants
        • Environment Consultants
      • Suppliers
        • Manpower Suppliers
        • Rental Equipment Providers

The above are just very few examples, though the list would be vast and voluminous.

Benefit of Pre-qualification

The benefit of this exercise is that a vast option of suppliers, contractors and service providers who are already suitable for the job is available to the company. As they are already benchmarked as per the company’s requirement, they can be hired by the appropriate process.

Figure3_Activities after Pre-qualification

Conclusion

In this article, a good summary of Pre-qualification is provided. This activity has been covered from different angles. While it is short, it gives sufficient insight. This article would be useful to the experienced professionals, trainees to this field and also those pursuing their academic specialization in project management.