In brief
- A contractor's claim of financial capacity is not evidence; ask for a bank letter, supplier credit terms and proof that plant is owned rather than rented.
- The risk shows up as slow procurement, thin crews and a stopped site, not as an obvious failure on day one.
- Check the claim before award, not after mobilisation, and keep the evidence in the contract file.
Contents
Financial capacity competency risks start when a bidder's claim of funds goes unchecked. A signed letter, a stamped balance sheet or a verbal assurance from a well-known family name proves nothing on its own. What a client needs is evidence that money can reach this site, at the speed the programme demands. Ask the bidder how materials are delivered to the site and how long that takes, and confirm the answer with the suppliers named in the bid.
What does a financial capacity claim actually prove?
It proves only that the bidder says the money exists. Ask for the bank letter, the account-holding relationship, and whether the bank will confirm the line to you directly in writing.
[Callout type="note"]A bank letter confirms a relationship, not a balance. Ask the bank to state the credit facility available to the company and the period it covers.[/Callout]
Ask for supplier terms in writing from two or three material suppliers the bidder names. A supplier who will release cement, steel or aggregates against 30-day terms is carrying part of the working capital, and that is checkable. Ask whether the bidder owns plant or rents it. Owned plant ties up capital but lowers the monthly cash drain. Rented plant means the bidder must pay hire charges before any interim payment arrives. Ask the relevant municipal or works office whether it holds records of previous works by the same company, and walk one of those sites.
Where does inadequate working capital show up first?
It shows up in procurement, weeks before it shows in the concrete. Cement and steel arrive in small lots, so the crew waits between pours. The workforce shrinks because wages are late. Subcontractors stop turning up.
General practice in hot, dry inland work is to keep enough cover for the first full cycle, from mobilisation through the first interim payment. Confirm that duration against the project's specification and payment terms with your engineer, because the gap between spending and reimbursement is what the working capital must bridge. That gap must also cover whatever delivery lead time the project's own supply route involves, and the bidder is the person to confirm that figure in writing. A bidder whose only evidence is a letter from a relative with land will not bridge it. Watch for these signs on a recent site: stacked materials arriving in dribs, a nearly empty store, one excavator shared between two jobs, and workers who have not been paid that month. Ask the site foreman directly how many days of wages are owed.
How do you test the claim before award?
Test it with documents and a site visit, and write the result into the tender evaluation. Do not rely on the interview alone.
- Ask for a bank letter naming the facility, the currency and the expiry date.
- Ask two suppliers for written confirmation of credit terms for this project.
- Ask for the plant list with ownership or hire documents for each item.
- Ask for the payment certificate history on the last two completed jobs.
- Visit one current site and count the crew, the materials on the ground and the activity.
Score these items separately from price and from technical method. A bidder with a strong method statement and no verifiable working capital will still stall. Check what the tender documents and the contract allow you to request, and keep every response in the evaluation file so a later dispute has a record. Where the contract permits, conditions can be tied to mobilisation milestones, but confirm the drafting with your legal adviser.
What to do next
Before you open financial submissions, write a one-page evidence checklist: bank letter, two supplier credit letters, plant ownership or hire documents, and one site visit report. Send it to every bidder with the tender documents and state that missing items will be scored as absent, not as pending. Then book the site visit for the highest-ranked bidder and walk it yourself.
Frequently asked questions
Can a contractor refuse to show a bank letter?
A bidder can decline, but the tender documents should state what happens then. If the documents require the letter, treat a refusal as a missing submission and score it as absent rather than waiting for it to arrive.
Is a verbal guarantee from a local businessman enough evidence?
No. Ask for it in writing, naming the amount, the currency and the period, and confirm whether the contract allows you to rely on a third-party guarantee at all.
How do I check whether plant is owned or rented?
Ask for registration documents for owned items and hire agreements for the rest. Then check the site: owned plant usually sits idle between jobs, while hired plant leaves when the hire period ends.
Local reporting: this article is written for building work in Qardho and Puntland. Ground conditions, prices and rules differ between places; confirm the details for your own site.