Financial Evaluation In Public Procurement In Kenya


Financial evaluation is usually the third and penultimate stage in the tender evaluation process. Third because you have crossed the hurdle of preliminary (mandatory) evaluation and technical evaluation.

Penultimate because should you pass the financial evaluation stage and emerge as the lowest evaluated bidder and/or the bidder with the highest combined technical and financial score, you still have to undergo the process of due diligence which courts have now ruled is part and parcel of the tender evaluation process. Having looked at all the requirements that evaluation during the first two stages entails, it is clear that getting to the financial evaluation stage is no mean feat. It shows the bidder has been tested and has met or exceeded the minimum pass mark/requirements for the technical evaluation stage in order to qualify for evaluation at the next stage.

What exactly does the process of financial evaluation entail?

Statutory Provisions on Financial Evaluation

A good starting point in understanding the legal provisions that govern financial evaluation of public tenders in Kenya is by reviewing the relevant provisions of the Public Procurement and Asset Disposal Act, 2015 (hereinafter “the Act”) and the Public Procurement and Asset Disposal Regulations, 2020 (hereinafter “the Regulations”).

From the Act, the provisions of section 79 on responsiveness of tenders in relation to correction of arithmetic errors, section 80 on the evaluation of tenders and section 82 which bars correction of errors relating to the tender sum as submitted and read out during tender opening, are relevant in understanding what financial evaluation entails.

Section 80 (2) of the Act is clear that evaluation of tenders must be done using the criteria and procedures set out in a tender document. This requirement is not only applicable to the first two stages of evaluation but also when conducting financial evaluation.

Procuring entities are not allowed to introduce extraneous criteria that was not contained in the tender document in evaluating bids during the financial evaluation stage.

Practical examples on use of extraneous criteria will be provided later in this article as we delve into the details of how the choice of procurement method can affect the choice of the successful bidder during financial evaluation, as detailed in section 86 of the Act.

Regulation 77 of the Regulations also contains further provisions on how financial evaluation and comparison of prices should be undertaken. This regulation also stipulates aspects to be considered in determining the evaluated price.

Owing to the importance of this regulation in understanding the procedures to be employed during this stage, the regulation is reproduced below for ease of reference:

      1. Financial evaluation

(1) Upon completion of the technical evaluation under regulation 76 of these Regulations, the evaluation committee shall conduct a financial evaluation and comparison to determine the evaluated price of each tender.

(2) The evaluated price for each bid shall be determined by—

(a) taking the bid price in the tender form;

(b) taking into account any minor deviation from the requirements accepted by a procuring entity under section 79 (2) (a) of the Act;

(c) where applicable, converting all tenders to the same currency, using the Central Bank of Kenya exchange rate prevailing at the tender opening date;

(d) applying any margin of preference indicated in the tender document.

(3) Tenders shall be ranked according to their evaluated price and the successful tender shall be in accordance with the provisions of section 86 of the Act.

What amounts to financial evaluation and what does not?

Evaluation of documentation or information related to finances e.g. audited accounts, bank statements is not necessarily evaluation at the financial stage. Bidders should read the tender document carefully to note at which stage these elements of a financial nature are to be evaluated and the criteria involved.

Checking responsiveness of some aspects relating to a bidder’s finances/financial capability at the preliminary evaluation stage such as financial mandatory requirements at the preliminary stage such as confirming whether the bidder provided a proper tender security, availing of audited accounts for the required period is not financial evaluation.

However, it is not unusual to find evaluation of tender security (looking at amount, period covered and the provider of the tender security) being done during the financial evaluation stage.

Further to this, evaluating the financial reports/situation of the bidder at the technical stage such as checking provision of audited account for the required number of years, evaluating compliance with the required level of financial turnover and access to credit etc., could be said to be an item for technical evaluation where a tender document classifies it as such.

Most tender documents will contain a statement at the end of the technical evaluation stage with wording similar to this, “NB: The pass mark is XX%. Those who score below XX out of 100 will be eliminated at this stage and will not proceed to financial evaluation.”

It is common to find a pass mark of about 70% and above, but the pass mark and the combination of points that leads to the pass mark may vary in different tender documents.

As elucidated in the article on technical evaluation, Technical Requirements and Technical Evaluation of Bids – Analysing the Crux of the Tender Document, some tender documents do not adopt a pass mark approach but may list all technical requirements as mandatory.

Remember that use of a YES/NO evaluation approach during the technical stage amounts to classifying those requirements as mandatory. In that case, a bidder who fails to meet the mandatory technical requirements will not proceed to the financial evaluation stage. Once a bidder passes the technical stage, then financial evaluation which entails, at minimum, comparing the bid prices of all the bidders who have been found responsive until that stage, will be conducted. However, some tender documents may provide a more detailed financial evaluation criteria as set out in the next section.

Criteria for Financial Evaluation in Tender Documents

In some instances, Procuring Entities may require submission of a separate technical and financial proposals in separate envelopes, as is common with the Request for Proposal procurement method. In most cases though and especially where open tender method is used, the criteria in the tender document will require submission of one bid which includes information for both technical and financial stage.

Regardless of whether the requirements for the financial stage are to be included in one bid document or in a separate financial proposal, bidders should read the financial criteria keenly and ensure they comply fully. Where the tender document requires that the technical and financial proposals be submitted as two separate envelopes, submission of both proposals in one envelop could be a ground for disqualification. If this is the case, the tender document will indicate so in unequivocal language.

Most tenders indicate the criteria at financial evaluation in the wording similar to the example provided below:

The procuring entity will award the contract to the successful tenderer(s) whose tender has been determined to be substantially responsive and has been determined to be the lowest evaluated tender, provided further that the tenderer is determined to be qualified to perform the contract satisfactorily. The criteria to be used will be comparison for all technically responsive tenders, and the tender will be awarded to the lowest evaluated bidder.

Other Aspects Considered at the Financial Evaluation Stage

Some tender documents contain more comprehensive financial evaluation criteria, beyond simply comparing the price provided in the form of tender by the competing bidders.

Examples of other aspects that may form part of the criteria at this stage as derived from sampling various tender documents include:

  1. Confirmation of the authenticity and sufficiency of the provided tender security;
  2. Confirmation and consideration of whether the provided price schedule met the requirements of the tender document. When quoting prices, bidders should check keenly whether the tender document requires prices to be quoted inclusive or exclusive of various taxes such as VAT and how these should be presented;
  3. Bill of Quantities – confirmation of and consideration of whether Bill of Quantities are provided and properly completed as per instructions in the tender document;
  4. Confirming whether the bidder has quoted prices in the recommended currency;
  5. Where it is acceptable to bid in various currencies, criteria on conversion of those currencies to the currency preferred by the procuring entity using the selling exchange rate prevailing on the date of tender closing provided by the Central Bank of Kenya (or as provided in the tender document);
  6. Considering information submitted in the Confidential Business Questionnaire against other information in the bid including: –
  7. i) Declared maximum value of business
  8. ii) Shareholding and citizenship for preferences where applicable.
  9. Conducting the financial comparison of the firms that passed tender evaluation – this may entail use of a formula as provided in the tender document, depending on the procurement method used in the tender. The effect of some of the formulas is to get an average of the technical and financial scores especially in tenders where the technical qualifications are more crucial than the quoted price;
  10. Checking for errors, inconsistencies and front loading or checking for discounts – the issue of checking and correction of errors has been discussed at length below, in light of the provisions of section 82 of the Act.

Correction of Arithmetic Errors vis-à-vis the Tender Sum as Read Out during Tender Opening

It is important to note at this early stage that the first record of the price in a bid is usually captured at the tender opening stage. Section 78 (6) of the Act on Opening of Tenders states as follows:

78 (6) As each tender is opened, the following shall be read out loud and recorded in a document to be called the tender opening register—

(a) the name of the person submitting the tender;

(b) the total price, where applicable including any modifications or discounts received before the deadline for submitting tenders except as may be prescribed; and (emphasis added)

(c) if applicable, what has been given as tender security.

Section 78 (6) should be read together with section 82 of the Act for a better understanding of the importance of reading out and recording of the total price at the tender opening stage.

Section 82 of the Act, defined by its short title as “no correction of errors” provides:

“The tender sum as submitted and read out during the tender opening shall be absolute and final and shall not be the subject of correction, adjustment or amendment in any way by any person or entity.”

For this reason, bidders should be careful to ensure that the price as listed in the form of tender is correct since that sum is final and it cannot be corrected, regardless of whether the sum is overstated or understated. If the price in the form of tender is overstated, the bidder risks missing out on the tender for not submitting a competitively priced bid and if understated, the bidder may end up with a lower profit margin than they intended.

The Public Procurement Administrative Review Board (hereinafter referred to as “PPARB or the Board”) in PPARB Application 105 of 2019 Med Marine Kilavuzluk Ve Romorkor Hizmetleri INS. SAN VE TIC. A.S vs The Accounting Officer, Kenya Ports Authority & Cheoy Lee Shipyards Limited (at page 55 of the Ruling) which was cited with approval in PPARB Application 133 of 2019 Med Marine Kilavuzluk Ve Romorkor Hizmetleri INS. SAN VE TIC. A.S vs The Accounting Officer, Kenya Ports Authority & Cheoy Lee Shipyards Limited (the Med Marine Case) held as follows:

“Having noted that provisions of the repealed Act and the 2006 Regulations that previously allowed correction of errors have been abolished by the [2015] Act, the Board finds, correcting the Interested Party’s tender sum is immaterial during evaluation of tender. This is because the tender sum which is final and absolute already reflects the total amount at which a bidder accepts to perform the works of a tender”. (emphasis mine) 

The Board in PPARB 105 of 2019, at page 51 of the Ruling, went further to explain the mischief that section 82 on prohibition of correction of errors was meant to cure. The Board has been so emphatic on the importance of section 82 of the Act such that it has on one occasion taken it upon itself to order the procuring entity to award the tender at the tendered amount in the form of tender, which amount was higher than the corrected amount.

In PPARB No. 02 of 2017, Nichros (k) Ltd and Kenya Power & Lighting Company & M/S Jumbo North (EA) Ltd, the evaluation committee had, contrary to the provisions of section 82 of the Act, corrected the tender sum downwards after correcting errors in the successful bidder’s bid. The Board, pursuant to its powers under section 173 of the Act, ordered that the procuring entity to sign a contract with the successful bidder based on the tendered sum. The Board held as follows in that decision:

It transpired at the hearing of this request for review that the tender was awarded to the Interested Party at “Kshs. 77,984,228.57 VAT inclusive” instead of the tendered sum of Ksh.81, 599,407.00. None of the parties were able to explain the source of this anomaly. The Procuring Entity suggested that the difference in figures arose because “the calculations and VAT applied had errors in it” while the Interested Party said it had no idea. Quite strangely, the Evaluation Criteria in the tender document allowed for the correction of errors. The Board however notes that it has power and the jurisdiction pursuant to the provisions of Section 173 of the Public Procurement and Asset Disposal Act, to review and correct that anomaly and shall exercise that power.

Based on the above findings, the Board went on to order that:

(…) b) The Procuring Entity and Ms Jumbo North (EA) Ltd, the Interested Party, shall forthwith sign a contract for Ksh. Ksh.81, 599,407.00.

Correction of Errors in the Public Procurement and Asset Disposal Regulations (PP ADR), 2020

More recent Board decisions such as PPARB 24 of 2021, Milicon’s Limited v The Accounting Officer, The Sports, Arts and Social Development Fund have analysed the provisions of Regulations 74 (Preliminary evaluation of open tender) and 77 (Financial evaluation) against the provisions of section 79 (2) and 82 of the Act.

Regulation 74 (2) of the PPADR states as follows:

“Subject to section 79 (2) (b) of the Act, any errors in the submitted tender arising from a miscalculation of unit price, quantity, subtotal and total bid price shall be considered as a major deviation that affects the substance of the tender and shall lead to disqualification of the tender as non-responsive.”

In PPARB 24 of 2021 (cited in full above), the Board found that there was an inconsistency between section 82 of the Act and regulation 74 (2) of the PPADR. In light of the provisions of the law and decisions of the court that have made it clear that subsidiary legislation must conform to the primary legislation in all respects and cannot override or supersede it, the Board has held provisions of section 82 of the Act must prevail. The upshot of the above explanation and analysis of cases where the issue of errors arose is that during financial evaluation, any effort expended by the tender evaluation committee in correcting mathematical errors in the BOQs or wherever else, is of no consequence. The tender sum as listed in the form of tender (which is what should be read out at the tender opening) is FINAL.

The Board re-affirmed the position that correction of arithmetic errors in bids under the regime of the 2015 Act and 2020 Regulations is inconsequential in PPARB No. 65 of 2021 Greystone Industries Limited v The Accounting Officer, Kenya Power and Lighting Company and 9 Others. The Board held as follows in pages 39 and 40 of this Ruling, just before allowing the Request for Review:

“Having considered the finding of the Board in the County Builders Limited Case, the Board would like to simply reiterate that Regulation 74 (2) of Regulations 2020 must conform to section 79 (2) (b) of the Act and should not be inconsistent with section 82 (b) of the Act the said Regulation is subject to section 79 (2) (b) of the Act and where there is an inconsistency, section 79 (2) (b) of the Act will take precedence over Regulation 74 (2) of Regulations 2020. The corrections contemplated in section 79 (2) (b) of the Act should on the other hand not interfere with a bidder’s tender sum as required by section 82 of the Act…”

The Board went further to note the following before Ruling that the Request for Review succeeds:

“…The Board has established correction of arithmetic errors is not permitted by section 82 of the Act, read together with Regulation 77 of Regulations 2020 and that the Procuring entity was required to consider the Applicant’s price schedule as is during financial evaluation but failed to do so. 

Accordingly, the Board finds that the Procuring Entity failed to evaluate the Applicant’s bid at the Financial Evaluation stage in accordance with Section 80 (2), Section 82 of the Act read together with Regulation 77 of Regulations 2020…”

The upshot of the above analysis is that the tender sum as listed in the form of tender (which is what should be read out at the tender opening) is FINAL.

It is the author’s considered opinion that this approach yields certainty and promotes the values of fairness, transparency, competitiveness and cost effectiveness as intended in Article 227 of the Constitution. This is because the tender is awarded based on the amount loudly and openly read out at tender opening in the presence of all bidders.

This reduces chances of any mischief being perpetrated during correction of any alleged arithmetic errors in price schedules or bills of quantities behind closed doors, away from the public eye with little or no oversight. Secrecy and accountability, especially in public procurement in Kenya, are not bosom buddies.

Relationship between Formula at Financial Evaluation and Procurement Method

As alluded to above, the criteria or formula applied in deciding the successful bidder at the financial evaluation stage is determined by the procurement method in the tender. In this regard, the provisions of section 86 of the Act are applicable and bidders should familiarize themselves with this section. To best illustrate how the choice of procurement method may determine the formula that a procuring entity may apply, the author will refer to one of the Rulings of the PPARB on the issue.

In PPARB 120 of 2019, Madison Insurance Company Limited v Kenya Bureau of Standards (KEBS), The Accounting Officer, Kenya Bureau of Standards (KEBS) and Jubilee Insurance Company of Kenya Limited (Interested Party), KEBs through an Open Tender No. KEBS/002/2019/2020 advertised for Provision of Staff Medical Insurance Cover.

Six insurance companies submitted bids in response to the tender advertisement. The Applicant, Madison Insurance Company (Bidder No. 5) submitted the lowest priced bid at KES. 163, 483, 219 while the Interested Party’s bid (Jubilee – Bidder No. 6) was priced at KES. 188, 483, 219. The second lowest priced bidder (Bidder No. 1- AAR Insurance) did not meet the minimum score of 65% at the technical evaluation stage and therefore did not proceed to financial evaluation. Using the financial evaluation formula provided in the tender document, Bidder No. 5 (Madison) scored higher marks at the financial evaluation stage.

However, the tender document provided a further step of weighting at the financial evaluation stage which involved combining the technical and financial results. That table with the scores and ranking is reproduced below as summarised by the PPARB on page 7 of the Ruling.

3.3. Combination of Technical and Financial Evaluation Results 

Combination of technical and financial evaluation
Bidders Technical score Financial Score Total Score Ranking
Bidder 4 71.4 15.0 86.4 3
Bidder 5 [Madison] 72.6 20.0 92.6 2
Bidder 6 [Jubilee] 79.4 17.3 96.7 1


After combining the technical and financial scores as illustrated in the table above, bidder No. 6 (Jubilee) emerged the winner and following the conduct of the due diligence exercise, was awarded the tender as the lowest evaluated responsive bidder.

The Applicant (Bidder No. 5 – Madison) filed a Request for Review (RFR) before the PPARB and submitted that having used the open tender procurement method, as opposed to the request for proposal method, the award criteria which the procuring entity should have used is the one provided in section 86 (1) (a) of the Act.

Conversely, the Procuring Entity took the view that section 86 (1) of the Act does not preclude it from electing an award criterion to use for determining the successful bidder as it deems appropriate.

For ease of reference, section 86 (1) (a) provides:

(1) The successful tender shall be the one who meets any one of the following as specified in the tender document—

(a) the tender with the lowest evaluated price;

Held: since the tender in question was advertised as an open tender, the provisions of section 86 (1) apply. The PPARB, in arriving at its decision, relied on a High Court decision as reproduced verbatim below:

“The Court in Miscellaneous Civil Application 552 of 2016, Republic v Public Procurement Administrative Review Board & 2 others ex parte International Research and Development Actions Ltd [2017] eKLR had occasion to interpret section 86 (1) of the Act when it held as follows: –

It is therefore clear that for a bidder to be successful, the bid must meet any one of the specifications in section 86 (1). In this case, the Respondent [Review Board] found that the award ought to have been made in accordance with section 86 (1) (a) since this was an open tender. That provision expressly mentions that the tender be awarded to the one with the lowest evaluated price”

The PPARB in applying the above cited decision to the facts before it went on to state as follows:

“The introductory clause of section 86 (1) of the Act states that an award criterion should be specified in the Tender Document. Further to this, sections 86 (1) (b) (c) and (d) of the Act specify the methods of tendering under which such award criteria applies. In open tenders where the Request for Proposal method is not used, the award criterion applicable is section 86 (1) (a) of the Act, noting that it is the only method of tendering that does not apply the other types of award criteria. The other types of award criteria specify their methods of tendering. In a nutshell, a procuring entity should not specify an award criterion that is not applicable to the method of tendering it is using.”

The Board went further to note that since section 86 (1) (a) is the award criteria that should be applied in open tendering, the Procuring Entity should not have applied the formula at page 35 of its tender document when conducting Financial Evaluation.

The emphasis that the PPARB was making in this decision is that the tender document must comply with the provisions of the law and where it does not, the provisions of the law will prevail. The PPARB also refused to consider arguments from the Respondent that the Applicant should have protested the use of the formula when it received the tender document and not when it was declared non-responsive on the basis that it would not have known the formula that would be applied before the evaluation was complete. The Board also indicated the use of the award criteria in section 86 (1) (a) for open tenders (which are the majority of tenders) was meant to promote cost effectiveness and save tax payers money, thus promote prudent and responsible use of money and maximization of value as provided for in Article 201 (6) of the Constitution and section 3 (h) of the Act respectively.

Application of Preferences during Financial Evaluation

The provisions on Preferences and Reservation in Procurement are provided for in Part XII of the Act and are made pursuant to the provisions of Article 227 of the Constitution of Kenya, 2010.

Article 227 (2) of the Constitution provides;

(2) An Act of Parliament shall prescribe a framework within which policies relating to procurement and asset disposal shall be implemented and may provide for all or any of the following—

(a) categories of preference in the allocation of contracts;

(b) the protection or advancement of persons, categories of persons or groups previously disadvantaged by unfair competition or discrimination;…

Part XII of the Act provides details of the various preferences and reservations, ranging from preferences for locally manufactured or sourced goods, to those relating to citizen contractors and preferences or reservations for disadvantaged groups such as women, youth and persons with disabilities and Small, Micro and Medium Enterprises (SMEs) etc.

A detailed discussion on preferences and reservations is beyond the scope of this article but we will focus on what is relevant for purposes of financial evaluation.

Of relevance to financial evaluation is the fact that consideration of preferences schemes is a matter for application during the financial evaluation stage. This means that a bidder who would otherwise not have been the lowest evaluated bidder might end up being the lowest upon application of a preference that is applicable to it. It is worth mentioning that since preferences are applicable at the financial evaluation stage, a bidder who did not qualify past the preliminary/mandatory and technical stage would not be eligible for preferences.

This was the position in PPARB 28 of 2020, Empower Transformers & Switchgear Limited v the Accounting Officer, Rural Electrification & Renewable Energy Corporation where the Board held as follows at page 51 of the Ruling:

“…the Applicant could not therefore be subjected to the preference schemes under the Act, since such schemes are not applied at the Preliminary Evaluation Stage but once a bidder has qualified after the Technical Evaluation Stage.”

Also, in PPARB No. 15 of 2020, All and Sundry Services v Commissioner General, Kenya Revenue Authority & 2 Others, the Board opined as follows regarding the contribution that a margin of preference may play in arriving at the lowest evaluated bidder:

Evidently, the lowest evaluated price, is still a factor that determines the successful tender. However, the reason why the legislature must have retained the provision that award of a tender, in open tenders (where no Request for Proposal method is used) be made to the tender with “the lowest evaluated price”, is because arriving at the lowest evaluated price has several components such as application of a margin of preference which is a provision in the Act that seeks to promote local and citizen contractors as part of the objectives under section 3 (i) and (j) of the Act. 

Application of Lots in Financial Evaluation

Bidders should take note of provisions regarding unbundling of procurements and specific criteria provided in the tender document for awarding different lots. While structuring of procurement as two or more procurements to avoid use of a specific procurement method is not allowed under the Act, unbundling through use of lots to enable participation of citizen contractors, disadvantaged groups and small and micro enterprises in public procurement as provided for in section 54 if the Act is permissible.

Lots are provided for under Regulation 154 which provides that, “Despite the provisions of section 54 (1) of the Act, a procuring entity may for the purpose of ensuring maximum participation of citizen contractors, disadvantaged groups, small, micro and medium enterprises in public procurement, unbundle a category of goods, works and services in practicable quantities.”

While this may not be an item of evaluation per se during the financial evaluation stage, it may affect the value of the procurement that each successful bidder can be awarded. This is because the procuring entity may limit the number of items per lot that bidders can participate in or be awarded or even indicate the criteria to be applied where bidders have put in bids for more items or lots than they were allowed to under the tender document. Bidders should also look out for criteria that stipulates disqualification where the bidder fails to comply with the bidding criteria for each lot e.g. where the tender document expressly provides for minimum or maximum number of lots that each participant should bid for.


As noted at the beginning, financial evaluation is the third and penultimate stage of evaluation of bids in public procurement in Kenya.

A bidder is usually subjected to financial evaluation after passing the preliminary and technical stages of the evaluation process.

Noting the intensive evaluation process that goes into the first two stages of evaluation as highlighted in the previous articles on mandatory evaluation and technical evaluation, it goes without saying that only compliant and responsive bidders who possess and have displayed their technical capabilities through well compiled bids are likely to make it this far in the evaluation process.

Having made it this far, bidders should ensure that they present a competitive financial bid which complies with all the requirements at this stage.

Underquoting may work to your detriment as you may not be able to deliver the project to the required standards or you may not make any profits. Over quoting will result to you losing the bid as your chances of being the lowest evaluated bidder may be lower if other responsive bidders quote lower prices.

Should you emerge the lowest evaluated responsive bidder, the procuring entity should contact you to inform you that they will be conducting due diligence on you, as per the provisions of section 83 of the Act.

Keep an eye on the sequel to this article on the topic of Due Diligence here:


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