Paper No.
670
The short listing and limiting of number depends on
the choice and composition of PQ criteria. In this
vein, Singh & Tiong13 have observed that research
focus is different from the industry practices and
where industry seems to depend on the principles
of client organization and their methodologies.
For public projects, more specifically, some
governments set PQ limits to restrict the bidders,
while others don’t specify any PQ requirements
(like in case of open procedure). But, in general,
the focus of PQ criteria is mostly on the tangible
attributes such as technical and financial
experience and the same are used in most of the
countries. Lower limits on these criteria are set by
the governments and these limits are used to either
screen or rank the bidders. In spite of these general
recommendations, private sector is more inclined
towards standardisation of PQ criteria, their limits,
and the bidding process so as to aid efficiency,
predictability, and approval process of the project5.
Thus, the intended standardization of PQ limits
should not be embarked upon without gathering
empirical evidences from the PQ experiences of
PPP projects in a given sector. This is because,
setting unrealistic PQ limits may either lead to
participation of incompetent bidders and make
the competition very intense or make the project
unattractive for the bidders. While extant literature
has given directives for application, the selection
of qualified bidders to participate in the bidding
process is not clearly understood thus far Indian
highway projects. The current study, therefore,
identifies the PQ criteria, limits, and analyses their
behaviour in order to facilitate the generation of
empirical evidences to support the future projects.
3. Prequalification Limits’ Factors
The attractiveness of a PPP projects to the private
parties mainly lies with the profitability and the
risks involved. Three factors which affects the
profitability and risks profile of a PPP highway
projects are identified from the literature15 and are
reviewed subsequently.
User willingness to pay
The principle of setting prequalification limits is
to shortlist the private parties to a selected few
so as to minimize the cost and time involved in
the evaluation of bids and also at the same time
fostering competition among the private parties 14.
94 Journal of the indian Roads Congress, July - September, 2017
The profitability will be greater and risk profile of
the project will be lower if there exist high demand
and willingness to pay for the road services15. In
case of high demands and willingness to pay for
the road services, more number of private parties
will be interested in the projects and the Granting
Authority will have enough flexibility in fixing
higher prequalification limits to shortlist the private
parties. On the contrary, if there is less demand and
willingness to pay for the envisaged road project,
the profitability will be lower and risk profile will
be higher for the private parties. In such cases,
the Granting Authority may be bound to set lower
prequalification limits in addition to switching
from toll based projects to annuity based projects
to have enough private parties for shortlisting.
Gross State Domestic Product (GSDP)
National Highways runs within a state and
interstate as well. Gross State Domestic Product
(GSDP) is an indicator of income. State and its
neighboring states having higher GSDP will have
larger economic activities that involves the use
of transport. High per capita income of a state
indicates that traffic will be more and user will
have willingness to pay for the road services 15.
For PPP project in such a state/states, profitability
will be higher and the traffic revenue risk will be
lower, thereby attracting more numbers of private
prayers. The prequalification limits can be set
higher for such a state/states. But if the GSDP of
a state and its neighboring states is low, traffic
risk revenue will be higher and the project will
be less attractive to the private parties. In such
situation, the Granting Authority may be bound to
set lower prequalification limits. Therefore, one
can expect higher prequalification limits in the
National Highway PPP projects in the state/states
having higher GSDP. Moreover, the behavior of
high per capita income states and corresponding
traffic growth would also relevant. In cases where
per capita income is high traffic growth might be
witnessing low traffic growth rate due to saturation
of business activity while for states with low per
capita income, the traffic growth rate may be
higher due to the potential industrial, agricultural,
and trade possibility. However, the influence of
per capita income is not considered in the current
study.