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Do Margin of Preference cause inefficiency?

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Re: Do Margin of Preference cause inefficiency?

Post  RSM on Thu Aug 11, 2011 5:03 pm

RJM

I concur with Mwasyoge. Tshs 8 billion is quite a lot to go to a firm that, although local, was not competitive. If a foreign firm can do it for Tshs. 8 billion less why should'nt the local firm?

Just a thought. What if we use the preference for evaluation purposes only but on award request the local firm to reduce his price accordingly to match that of a foreign firm. Can anyone share any experience along this thinking?

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Re: Do Margin of Preference cause inefficiency?

Post  Mwasyoge, David on Wed Jul 13, 2011 7:12 am

in my view my answer is no, I think 8 billion is quite expensive, this is tax payers money, we need to look on the other way of empowering the local contractors, else we need to know how will this contractor give back to the society if given that discount by the government

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Re: Do Margin of Preference cause inefficiency?

Post  RJM on Thu May 05, 2011 7:00 pm

RSM
I think no one can deny the fact that granting margin of preference to the local firms it is expensive undertaking on the part of the Governments. Margin of preferences are actually be looked at as a discount that the Government are willing to pay as a premium.

If we look at the figures you have presented in your submission it is scaring – it is justifying the fact I have mentioned above that - it is expensive undertaking. However, we need look at the principal objective of the preference scheme – to assist the local business community to become competitive and efficient suppliers/service providers to the public sector. This includes capacity building of the local firms and encourages using of locally manufactured goods. No doubt that if the local firms could absorb this preferential treatment there will be massive multiplier effect in all sectors of economic – absorption capacity still setback. To me preferential treatment in procurement should be considered as a tool to empower citizens economically as well as part of an overall economic stimulus strategy.

On the other hand, foreign firms normal construed preference scheme as discrimination and detriment competition in the procurement process. To some extent I tend to agree with their arguments simply because margin of preference gives chance for local bidders to price high with knowledge of discount from the Government. I think here is where the concern of RSM is centred, that awarding the bid to the bidder whose tender sum is 8 billion more than the lowest! To me this is the discount Government should bear by the Government – for developing local industry and manufacturing.

RSM, if you go by logic, the answer for your questions will be NO.
HII NI SAWA NA MKUKUTA!

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Do Margin of Preference cause inefficiency?

Post  RSM on Fri Apr 01, 2011 12:31 pm

Dear Forum members,

Public Procurement Act and its Regulations provides for a margin of preference of up to 10% for local firms when competing with International firms. My question is - does that provision encourage efficiency on the part of a local firm?

I will give a scenario for you to consider before you give your comment.

Vichekesho Regulatory Authority invited tenders for a construction of a commercial office building whose estimated construction costs was 140 billion Tshs. Five contractors submitted their Bids as follows:

Contractor Tender FigureAdd 10% margin of preference to foreign firm Ranking
A (Foreign)145,000,000,000 159,500,000,000 5
B (Foreign) 138,000,000,000151,800,000,000 2
C (Foreign) 142,000,000,000 156,200,000,0004
D (Local) 148,000,000,000148,000,000,000 (margin of preference not applied) 1
E (Foreign) 140,000,000,000 154,000,000,0003

In the evaluation, after adding 10% margin of preference as required by the law, the local firm D was evaluated to be the lowest, with the lowest evaluated bid of Tshs. 148 billion which is 8 billion above the estimated costs but also the higher than all bids submitted by foreign contractors.

Questions:

1. Would you proceed and recommend D for the award of contract in accordance with the provisions of granting margin of preference to local firms?
2. Is yes, is this not encouraging inefficiency on the part of the local contractor, by accepting to pay him Tshs 10 billion more than B who submitted a lowest bid at Tshs 138 billion or Tshs 8 billion above the client's estimate?


Last edited by RSM on Fri Apr 01, 2011 12:32 pm; edited 1 time in total (Reason for editing : Spelling correction)

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