What you need to know:
- In 2013, the procurement rules were further amended to allow 30 per cent of all government contracts to be given to the youth, women and the disabled. Big businesses now have to share procurement opportunities with smaller companies.
- The road to securing a tender may be a long and narrow one, paved with many challenges, but the influx of a new crop of rich individuals who have made a fortune from tenders has made the trade attractive to young people, whose dream is to clinch that one contract that they hope will make all their dreams come true.
The rise of entrepreneurs who have made money through government tenders has brought unusual attention to the twists and turns of the tendering process.
While it is true that a single tender is capable of changing your life forever, it is also true that the tendering process is a tedious and tricky one. Many people give up at the preliminary stages and the few that soldier on have horror stories to tell of long delays, bribery and the general hassle that goes into securing a tender.
In February 2012, President Mwai Kibaki directed that 10 per cent of all government contracts be earmarked and awarded to the youth. The directive was informed by the government’s realisation that to meaningfully address the issue of youth unemployment, it was necessary to give young people opportunities to benefit from these contracts and tenders.
In 2013, the procurement rules were further amended to allow 30 per cent of all government contracts to be given to the youth, women and the disabled. Big businesses now have to share procurement opportunities with smaller companies.
The road to securing a tender may be a long and narrow one, paved with many challenges, but the influx of a new crop of rich individuals who have made a fortune from tenders has made the trade attractive to young people, whose dream is to clinch that one contract that they hope will make all their dreams come true.
So, how easy is it to secure a tender? Is the tendering process as open and transparent as the government claims it to be? Before you go looking for that tender, it makes sense to have an idea of what to expect.
We spoke to various individuals knowledgeable in this area, as well as three young Kenyans who have been down this road several times.
Some institutions have waived a huge chunk of requirements to allow preference groups, such as the one you belong to, the chance to compete.
For example, many institutions will not require the standard two to three years' audited accounts or even the experience/personnel requirements relegated to applicants of the general categories.
However, to enjoy these advantages, you must acquire an Access to Government Procurement Opportunities (AGPO) certificate. To qualify for this certificate under the preference and reservations schemes, an enterprise owned by youth, women or people with disabilities should be a legal entity that:
a) Is registered with the relevant government body;
b) Has a proprietorship or directorship of at least 70 per cent of the preference group they wish to apply for, for instance made up of 70 per cent women to qualify for the women’s category.
The above is assuming you have already registered the company and have:
A certificate of incorporation
A CR12 Form – Do not let the name confuse you; it is just a form indicating where the majority shareholding lies.
A Tax Compliance certificate - Audited accounts may not be necessary, but KRA needs to validate that your company does not in fact owe the government money.
All the necessary licenses, for instance a National Construction Authority (NCA) clearance certificate for contractors.
Now that you have your documentation in order and your shiny door opening Access to Government Procurement Opportunities (AGPO) certificate, you can register for pre-qualification.
Pre-qualification is the process of registering your company to supply goods, works, services and consultancies to whichever institution sends out a Notice for Pre-Qualification. If you are successful at pre-qualification and your company is shortlisted as a supplier, then you are half-way there.
Pre-qualification is beneficial, as institutions will call upon pre-qualified suppliers directly to bid for a tender in their field, as opposed to putting out EOIs (Expression of Interest) or RFPs (Request For Proposal) notices, that is, selective tendering. Granted, some institutions announce open EOIs but even then, pre-qualified suppliers have an added advantage.
Tender Notices are circulated nationally, for instance in newspapers, and lately, on the Treasury website, (hhtp://supplier.treasury.go.ke).
Bidders are then given a period to purchase or download the tender document from their website. The bids that ultimately comply with the eligibility criteria of the notice and the bidding document are evaluated after tender opening. The tender is then awarded after an exhaustive evaluation.
If reading exhausts you, then tendering is not for you because the bidding process is made of mounds upon mounds of paperwork – tender documents have been known to venture into hundreds of pages.
Filling out the document requires complete presence of mind. You have to be meticulous, as a single attachment or supporting document could disqualify you. Instructions are not only there to guide, they are there to streamline and safeguard the process.
4. FINANCIAL PROPOSALS/QUOTATIONS
The technical proposal may get you through the first round of elimination, but your financial proposal will define whether or not the man hours and resources put into the project are worth it.
To successfully win a tender, your financial proposal needs to be the most competitive. Many think this means your bid needs to be the lowest, but this is not always true.
The institution’s procurement committee will not only compare your quote to what is readily available in the market, they will also consider your volumes and specifications. In a case where your cost is higher, but your specifications better, you may win over a lower cost with poor or average specs.
When doing your financial proposal, it is important to factor in undocumented resources that may go towards the successful completion of the contact.
This is paramount because once you have submitted your quotation, you cannot amend it thereafter. Besides a contingency amount to cater for possible emergencies, other factors include;
a) Out of town services you may have to perform, such as reconnaissance visits or scouting missions prior to beginning the contract. Factor in transport, accommodation and man power costs, which if not included in the quotation will be an out-of-pocket cost.
b) Material that has recently gone out of stock and has to be sourced abroad, thus increasing operational costs.
Margins are key: Allow yourself space to manoeuvre or you will end up making next to nothing because you have had to re-route all funds towards the contract’s execution.
Be careful with your quantities! A seasoned contractor will tell you how impactful a decimal in the wrong place or the difference of a quarter inch/cubic centimetre can be. It could very well cost you millions of shillings in a large scale project.
Lastly don’t be afraid to propose extras outside the requirements. You are the professional and know what best works for the scope of work provided.
Tender documents will ask you to specify your credit period because even with a Local Purchase Order (LPO), institutions can take up to 90 days to honour an invoice; sometimes more. You are, however, contractually obligated to continue supplying the goods, works or services for the duration of the contract.
So what do you do? Start fostering a relationship with your bank. Unfortunately, most banks will not provide a tender guarantee or bid bond for even those that do have high bid premiums that are not sustainable for SMEs.
However, a bank that holds your company account can extend you the credit you require until payment is received. This, for SMEs, may be quite a challenge if you have not had the chance to build your credit history.
As if that is not already enough to deter you, a sprinkle of public entities may require the guarantee to be executed by an insurance company. Obviously, the best options on how to fund a contract for preference groups still poses a challenge.
You have done everything you needed to do, including sourcing for impossible samples, untimely supplier quotes and attaining thoroughly coerced for recommendation letters – now you just need to deliver the documents.
Sounds easy enough, yes? Except more often than not, even after weeks of prior planning and doing your best to put everything together, there is almost always that one thing you have to wait for and it almost always comes at the last minute.
5. FOLLOW THROUGH WITH SUPPLIERS
Successfully winning a bid is just part of the journey, there is still delivery and execution. Everything is running on an accelerated schedule and you need to have the proper team to get you through the contract.
Suppliers will either be your bane or your salvation, so choose them with care. As a first-timer, your instinct may be to work within your circles and provide opportunities to those around you. The pros of this are you will have more input and can push for quality and professionalism.
The cons are you may end up taking on their responsibilities to ensure everything is running smoothly, which defeats the purpose of delegation.
Seasoned suppliers work best under pressure, but tend to be expensive and may be tempted to fleece newbies, which manifests in sub-standard goods and services. A firm hand and unflinching refusal to accept this treatment will however remedy that.
It calls for patience, hard work and some cash to win a contract. Take examples of these young entrepreneurs;
Company: Hot Source Media and PR
Number of tenders won: Five
I have been tendering since 2009. The process is quite hectic and so many documents are required. My main challenge has been the very short timelines for submission and service delivery.
As far as recommendations go, I have found that in event management, owning your own equipment almost always leads to a successful bid. If this is your area, invest in equipment, that way you can provide both the services and supporting tools.
You will also be able to outsource your equipment to other event management firms, meaning you will not have to win a bid to make money from it.
Number of tenders won: 20
I started tendering in 2012 after I was unable to get a job after graduation. I have not looked back since.
The initial tenders were in small organisations with supplies of Sh50,000 and below. So far, I have applied for about 100 tenders in the last year and lost a lot of money in buying tender documents, however, the results have been worth the trouble; I am able to meet my day-to-day expenses and have been able to go back to school.
The first challenge is getting the capital to implement the tenders. As a startup, it was a constant headache getting funds required for supply. Banks and other micro-finance institutions are not always ready to lend to a startup because they have no credit history.
In cases where they agree to finance you, the interest rates are so exorbitant, such that at the end of the day, you end up working for them, not yourself.
Another challenge related to finances is the purchase of tender documents. A lot of money is lost in purchasing these documents, yet in most cases, you do not get any feedback.
Also, getting pre-qualified is more often than not based on having a contact within the organisation awarding the tender, particularly in the procurement department. Moreover, in most cases, the issue of kickbacks arises and you end up giving out most of the profits you would have made.
Another challenge is delayed payments. A lot of money is held up for long, which is discouraging if you are servicing a loan. Is it worth it, you ask?
In spite of all these setbacks, it is. As much as it is important to be innovative, tenders provide you with an avenue for getting income without necessarily having to come up with a mind-blowing business idea.
Number of tenders won: Eight
I have been tendering for two years now. The experience has been an interesting one, but very challenging when it comes to dealing with the government. The returns are usually very generous, but there are also several challenges.
The main challenge is corruption at every turn. As a contractor, it is necessary to engage in the vice if you expect your works to go smoothly and for payments to be made promptly.
Dealing with local government representatives who frequently request for alterations to plans usually to the detriment of the contractor is also another challenge. Then there is also the time taken to process the tenders.
Plans are generally copy-pasted and there is usually considerable confusion arising from lack of supervision by the relevant county officials when it comes to a project that involves more than one contractor.
Many times, the budget for works is a lot lower than the specifications provided for, which results in razor-thin margins and sub-standard work.
Use of professionals for proper quantifying of the works needs to be done. Then of course there is competition from several companies that have the similar licenses and documentation.
You will make money, but be prepared to be shocked by how processes work in government.
A Request for Proposal (RFP) is a solicitation often made through a bidding process, by an agency or company interested in procurement of a commodity, service or valuable asset, to potential suppliers to submit business proposals.
A purchase order is a legally binding document between a supplier and a buyer. It details the items the buyer agrees to purchase at a certain price point. It also outlines the delivery date and terms of payment for the buyer.
A bid bond is issued as part of a supply bidding process by the contractor to the project owner.
Updates have been made to the bank credit section. Procuring entities are now asking for a tender securing declaration form in lieu of a bid bond. Failure to deliver leads to debarment.
They may also ask for bank reference letters that detail account signatories. The signatories must coincide with 70 per cent shareholding, to make sure the application is for those benefiting from it.
All prices in your financial proposal/quotation must be inclusive of all necessary taxes unless instructed otherwise.
Any extra obligations that come up during the contract must be validated through a separate order or contract.
OTHER BENEFICIAL POINTERS
Attend the sensitisation workshops hosted by institutions. Not only are they insightful on the institutions’ best practices, they also take your contacts or register your company for updates on smaller tender notices. More importantly, some institutions only allow those companies that attend the workshops to submit bids.
Be patient. Pre-qualification is likely to take up to a year or more as public entities pre-qualify annually or even bi-annually.
- Expect to spend a considerable amount of money on the process.
- You may encounter corruption. However, thanks to the Public Procurement Oversight Authority (PPOA) and other government regulations, it is less rampant in public procurement than it was in previous years, since institutions are now forced to meet certain quotas and criterion to pass their audits.
Bureaucracy is part of any process, and more so, one that involves the government. Prepare for red tape, rules, regulations and endless protocol.