Similar work and annual turnover: what the clauses mean and how they are counted

Why these two clauses exist

A works tender asks two questions before it looks at a price. Can this bidder do work of this kind, proved by having done work like it? And has it the money to carry the work while it is being done? “Similar work” answers the first; average annual turnover the second.

The Department of Expenditure's Manual for Procurement of Works tells a central department how to write both. It is guidance to the buyer, not a rule binding on you, but it is the pattern most works tenders are cut from.

One sentence in it matters more than any threshold: “Any criteria not specified in the tender cannot be used for evaluation or qualification.” Nothing can be added at evaluation that the document did not state. The model tender document puts the consequence the other way round: “Bids/ bidders not meeting these Qualification criteria shall be rejected as nonresponsive.” These clauses are met or not met; a good price does not buy past them.

“Similar” is defined by the tender, not by you

There is no national definition of similar work. Each tender writes its own, in the qualification section: Section VIII in the model document, which the template's note distinguishes from the eligibility conditions in the notice's clause 3. A department may narrow it by nature of work, by value, by completion status, by the class of client, or by any combination it states. Two tenders for the same kind of building, issued the same month, can define “similar” differently and both be regular.

The template does caution the buyer that “unduly onerous qualification criteria would restrict competition and lead to higher prices”, advice to the department rather than a right you can assert after bids open. A definition you believe is unreasonable is raised at the pre-bid conference, which the rules provide for in turnkey contracts, contracts of a special nature “or wherever felt necessary”. What such a query can move is on how a tender changes after it is published. Until then, the definition that counts is the one in front of you.

How the manual counts similar work

Where a department follows the manual, the clause takes the shape of its particular-construction-experience paragraph: the applicant should have “successfully completed or substantially completed similar works during last seven years ending last day of month previous to the one in which applications are invited”, being either:

• three similar completed works “costing not less than the amount equal to 40 (forty) percent of the estimated cost”; or
• two similar completed works “costing not less than the amount equal to 50 (fifty) percent of the estimated cost”; or
• one similar completed work “costing not less than the amount equal to 80 (eighty) percent of the estimated cost”.

The percentages are of the estimated cost of the work tendered, not of your turnover, and the options are alternatives: one large completed work can do the job of three smaller ones. What proves it is the completion certificate from the authority that awarded the work; a self-declaration is not a certificate.

The manual also lets a department count unfinished work. A “substantially completed” work means “an ongoing work in which payment equal to or more than 90% of the present contract value has been made to the contractor in that ongoing contract, and the work or a major part of it is in a usable condition for its intended purpose”. No termination proceedings may be pending, and the engineer-in-charge or the employer “shall issue a certificate of substantial completion containing two parts”.

Average annual turnover, and who certifies it

This is general information; confirm with the tender document and your adviser.

The turnover clause is more specific than bidders expect. The applicant “should have achieved minimum annual value of general construction work (as certified by Chartered Accountant, and at least 50(fifty) percent of which is from Engineering (Civil/ Electrical/ Mechanical as relevant to the work being procured) construction works, carried out in any of the year over a stated period (normally five to seven years, ending 31st March of previous year), calculated by applying an appropriate multiplier to the projected annual construction expenditure on the subject contract”. On the multiplier: “The multiplier of 2 may be used, but for very large contracts should not be less than 1.5.”

Four tests are packed into that sentence. The figure is the annual value of construction work, not total revenue. At least half of it must come from engineering construction work of the kind being procured. It is achieved in any one year inside the stated window, so a single strong year can qualify where an average would not. And a chartered accountant certifies it: a certificate signed for the purpose.

Outside works the parallel is the audited financial year: GeM asks a seller for verified “Income Tax Return Details (ITR Form and ITR acknowledgment) for the last three years”.

One certified figure the rules do define is local content: above the value the Make in India order sets, a supplier produces a certificate from the statutory or cost auditor, or from a practising cost accountant or chartered accountant, giving the percentage of local content. That order's thresholds and classes are on the rules.

Bid capacity, joint ventures and works in hand

Some tenders add a third test: available bid capacity, which asks whether you can take this contract alongside what you are already building. The manual's formula: “The bidder should possess the bidding capacity as calculated by the specified formula. The formula generally used is: Available bid capacity = A x M x N -B, where A = Maximum value of engineering (Civil/ Electrical/ Mechanical as relevant to work being procured) works executed in any one year during the last five years (updated at the current price level).”Department of Expenditure, Ministry of FinanceThe other terms are the tender's, so available bid capacity falls as an order book fills.

Joint ventures are the other route, and state portals accept them as bidding entities alongside companies, proprietorships and partnerships. The works manual carries a template of qualification criteria for joint ventures, which a procuring entity “may seek … preferably” (guidance, not a rule), under which “the technical eligibility criteria for the contract can be met either by the Joint Venture (JV) as a whole or by the Lead Member of the JV”. A partner's experience transfers only on the terms your own document sets.

The relaxations the manual names

Two relaxations in the same chapter are easy to miss. For small contracts the manual says that “in small value contracts (e.g. repair contracts upto Rs. 60 lakh) the requirements regarding General Construction Experience, Particular Construction Experience and Available Bid Capacity may not be insisted upon provided the bidders fulfil other criteria regarding Financial/ Personnel/ Equipment capabilities”, adding the limit that “no such contractors may be allowed to hold more than 2 contracts under relaxed credentials, at any given time”.

For DPIIT-recognised start-ups, “the condition of prior turnover and prior experience may be relaxed for Startups … subject to meeting of quality & technical specifications and making suitable provisions in the tender document”, and “such relaxation is not optional, but has to be ensured, except in case of procurement of items related to public safety”. The relaxation reaches a bidder through the tender document, so a start-up reads for it and asks before the deadline if it is absent.

Five ways these clauses lose a bid

Each is a department's stated reason, not a judgement call.

1. The wrong window. A completion certificate dated outside the years the tender counts, or a turnover year outside the stated period.
2. The wrong figure. Gross receipts where the tender asked for the annual value of construction work, or total turnover where it asked for the engineering share alone.
3. The wrong “similar”. A completed work of the right value but not of the nature the tender defined: the commonest of the five.
4. An uncertified figure. A turnover statement the tender required a chartered accountant to certify, filed without the certificate.
5. Experience that does not transfer. A parent's work claimed by a subsidiary, or a partner's work claimed on terms the tender does not allow.

None is decided at the price stage. The rest of the file a tender asks for is on before you can bid, and the stage at which these clauses are applied is why bids are rejected at technical evaluation.