The turnover requirement in tenders is one of the important tools for evaluating bidders. However, its incorrect definition can lead to restricted competition. How should resources be assessed proportionately? The experts at Etenders.ge explain.
Introduction
The assessment of bidders' operational capabilities in commercial sector tenders is one of the important stages. The turnover requirement is particularly widely used in large construction tenders as one of the qualification criteria for bidders. However, its incorrect definition can become the cause of both restricted competition and ineffective selection.
Did you know that turnover is a useful indicator for assessing a supplier's general capabilities?
What is the Purpose of the Turnover Requirement?
The turnover requirement is used to determine whether a bidder has sufficient operational resources to complete a specific project within the set timeframe. Unlike experience, turnover also takes into account the timeframe for project implementation. In other words, it represents the accumulated experience from successfully completed projects in a specific field within the set timeframe.
It indirectly reflects:
— the scale of the company's operations
— the ability to mobilise resources
— operational stability
Theoretical Background in Procurement
Turnover is not merely a financial indicator — it is a proxy indicator of a company's overall capabilities. It is important to note that turnover should be considered as an indicator rather than an absolute measure.
The Principle of Proportionality
As with other qualification requirements, the principle of proportionality must be observed when defining the turnover requirement. In the case of public procurement, the legislation of many countries requires that the principle of proportionality be observed when establishing qualification requirements.
This means that the requirement must be:
— related to the object of procurement
— necessary and sufficient
— must not restrict competition excessively
How to Define a Moderate Turnover Requirement?
Several factors must be taken into account to establish a moderate and reasonable requirement:
1. Project volume — the total value of the project serves as the starting point.
2. Completion timeframe — a project of the same volume requires different resources:
— completion in 1 year → high resource requirement
— completion in 3 years → comparatively lower annual workload
Accordingly, turnover should be linked to the annual workload rather than just the total volume.
3. Market reality and capabilities — it should be noted that suppliers' general capabilities typically exceed the work they have actually completed. According to our research, this figure is approximately 1.5–2 times greater.
Practical Example
If in a commercial tender:
— the project value is 1,000,000 GEL
— the completion timeframe is 1 year
A turnover of 1,000,000 GEL may be required as standard. However, if we take into account that companies' capabilities are approximately 2 times greater than their actual turnover, then the reasonable requirement could be reduced to 500,000 GEL. This increases competition while the risk remains manageable.
Risks of Incorrect Definition
Excessively high, disproportionate requirement:
— excludes small and medium-sized businesses
— reduces competition
— increases prices
Excessively low requirement:
— increases the risk of incompetent suppliers
— threatens project delivery
Practical Recommendations
— where necessary, use turnover as one of several indicators rather than the sole criterion
— link the requirement to the project's annual workload
— take into account the real capabilities of the market
— where necessary, use additional mechanisms such as:
— performance experience
— personnel qualifications
— material and technical resources
Conclusion
The turnover requirement is an important yet sensitive instrument. Its correct application contributes to:
— increasing competition
— selecting effective suppliers
— managing risks
To achieve the optimal result, it is essential to observe the principle of proportionality and assess turnover not as an absolute threshold, but as a reasonable indicator for determining a supplier's capabilities.
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Author: Aleksander Chkhikvishvili
