application of preference scheme in the evalauation of proposals and bids

APPLICATION OF THE MARGIN OF PREFERENCE IN THE EVALUATION OF BIDS AND PROPOSALS

APPLICATION OF THE MARGIN OF PREFERENCE IN THE EVALUATION OF BIDS AND PROPOSALSBy: Eng- Raymond Joseph Mbishi, Procurement Expert, PPRA

For Contact E-mail: [email protected]

Government is the single largest customer group in any country and it is considered as market place to contractors, consultants, suppliers and service providers. Currently, in Tanzania it is estimated that public procurement covers 70% of the recurrent budget and 100% of the development budget each year (Swai, 2008). With this statistic no doubt that government market offers a wide range of business opportunities to the private sector, which help to promote the growth and development of businesses. However, most local enterprises such as local contractors, consultants, suppliers and service providers are unable to capitalise these business opportunities because they are marginally uncompetitive in their contract prices and quality as well as experience compared to those of their foreign counterparts. As a result, they are unable to accumulate experience and wealth to develop and grow their business to be world-class competitive enterprises.The Public Procurement Act No. 21 of 2004 (PPA 2004) and it Regulations 2005 have provision for margin of preference in the award of contract for works, goods, non-consultant services and consultancy services for the benefit of local enterprises in order to increase the competitiveness of local companies as well as foster their growth. The objectives of the preference scheme is to develop local businesses, giving them a competitive advantage when competing for public procurement contracts by adding a specified margin of preference to the evaluated price of non-local bidders (foreigners) during the detailed evaluation in the financial comparison stage.

In spite of this, most domestic contractors, suppliers, consultants and service providers lose out in bidding for government contracts because procurement entities (PEs) are not fully applying this provision of the Act. The report of Assessment of the Countrys Procurement System 2007 revealed that out of a 388 sample case assessed only 3% of the tender documents had provision of margin of preference. One of the problems cited by the PEs was lack of capacity of the practitioners within the PEs to prepare bid documents and evaluation of bids with margin of preference. It was thus recommended that there is a need of building capacity of the practitioners in the PEs in this area in order to stimulate application of margin preference to meet the expectation of local enterprises and provide the platform for their growth. This paper intends to provide a methodology on how margin of preference can be applied in the evaluation of bids/proposals so that practitioners can make it happen while complying with the Act and its Regulations.Eligibility for Margin of Preference As a matter of principle PPA 2004 requires PEs when procuring goods, works or services of international or national bidding especially when evaluating and comparing bids to grant margin of preference for the benefit of bids for goods manufactured, mined, extracted or grown in the United Republic of Tanzania (URT) and works performed by Tanzania contractors or services provided by Tanzanias Consultant provided this is clearly stipulated in the bid documents. Section 49 of PPA 2004 provides that individual Tanzania contractors or consultants are eligible for margin of preference if they meet the following criteria; they are incorporated or registered in the URT, at least fifty percent of the authorised capital of the company is owned either by the Government or by citizens of Tanzania, they do not subcontract more than ten percent of the contract price and there is no arrangements whereby major part of the net profit or other tangible benefits of the domestic company will accrue or be paid to persons not citizen of Tanzania or to companies which would not be eligible.In case of joint ventures of local companies they must meet the following criteria; individual member companies are incorporated or registered in the URT, at least fifty percent of the ownership of individual companies are held by citizen of Tanzania, the joint venture itself is registered in Tanzania, do not subcontract more than ten percent of the contract excluding provisional sums to foreign firms and do not have arrangement whereby any major part of the profits will accrue or be paid to persons not citizen of Tanzania or to companies which would not eligible.For partners or individual persons trading as contractors or consultants must meet criteria such as; the majority of capital shares are held by citizen of Tanzania and the partners or individual persons shall not subcontract more than ten percent of the contract price excluding provisional sums, to foreign firms, partners or individual.

In line with these eligibilities the Act provides that associations or joint venture between local and foreign companies, partners or persons should not be made mandatory. However, in order to encourage foreign firms to associate or form joint venture with Tanzanian contractor, suppliers or consultants the regulations provides incentives in terms of margin of preference depending on the inputs of local firms on the procurement under international and national competitive bidding. Margin of Preference Based on the Inputs

Margin of preference apply only in the evaluation of bid under international and national competitive bidding. In its effort to develop local enterprises the Government through PPA 2004 and its Regulations 2005 has adopted a margin of preference based on the input of local firms in the joint venture with foreign firms. A minimum margin of preference of 4% may be granted to joint venture between foreign and local firms in which the input of local firm in the association range between 20% and 40%. In case an input of local firm in the joint venture is between 40% and 60%; and between 60% and 80% a margin of preference of 6% and 8% respectively may be granted. The maximum margin of preference of 10% may be granted to a local firm and foreign firm in which the input of foreign firm in joint venture does not exceed 20%. These margins of preferences apply for procurement of non-consultant services and disposal assets by tender (Government Notice No.97) as well as selection and employment of consultants (Government Notice No.98).

For suppliers supplying goods mined or manufactured in Tanzania may be granted margin of preference of 15%. However, eligibility for preference for goods is determined by referring to source domestic of goods and not to the nationality of the supplier/bidder. In this aspect the nationality of the bidder or supplier is irrelevant and therefore, preference is given not to the bidder but to the goods. However, Mlinga (2006) cautioned that very high margin of preference is equivalent to exclusive preference since it will automatically deter the participation of the foreign firms in the bid process. On the other hand, it is being argued that preference should not continue forever there should be time limit whereby the local enterprises must graduate and start competing effectively with the foreign counterparts.

Evaluation with Margin of Preference for GoodsFor the purpose of comparison of bids where a margin of preference for goods manufactured, grown, mined or extracted in the URT, responsive bids should be classified in three group as follows:-Group A: Goods manufactured, grown, mined or extracted within the URT provided that bidder established that:

i. Labour, raw materials and components originating from within the URT with more than 30% domestic value added;

ii. The production facility in which goods will be manufactured, assembled or processed has been engaged in manufacturing, assembling or processing such goods at least since the time of submission of the bid.

Group B: Bids offering goods originating from within the URT.Group C: Bids offering imported goods.In this case ex-works price quoted by Group A and Group B bids should include all duties and taxes paid or payable on the raw or basic materials or components that have been purchased in the domestic market or imported and should exclude any sales and similar taxes on the finished product. On the other hand, the price quoted in Group C should be on CIF (Cost Insurance and Freight) or CIP (Carriage and Insurance Paid) port of entry, border point or other destination exclusive of customs duties and other import taxes. ProcedureStep 1: Determine the lowest evaluated bid in each group.Step 2: Compare the lowest evaluated bids among the Group.Step 3: If the lowest evaluated bid is from Group A or B, then, select it for contract award.

Step 4: As a result of the comparison in Step 2, the overall lowest evaluated bid is from Group C, then, all Group C should be compared with the lowest evaluated bid from Group A. For comparison only; add the amount of the duties and other related imported charges which a non-exempt importer would have paid for importation of the goods offered in such Group C bid; or 1.15 x CIF price of Group C against Ex-works price of Group A.

Step 5: In case Group A bid still the lowest should be selected for contract award; if not; the lowest evaluated bid from Group C as determined from the comparison should be selected.The example below using hypothetical calculated lowest bids illustrate the steps above.Scenario 1: When the lowest evaluated bid is from Group A S/No.Bidder NameLowest Evaluated Bids (Tshs.)

Group AGroup BGroup C

1.Masanya Traders Ltd10 x 106

2. Crown Jv Ndege Co. Ltd8.2 x 106

3.X-Large Ltd8.9 x 106

4.Jites Co. Ltd10.5 x 106

5.Dona Jv Kicho Ltd7.9 x 106

6.Best Europe Ltd8.5 x 106

7.Tranco Ltd7.5 x 106

8.Litter Enterprises9.9 x 106

Compare the lowest evaluated bids from each group.S/No.Bidder NameLowest Evaluated Bids (Tshs.)




3.Tranco Ltd7.5 x 106

Scenario 2: When the lowest evaluated bid is from Group BS/No.Bidder NameLowest Evaluated Bids (Tshs.)








7.Tranco Ltd8 x 106


Compare the lowest evaluated bid from each group.S/No.Bidder NameLowest Evaluated Bids (Tshs.)


1.Crown Jv Ndege Co. Ltd7.9 x 106


3.Tranco Ltd8 x 106

Scenario 3: When the lowest evaluated bid is from Group CS/No.Bidder NameLowest Evaluated Bids (Tshs.)








7.Tranco Ltd10 x 106


S/No.Bidder NameLowest Evaluated Prices (Tshs.)


1.Masanya Trader Ltd8 x 106



Add 1.15 x CIF price of Group C (Jites Co. Ltd) and compare against Ex-works price of Group A.7.9 x 106 x 1.15 = 9.085 x 106

Suppose on the same scenario 3 the lowest evaluate bid of Jites Co. Ltd is Tshs. 6.9 x 106, what will happen?S/No.Bidder NameLowest Evaluated Prices (Tshs.)


1.Masanya Trader Ltd8 x 106



Add 1.15 x CIF price of Group C (Jites Co. Ltd) against Ex-works price of Group A.6.9 x 106 x 1.15 = 7.935 x 106

Goods Forming Part of a Contract Package

In case of supply and installation of Goods, Turkey Contracts or any other form of procurement contract in which a number of discrete items of equipment is grouped into one contract package, a margin of preference shall not be applied to the package but only to goods manufactured in URT.

ProceduresStep 1: Goods offered from abroad are quoted in CIF or CIP.

Step 2: Goods manufactured locally are quoted EXW (ex-work).

Step 3: Other components such as design, installation, commissioning, testing and supervision are quoted separately.

Step 4: For comparison of local goods with imported goods, add to offered CIF or CIP price of the imported goods the lesser of either;

15% or

Applicable duties and taxes to the paid for each item.

It is worth to note that the bids are not to be classified in to groups when comparing bids.

The example below illustrates the application of margin of preference for goods forming part of a contract package.

Contract PackageEvaluated Bid Price

Bidder ABidder B

ServicesDesign365 x 106370 x 106

WorksBuilding and Civil Works2500 x 1062550 x 106

SupplyEquipment EXW150 x 106160 x 106

Equipment CIF180 x 10690 x 106

Su-total3.195 x 1093.17 x 109

Add domestic preference 15% of CIF180 x 106 x 0.15 =

27 x 10690 x 106 x 0.15 =

13.5 x 106

Grand Total3.222 x 1063.1835 x 109

Evaluation with Preference for Works and Non-Consultant Service Contract

When comparing domestic bids with foreign firms or association of domestic with foreign bids, local contractors or association of local and foreign contractors are granted margin of preference granted by classifying the responsive bids into three groups as follows:-Group A: Bids offered by domestic contractor or service providers as well as association between local contractors or service providers eligible for the preference.

Group B: Bids offered by the associations between local and foreign contractors or service providers.

Group C:

Bids offered by the foreign contractors or service providers.ProcedureStep 1: Evaluate all responsive bids to determine the lowest evaluated bid within each group.

Step 2: Compare the lowest evaluated bids from each group.

Step 3: If the lowest evaluated bid is from Group A, then, select for contract award.

Step 4: If as a result of comparison between a bid from Group A and Group B and the lowest is from Group B, then, an amount equal to difference between the margin of preference for Group A and that of Group B should be added to the lowest evaluated bid from Group B. It worth to note that Regulation 95 (5) of GN No.97 stipulates that as a result of the comparison, a bid from Group A or Group B is the lowest, then, should be selected for contract award. This does not take into account the difference of margin of preference may be specified for each group. However, the best practise of considering the difference of margin of preference for the two groups has been captured in Regulation 62 (6) (b) (i) of GN No.98 Step 5: If the lowest evaluated bid is from Cluster C, all Group C bids should be further compared with the lowest evaluated bid from Group A.

Step 6: If the lowest bid is from Group C, the specified margin of preference should be added and compare it with the lowest bid from Group A; then, award contract to the lowest.

The scenarios below illustrate steps of application of margin of preference.Scenario 1: When the lowest evaluated bid is from Group AS/No.Bidder NameLowest Evaluated Bids (Tshs.)


1.Ben Company Ltd100 x 106

2. Jabali Co. Jv Tokyo Ltd102 x 106

3.ABC Ltd96 x 106

4.Jinx Co. Ltd105 x 106

5.Triple X Jv Manyara Ltd98 x 106

6.Best American Ltd103 x 106

7.Branco Ltd110 x 106

8.Mado Ltd Jv Trix Co. Ltd99 x 106

9.Reyas Ltd97.5 x 106

10.Ndama Buildings Ltd108 x 106

Comparison of the lowest evaluated bids from each group in scenario 1.S/No.Bidder NameLowest Evaluated Prices (Tshs.)


1.ABC Ltd96 x 106


3.Reyas Ltd97.5 X 106

Scenario 2: When the lowest evaluated bid is from Group BS/No.Bidder NameLowest Evaluated Bids (Tshs.)


1.Ben Company Ltd100 x 106

2. Jabali Co. Jv Tokyo Ltd102 x 106

3.ABC Ltd98.5 x 106



6.Best American Ltd99.4 x 106


8.Mado Ltd Jv Trix Co. Ltd94.5 x 106

9.Reyas Ltd103 x 106


Comparison of the lowest evaluated bids from each group in scenario 2 above. The comparison between a bid from Group A and B indicates that the lowest is from B, then, an amount equal to difference between the margin of preference for Group A and that of Group B should be added to the lowest evaluated price from Group B.Assume that based on the information submitted by the bidders revealed that Group A bid deserve maximum margin of preference of 10% and all Group B bids, the inputs of local in the association is 40 -60 % which means that deserve 6%.Comparison of the lowest evaluated bids from each group in scenario 2.S/No.Bidder NameLowest Evaluated Prices (Tshs.)


1.ABC Ltd98.5 x 106

2.Mado Ltd Jv Trix Co. Ltd94.5 x 106

3.Best American99.4 x 106

Add the difference of margin of preference to Mado Ltd Jv Trix Co. Ltd i.e 4%94.5 x 106 x 1.04 =

98.28 x 106

Suppose on the same scenario the lowest evaluate price of Mado Ltd Jv Trix Co. Ltd is Tshs. 96 x 106, what will happen?S/No.Bidder NameLowest Evaluated Prices (Tshs.)


1.ABC Ltd98.5 x 106


3.Best American99.4 x 106

Add the difference of margin of preference to Mado Ltd Jv Trix Co. Ltd i.e 4%96 x 106 x 1.04 =

99.84 x 106

Scenario 3: When the lowest evaluated bid is from Group CS/No.Bidder NameLowest Evaluated Bids (Tshs.)


1.Ben Company Ltd97.5 x 106

2. Jabali Co. Jv Tokyo Ltd98.5 x 106

3.ABC Ltd100 x 106



6.Best American Ltd103 x 106





Comparison of scenario 3 indicates that the lowest evaluated bid is from Group C which should be further compared with the lowest evaluated bid form Group A.




2.Jabali Co. Jv Tokyo Ltd98.5 x 106


Add maximum 10% margin of preference to Reyas Ltd. 96.4 x 106 x 1.1 =

106.04 x 106

Suppose on the same scenario the lowest evaluate price of Reyas Ltd is Tshs. 88 x 106, what will happen?




2.Jabali Co. Jv Tokyo Ltd98.5 x 106

3.Reyas Ltd88 x 106

Add maximum 10% margin of preference to Reyas Ltd. 88 x 106 x 1.1 =

96.8 x 106

Evaluation with Preference for Financial Proposals

For consultancy services margin of preference apply only on the financial proposals. In this case the local firm or association of local and foreign firms must meet quality criteria; technical proposals scoring pass mark or above. Furthermore, margin of preference is restricted to combined quality and cost and least cost selection procedures. The procedures outlined in the evaluation for work and non-consultant services can be applied as the principles involved are the same. However, it is important to note that margin of preference should applied before calculating financial scores in case of quality and cost selection procedures. CONCLUSION

As it has been noted, the application of margin of preference in evaluation of bids and proposals has been one of the obstacles in the implementation of preference scheme in Tanzania. It is the authors expectation that the methodology presented in this paper will enlighten practitioners in procurement on how margin of preference can be applied during evaluation process. However, it is imperative to remind the practitioners that the bid documents should clearly indicate that margin of preference will be granted and describe the methods will be used in evaluation and comparison of bids to give effect to such preference. REFERENCES1. The Public Procurement Act No. 21 of 2004 and its Regulations 2005.

2. Assessment of Tanzanias Procurement System, Report CPA 2007.3. Mlinga, R.M. (2006), Procurement Aspects in Creating an Enabling Environment for the Construction Industry.

4. Swai, M.M. (2008), Procurement Functions, Process and Challenges: An Overview of Public Procurement, Tanzania Procurement Journal Vol.1, No.01, 2008.

5. Evaluation Guidelines for Works, Goods and Non-Consultant Services and Employment and Selection of Consultant, Published by the PPRA.

6. Evaluation Guidelines for Works and Goods and Employment and Selection of Consultant, Published by the World Bank.

7. Rules of Procedure for Procurement of Goods and Works, African Development Bank.

Lowest evaluated bids from each group

Comparison of lowest evaluated bids from each group, ABC Ltd is the lowest, then, select for contract award.

Lowest evaluated bids from each group growgr

Compare ABC Ltd and Mado Ltd Jv Trix Co. Ltd, still Mado Ltd Jv Trix Co. Ltd is the lowest, then, select for contract award.

Compare ABC Ltd and Mado Ltd Jv Trix Co. Ltd, in this case ABC Ltd is the lowest, then, select for contract award.

Lowest evaluated bids from each group growgr

Compare Ben Company Ltd and Reyas Ltd ABC Ltd, Ben Company Ltd is the lowest, then, select for contract award.

Compare Ben Company Ltd and Reyas Ltd ABC Ltd, in case Reyas Ltd is the lowest, then, select for contract award.

Lowest evaluated bids from each group

Tranco Ltd is the lowest, then, select for contract award

Lowest of evaluated bids in each group

Crown Jv Ndege Co. Ltd is the lowest, then, select for contract award

Lowest of evaluated bids in each group

Compare Masanya Trader Ltd and Jites Co. Ltd, Masanya Trader Ltd is the lowest, then, select for contract award.

Compare Masanya Trader Ltd and Jites Co. Ltd, Jites Co. Trader Ltd is the lowest, then, select for contract award.

Comparison of Bidder A and B indicate Bidder B is the lowest, then, select Bidder B for contract award.

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application of preference scheme in the evalauation of proposals and bids

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