Bidding for a public contract: the financial capacity nobody quantifies for you

1. What the law requires — and what it does not

Law No. 23-12 of 5 August 2023 setting the general rules governing public contracts deals with financial capacity in three articles, and none of them contains a figure.

Article 43 states the obligation and its limit: the contracting service must verify the technical, professional and financial capacities of candidates and bidders before evaluating the technical offers — and, this is the decisive sentence, the evaluation of applications must be based on non-discriminatory criteria, related to the subject matter of the contract and proportionate to its scale.

Article 39 confirms that a capacity requirement is a procedural option, not a general rule: among the forms of tender is the "open tender with minimum capacity requirements", distinct from the plain open tender. Where the contracting service chooses that form, it says so; failing that, the requirement is not a pre-qualification hurdle.

Article 45 provides that a national register, sector registers and a register at the level of each contracting service list economic operators and are regularly updated, their content and updating conditions being set by order of the minister for finance. Your track record therefore circulates among public buyers: a performance incident follows you.

The rule few companies know

Article 60 requires the contracting service, when launching a call for competition, to take account, when setting eligibility conditions and the offer evaluation system, of the potential of companies incorporated under Algerian law, in particular small and medium-sized enterprises, so as to allow them to take part in public procurement procedures, while respecting optimal conditions of quality, cost and lead time.

This is not a statement of intent: it is an obligation on the buyer at the moment it drafts its eligibility conditions. It combines with Article 62, which grants a margin of preference to goods of Algerian origin and to companies incorporated under Algerian law whose capital is majority-held by resident nationals.

2. Where the requirement actually sits

If the law quantifies nothing, the figure still exists. It sits in one document only: the tender specifications.

Article 17 provides that tender specifications are drawn up before any call for competition is launched and set out the conditions under which contracts are awarded and performed. Article 53 goes further: the criteria for selecting the contractor and their respective weightings must relate to the subject matter of the contract, be non-discriminatory, and be stated in the tender specifications.

Four questions to ask when opening a tender file

1. Does the procedure include a minimum capacity requirement within the meaning of Article 39? If so, it is a barrier to entry; if not, financial capacity is only one criterion among others.
2. Which financial documents are requested, and over how many financial years?
3. What weight does financial capacity carry in the evaluation system (Article 53)?
4. Is the contract divided into lots (Article 29)? A separate lot changes the scale of the contract, and therefore the proportionate level of requirement.

This reading is the first task in assembling any file — the same reflex described in our article on what regulation obliges your bank to calculate about you: identify the rule that applies before preparing the documents.

3. Four legal levers when you fall short of the level

The law does not only organise the exclusion of candidates that are too small: it also organises their access. Four provisions make it possible, and they can be combined.

1. Relying on the capacities of other companies

This is the most powerful and the most overlooked lever. Article 44 states, without restriction as to form: any candidate or bidder, alone or in a consortium, may rely on the capacities of other companies.

Two limits apply: a candidate, alone or in a consortium, may not submit more than one offer per procedure; and one person may not represent more than one candidate for the same contract.

2. The consortium

Applying as a consortium is expressly provided for by the same Article 44, which refers to a candidate "alone or in a consortium". It allows capacities to be added together that no single member holds on its own.

3. Subcontracting

Article 82 allows the contractor to entrust part of the public contract to a subcontractor, which may not exceed forty per cent (40%) of the contract amount. The same article requires foreign companies bidding alone, unless duly justified impossibility, to subcontract at least thirty per cent (30%) of the initial contract amount to companies incorporated under Algerian law.

4. Division into lots

Article 29 provides that award may take the form of separate lots or, where the subject matter does not allow distinct services to be identified, a single lot. Separate lots are awarded to one or more bidders, and offers must be evaluated lot by lot. The contracting service may, where justified, limit the number of lots awarded to a single bidder.

Direct consequence: on a contract divided into lots, the proportionality requirement of Article 43 is assessed at lot level, not at the level of the whole contract. A DZD 40 million lot within a DZD 400 million contract does not call for the same financial standing.

4. The real test is not the bid, it is performance

A company that fails on a public contract rarely fails at the application stage. It fails during performance, for want of having quantified what the contract consumes in cash before it brings anything in.

Article 80 organises financial settlement: it takes place through advances and/or instalment payments and through balance settlements. The contracting service must issue the payment order for instalments or the balance within the set periods, running from receipt of the statement or invoice. And failure to pay within the period gives rise to entitlement to late-payment interest.

Three observations follow.

• The advance is not automatic. Article 80 mentions it as a possible arrangement ("and/or"). Whether it exists, and at what rate, is read in the tender specifications, not in the law.
• A payment order is not a payment. The contractual period runs from receipt of the statement or invoice; actual receipt of funds comes later.
• Late-payment interest is a right, not a consolation. It compensates the delay; it does not finance your site during that delay.

Two provisions to know before signing

Article 85 states that public contracts and their amendments may be pledged. That is the contract's financial counterpart: it constitutes an asset that can be mobilised with a bank. For a company with no mortgage to offer, it is often the strongest security available — a point we develop in our article on collateral worth more than real estate.

Article 84 provides that failure to perform within the deadlines, or non-compliant performance, triggers financial penalties. Waiver is for the contracting service to grant where the delay is not attributable to you; in cases of force majeure, deadlines are suspended within the limits set by the stop and resume orders. In both cases the waiver is recorded in an administrative certificate.

Finally, Article 76 recalls a constraint that is often underestimated: bidders remain bound by their offers for 90 days plus the offer preparation period, running from the date of the bid-opening session. Your price is fixed for that period, whatever happens to your input costs.

5. Quantifying the cash requirement of a public contract

Here is the calculation nobody does before bidding, and which nevertheless determines whether the contract can be performed.

The assumptions

The cash profile, month by month

The two variants that change everything

The third scenario is the one that puts companies in default. A 90-day slippage in receipts — through no fault of yours, and giving rise to late-payment interest under Article 80 — takes the funding requirement from 29% to 51% of the contract amount. A company sized for the first scenario is unable to pay in the third, even though the contract remains profitable.

This is exactly the mechanism described in our article on the profitable company that still fails: it is not the margin that kills, it is the lag.

6. The checklist before bidding

Six checks, in this order. The first three decide whether you bid; the next three, whether you can perform.

And if the answer to question 3 is "no" — if the level required looks out of proportion to the scale of the contract — Article 43 is not a theoretical argument: proportionality is a condition of validity of the evaluation of applications, on the same footing as the absence of discrimination.

This article sets out a reading of Law No. 23-12 of 5 August 2023 and a costing method; it is neither legal advice nor a guarantee of award. Award thresholds, advance rates and payment-order periods are set by regulation and by the tender specifications, and must be checked for each procedure.

FAQ — Frequently asked questions

BENSAID Farouk

Financial & Economic Research Consultant — ProfitPilot NextGen Consulting

Certified sole trader and expert in financial studies, risk analysis and market research for SMEs, startups and investors in Algeria. View full profile →