APPLICATION OF THE MARGIN OF PREFERENCE IN THE EVALUATION

OF BIDS AND PROPOSALS

By: Eng- Raymond Joseph Mbishi, Procurement Expert, PPRA
For Contact E-mail: raymond.mbishi@ppra.go.tz

Introduction
Government is the single largest customer group in any country and it is
considered as market place to contractors, consultants, suppliers and service
providers. Currently, in Tanzania it is estimated that public procurement
covers 70% of the recurrent budget and 100% of the development budget
each year (Swai, 2008). With this statistic no doubt that government market
offers a wide range of business opportunities to the private sector, which
help to promote the growth and development of businesses. However, most
local enterprises such as local contractors, consultants, suppliers and service
providers are unable to capitalise these business opportunities because they
are marginally uncompetitive in their contract prices and quality as well as
experience compared to those of their foreign counterparts. As a result, they
are unable to accumulate experience and wealth to develop and grow their
business to be world-class competitive enterprises.
The Public Procurement Act No. 21 of 2004 (PPA 2004) and it Regulations
2005 have provision for margin of preference in the award of contract for
works, goods, non-consultant services and consultancy services for the
benefit of local enterprises in order to increase the competitiveness of local
companies as well as foster their growth. The objectives of the preference
scheme is to develop local businesses, giving them a competitive advantage
when competing for public procurement contracts by adding a specified
margin of preference to the evaluated price of non-local bidders (foreigners)
during the detailed evaluation in the financial comparison stage.
In spite of this, most domestic contractors, suppliers, consultants and service
providers lose out in bidding for government contracts because procurement
entities (PEs) are not fully applying this provision of the Act. The report of
Assessment of the Countrys Procurement System 2007 revealed that out of
a 388 sample case assessed only 3% of the tender documents had provision
of margin of preference. One of the problems cited by the PEs was lack of
capacity of the practitioners within the PEs to prepare bid documents and
evaluation of bids with margin of preference. It was thus recommended that
there is a need of building capacity of the practitioners in the PEs in this area
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in order to stimulate application of margin preference to meet the

expectation of local enterprises and provide the platform for their growth.
This paper intends to provide a methodology on how margin of preference
can be applied in the evaluation of bids/proposals so that practitioners can
make it happen while complying with the Act and its Regulations.

Eligibility for Margin of Preference

As a matter of principle PPA 2004 requires PEs when procuring goods, works
or services of international or national bidding especially when evaluating
and comparing bids to grant margin of preference for the benefit of bids for
goods manufactured, mined, extracted or grown in the United Republic of
Tanzania (URT) and works performed by Tanzania contractors or services
provided by Tanzanias Consultant provided this is clearly stipulated in the
bid documents.
Section 49 of PPA 2004 provides that individual Tanzania contractors or
consultants are eligible for margin of preference if they meet the following
criteria; they are incorporated or registered in the URT, at least fifty percent
of the authorised capital of the company is owned either by the Government
or by citizens of Tanzania, they do not subcontract more than ten percent of
the contract price and there is no arrangements whereby major part of the
net profit or other tangible benefits of the domestic company will accrue or
be paid to persons not citizen of Tanzania or to companies which would not
be eligible.
In case of joint ventures of local companies they must meet the following
criteria; individual member companies are incorporated or registered in the
URT, at least fifty percent of the ownership of individual companies are held
by citizen of Tanzania, the joint venture itself is registered in Tanzania, do not
subcontract more than ten percent of the contract excluding provisional
sums to foreign firms and do not have arrangement whereby any major part
of the profits will accrue or be paid to persons not citizen of Tanzania or to
companies which would not eligible.
For partners or individual persons trading as contractors or consultants must
meet criteria such as; the majority of capital shares are held by citizen of
Tanzania and the partners or individual persons shall not subcontract more
than ten percent of the contract price excluding provisional sums, to foreign
firms, partners or individual.
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In line with these eligibilities the Act provides that associations or joint
venture between local and foreign companies, partners or persons should
not be made mandatory. However, in order to encourage foreign firms to
associate or form joint venture with Tanzanian contractor, suppliers or
consultants the regulations provides incentives in terms of margin of
preference depending on the inputs of local firms on the procurement under
international and national competitive bidding.

Margin of Preference Based on the Inputs

Margin of preference apply only in the evaluation of bid under international
and national competitive bidding. In its effort to develop local enterprises the
Government through PPA 2004 and its Regulations 2005 has adopted a
margin of preference based on the input of local firms in the joint venture
with foreign firms. A minimum margin of preference of 4% may be granted to
joint venture between foreign and local firms in which the input of local firm
in the association range between 20% and 40%. In case an input of local firm
in the joint venture is between 40% and 60%; and between 60% and 80% a
margin of preference of 6% and 8% respectively may be granted. The
maximum margin of preference of 10% may be granted to a local firm and
foreign firm in which the input of foreign firm in joint venture does not
exceed 20%. These margins of preferences apply for procurement of nonconsultant services and disposal assets by tender (Government Notice
No.97) as well as selection and employment of consultants (Government
Notice No.98).
For suppliers supplying goods mined or manufactured in Tanzania may be
granted margin of preference of 15%. However, eligibility for preference for
goods is determined by referring to source domestic of goods and not to the
nationality of the supplier/bidder. In this aspect the nationality of the bidder
or supplier is irrelevant and therefore, preference is given not to the bidder
but to the goods.
However, Mlinga (2006) cautioned that very high margin of preference is
equivalent to exclusive preference since it will automatically deter the
participation of the foreign firms in the bid process. On the other hand, it is
being argued that preference should not continue forever there should be
time limit whereby the local enterprises must graduate and start competing
effectively with the foreign counterparts.

Evaluation with Margin of Preference for Goods

For the purpose of comparison of bids where a margin of preference for
goods manufactured, grown, mined or extracted in the URT, responsive bids
should be classified in three group as follows:Group A: Goods manufactured, grown, mined or extracted within the URT
provided that bidder established that:
i.

Labour, raw materials and components originating from

within the URT with more than 30% domestic value added;

ii.

The production facility in which goods will be

manufactured, assembled or processed has been engaged
in manufacturing, assembling or processing such goods at
least since the time of submission of the bid.

Group B: Bids offering goods originating from within the URT.

Group C: Bids offering imported goods.
In this case ex-works price quoted by Group A and Group B bids should
include all duties and taxes paid or payable on the raw or basic materials or
components that have been purchased in the domestic market or imported
and should exclude any sales and similar taxes on the finished product. On
the other hand, the price quoted in Group C should be on CIF (Cost Insurance
and Freight) or CIP (Carriage and Insurance Paid) port of entry, border point
or other destination exclusive of customs duties and other import taxes.
Procedure
Step 1: Determine the lowest evaluated bid in each group.
Step 2: Compare the lowest evaluated bids among the Group.
Step 3: If the lowest evaluated bid is from Group A or B, then, select it for
contract award.
Step 4: As a result of the comparison in Step 2, the overall lowest evaluated
bid is from Group C, then, all Group C should be compared with the
lowest evaluated bid from Group A.

For comparison only; add the amount of the duties and other
related imported charges which a non-exempt importer would
have paid for importation of the goods offered in such Group C
bid; or

1.15 x CIF price of Group C against Ex-works price of Group A.

Step 5: In case Group A bid still the lowest should be selected for contract
award; if not; the lowest evaluated bid from Group C as determined
from the comparison should be selected.
The example below using hypothetical calculated lowest bids illustrate the
steps above.
Scenario 1: When the lowest evaluated bid is from Group A
S/No
.

Bidder Name

1.

Masanya Traders Ltd

2.

Crown Jv Ndege Co. Ltd

3.

X-Large Ltd

4.

Jites Co. Ltd

5.

Dona Jv Kicho Ltd

6.

Best Europe Ltd

7.

Tranco Ltd

8.

Litter Enterprises

Lowest Evaluated Bids (Tshs.)

Group A

Group B

Group C

10 x 106
8.2 x 106
8.9 x 106
10.5 x 106
7.9 x 106
8.5 x 106
7.5 x 106
9.9 x 106

Lowest evaluated bids from each

group

Compare the lowest evaluated bids from each group.

S/No
.

Bidder Name

1.

Dona Jv Kicho Ltd

2.

Best Europe Ltd

3.

Tranco Ltd

Lowest Evaluated Bids (Tshs.)

Group A

Group B

Group C

7.9 x 106
8.5 x 106
7.5 x 106

Tranco Ltd is the lowest, then,

select for contract award
Scenario 2: When the lowest evaluated bid is from Group B
S/No
.

Bidder Name

1.

Masanya Traders Ltd

2.

Crown Jv Ndege Co. Ltd

3.

X-Large Ltd

4.

Jites Co. Ltd

5.

Dona Jv Kicho Ltd

6.

Best Europe Ltd

7.

Tranco Ltd

8.

Litter Enterprises

Lowest Evaluated Bids (Tshs.)

Group A

Group B

Group C

10 x 106
7.9 x 106
8.9 x 106
10.5 x 106
8.2 x 106
8.5 x 106
8 x 106
9.9 x 106

Lowest of evaluated bids in

each group
Compare the lowest evaluated bid from each group.
S/No

Bidder Name

Lowest Evaluated Bids (Tshs.)

6

Group A

1.

Crown Jv Ndege Co. Ltd

2.

Best Europe Ltd

3.

Tranco Ltd

Group B

Group C

7.9 x 106
8.5 x 106
8 x 106

Crown Jv Ndege Co. Ltd is the lowest,

then, select for contract award
Scenario 3: When the lowest evaluated bid is from Group C
S/No
.

Bidder Name

1.

Masanya Traders Ltd

2.

Crown Jv Ndege Co. Ltd

3.

X-Large Ltd

4.

Jites Co. Ltd

5.

Dona Jv Kicho Ltd

6.

Best Europe Ltd

7.

Tranco Ltd

8.

Litter Enterprises

S/No.

Lowest Evaluated Bids (Tshs.)

Group A

Group B

Group C

8 x 106
8.8 x 106
8.9 x 106
7.9 x 106
8.2 x 106
8.5 x 106
10 x 106
9.9 x 106

Lowest of evaluated bids in

each group
Lowest Evaluated Prices (Tshs.)
Bidder Name
Group A
Group B
Group C

1.

Masanya Trader Ltd

2.

Jites Co. Ltd

8 x 106
7.9 x 106

Compare Masanya Trader Ltd and Jites Co.

Ltd, Masanya Trader Ltd is the lowest, then,
select for contract award.

3.

8.2 x 106

Dona Jv Kicho Ltd

7.9 x 106 x
1.15 = 9.085
x 106

Add 1.15 x CIF price of

Group C (Jites Co. Ltd)
and compare against Exworks price of Group A.

Suppose on the same scenario 3 the lowest evaluate bid of Jites Co. Ltd is
Tshs. 6.9 x 106, what will happen?
S/No.

Bidder Name

1.

Masanya Trader Ltd

2.

Jites Co. Ltd

3.

Dona Jv Kicho Ltd

Lowest Evaluated Prices (Tshs.)

Group A

Group B

Group C

8 x 106
6.9 x 106
8.2 x 106
6.9 x 106 x
1.15 = 7.935
x 106

Add 1.15 x CIF price of

Group C (Jites Co. Ltd)
against Ex-works price of
Group A.
Compare Masanya Trader Ltd and Jites Co.
Ltd, Jites Co. Trader Ltd is the lowest, then,
select for contract award.
Goods Forming Part of a Contract Package

In case of supply and installation of Goods, Turkey Contracts or any other

form of procurement contract in which a number of discrete items of
equipment is grouped into one contract package, a margin of preference
shall not be applied to the package but only to goods manufactured in URT.
Procedures
Step 1: Goods offered from abroad are quoted in CIF or CIP.
8

Step 2: Goods manufactured locally are quoted EXW (ex-work).

Step 3: Other components such as design, installation, commissioning,
testing and supervision are quoted separately.
Step 4: For comparison of local goods with imported goods, add to offered
CIF or CIP price of the imported goods the lesser of either;

15% or
Applicable duties and taxes to the paid for each item.
It is worth to note that the bids are not to be classified in to groups when
comparing bids.

The example below illustrates the application of margin of preference for

goods forming part of a contract package.
Evaluated Bid Price

Contract Package

Bidder A

Bidder B

365 x 106

370 x 106

2500 x 106

2550 x 106

Services

Design

Works

Building and Civil Works

Supply

Equipment EXW

150 x 106

160 x 106

Equipment CIF

180 x 106

90 x 106

Comparison
of Bidder A
9
and B indicate Bidder B
is the lowest, then, select
Bidder B for contract
award.

Su-total
Add domestic preference
15% of CIF

3.195 x 109

3.17 x 109

180 x 106 x 0.15

=

90 x 106 x 0.15 =
13.5 x 106

27 x 106
3.222 x 106

Grand Total

3.1835 x 109

Evaluation with Preference for Works and Non-Consultant Service

Contract
When comparing domestic bids with foreign firms or association of domestic
with foreign bids, local contractors or association of local and foreign
contractors are granted margin of preference granted by classifying the
responsive bids into three groups as follows:Group A: Bids offered by domestic contractor or service providers as well as
association between local contractors or service providers
eligible for the preference.
Group B:

Bids offered by the associations between local and foreign

contractors or service providers.

Group C:

Bids offered by the foreign contractors or service providers.

Procedure
Step 1: Evaluate all responsive bids to determine the lowest evaluated bid
within each group.
Step 2: Compare the lowest evaluated bids from each group.
Step 3: If the lowest evaluated bid is from Group A, then, select for contract
award.
Step 4: If as a result of comparison between a bid from Group A and Group B
and the lowest is from Group B, then, an amount equal to difference
10

between the margin of preference for Group A and that of Group B

should be added to the lowest evaluated bid from Group B. It worth to
note that Regulation 95 (5) of GN No.97 stipulates that as a result of
the comparison, a bid from Group A or Group B is the lowest, then,
should be selected for contract award. This does not take into account
the difference of margin of preference may be specified for each
group. However, the best practise of considering the difference of
margin of preference for the two groups has been captured in
Regulation 62 (6) (b) (i) of GN No.98
Step 5: If the lowest evaluated bid is from Cluster C, all Group C bids should
be further compared with the lowest evaluated bid from Group A.
Step 6: If the lowest bid is from Group C, the specified margin of preference
should be added and compare it with the lowest bid from Group A;
then, award contract to the lowest.

The scenarios below illustrate steps of application of margin of preference.

Scenario 1: When the lowest evaluated bid is from Group A
S/No
.

Bidder Name

1.

Ben Company Ltd

2.

Jabali Co. Jv Tokyo Ltd

3.

ABC Ltd

Lowest Evaluated Bids (Tshs.)

Group A

Group B

100 x 106
102 x 106
96 x 106
11

Lowest evaluated bids from each

Group C

4.

Jinx Co. Ltd

5.

Triple X Jv Manyara Ltd

6.

Best American Ltd

7.

Branco Ltd

8.

Mado Ltd Jv Trix Co. Ltd

9.

Reyas Ltd

10.

Ndama Buildings Ltd

105 x 106
98 x 106
103 x 106
110 x 106
99 x 106
97.5 x 106
108 x 106

Comparison of the lowest evaluated bids from each group in scenario 1.

S/No.

Bidder Name

1.

ABC Ltd

2.

Triple X Jv Manyara Ltd

3.

Reyas Ltd

Lowest Evaluated Prices (Tshs.)

Group A

Group B

Group C

96 x 106
98 x 106
97.5 X 106

Comparison of lowest evaluated

bids from each group, ABC Ltd
is theevaluated
lowest, then,
for Group B
Scenario 2: When the lowest
bidselect
is from
contract award.
Lowest Evaluated Bids (Tshs.)
S/No
Bidder Name
.
Group A
Group B
Group C
1.

Ben Company Ltd

2.

Jabali Co. Jv Tokyo Ltd

3.

ABC Ltd

4.

Jinx Co. Ltd

5.

Triple X Jv Manyara Ltd

6.

Best American Ltd

7.

Branco Ltd

100 x 106
102 x 106
98.5 x 106
105 x 106
99 x 106
99.4 x 106
110 x 106
12

Lowest evaluated bids from each

8.

Mado Ltd Jv Trix Co. Ltd

9.

Reyas Ltd

10.

94.5 x 106
103 x 106

Ndama Buildings Ltd

108 x 106

Comparison of the lowest evaluated bids from each group in scenario 2

above. The comparison between a bid from Group A and B indicates that the
lowest is from B, then, an amount equal to difference between the margin of
preference for Group A and that of Group B should be added to the lowest
evaluated price from Group B.
Assume that based on the information submitted by the bidders revealed
that Group A bid deserve maximum margin of preference of 10% and all
Group B bids, the inputs of local in the association is 40 -60 % which means
that deserve 6%.

Comparison of the lowest evaluated bids from each group in scenario 2.

S/No.

Bidder Name

Lowest Evaluated Prices (Tshs.)

Group A

Group B

Group C

98.5 x 106

1.

ABC Ltd

2.

Mado Ltd Jv Trix Co. Ltd

3.

Best American
Add the difference of
margin of preference to
Mado Ltd Jv Trix Co. Ltd
i.e 4%

94.5 x 106
99.4 x 106
94.5 x 106 x
1.04 =
98.28 x
106

Compare ABC Ltd and Mado Ltd Jv Trix Co.

Ltd, still Mado Ltd Jv Trix Co. Ltd is the
lowest, then, select13for contract award.

Suppose on the same scenario the lowest evaluate price of Mado Ltd Jv Trix
Co. Ltd is Tshs. 96 x 106, what will happen?
S/No.

Bidder Name

1.

ABC Ltd

2.

Mado Ltd Jv Trix Co. Ltd

3.

Best American

Lowest Evaluated Prices (Tshs.)

Group A

Group B

Group C

98.5 x 106
96 x 106
99.4 x 106
96 x 106 x
1.04 =

Add the difference of

margin of preference to
Mado Ltd Jv Trix Co. Ltd
i.e 4%

99.84 x
106

Compare ABC Ltd and Mado Ltd Jv Trix Co. Ltd, in

this case ABC Ltd is the lowest, then, select for
contract award.
Scenario 3: When the lowest evaluated bid is from Group C
S/No
.

Bidder Name

1.

Ben Company Ltd

2.

Jabali Co. Jv Tokyo Ltd

3.

ABC Ltd

4.

Jinx Co. Ltd

5.

Triple X Jv Manyara Ltd

6.

Best American Ltd

7.

Branco Ltd

8.

Mado Ltd Jv Trix Co. Ltd

9.

Reyas Ltd

Lowest Evaluated Bids (Tshs.)

Group A

Group B

Group C

97.5 x 106
98.5 x 106
100 x 106
105 x 106
99 x 106
103 x 106
110 x 106
102 x 106
96.4 x 106

14

Lowest evaluated bids from each

10.

Ndama Buildings Ltd

108 x 106

Comparison of scenario 3 indicates that the lowest evaluated bid is from

Group C which should be further compared with the lowest evaluated bid
form Group A.

S/No.

Bidder Name

1.

Ben Company Ltd

2.

Jabali Co. Jv Tokyo Ltd

3.

Reyas Ltd

Lowest Evaluated Prices (Tshs.)

Group A

Group B

Group C

97.5 x 106
98.5 x 106
96.4 x 106
96.4 x 106 x
1.1 =

Add
maximum 10%
margin of preference to
Reyas Ltd.

106.04 x 106

Compare Ben Company Ltd and Reyas Ltd

ABC Ltd, Ben Company Ltd is the lowest,
then, select for contract award.
Suppose on the same scenario the lowest evaluate price of Reyas Ltd is Tshs.
88 x 106, what will happen?
S/No.

Bidder Name

Lowest Evaluated Prices (Tshs.)

15

Group A
1.

Ben Company Ltd

2.

Jabali Co. Jv Tokyo Ltd

3.

Reyas Ltd

Group B

Group C

97.5 x 106
98.5 x 106
88 x 106
88 x 106 x 1.1
=

Add
maximum 10%
margin of preference to
Reyas Ltd.

96.8 x 106

Compare Ben Company Ltd and Reyas Ltd

ABC Ltd, in case Reyas Ltd is the lowest,
then, select for contract award.

Evaluation with Preference for Financial Proposals

For consultancy services margin of preference apply only on the financial
proposals. In this case the local firm or association of local and foreign firms
must meet quality criteria; technical proposals scoring pass mark or above.
Furthermore, margin of preference is restricted to combined quality and cost
and least cost selection procedures. The procedures outlined in the
evaluation for work and non-consultant services can be applied as the
principles involved are the same. However, it is important to note that
margin of preference should applied before calculating financial scores in
case of quality and cost selection procedures.
CONCLUSION
As it has been noted, the application of margin of preference in evaluation of
bids and proposals has been one of the obstacles in the implementation of
preference scheme in Tanzania. It is the authors expectation that the
methodology presented in this paper will enlighten practitioners in
procurement on how margin of preference can be applied during evaluation
process. However, it is imperative to remind the practitioners that the bid
documents should clearly indicate that margin of preference will be granted
and describe the methods will be used in evaluation and comparison of bids
to give effect to such preference.
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REFERENCES
1. The Public Procurement Act No. 21 of 2004 and its Regulations 2005.
2. Assessment of Tanzanias Procurement System, Report CPA 2007.
3. Mlinga, R.M. (2006), Procurement Aspects in Creating an Enabling
Environment for the Construction Industry.
4. Swai, M.M. (2008), Procurement Functions, Process and Challenges: An
Overview of Public Procurement, Tanzania Procurement Journal Vol.1,
No.01, 2008.
5. Evaluation Guidelines for Works, Goods and Non-Consultant Services
and Employment and Selection of Consultant, Published by the PPRA.
6. Evaluation Guidelines for Works and Goods and Employment and
Selection of Consultant, Published by the World Bank.
7. Rules of Procedure for Procurement of Goods and Works, African
Development Bank.

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