Margin of Preference

A Margin of Preference is a specified percentage discount applied to the evaluated bid price of qualifying domestic or regional suppliers during the comparison stage of an international competitive tender, making their offers more competitive against foreign bids even if their actual prices are higher.

What is a Margin of Preference?

Under MDB procurement rules, a Margin of Preference is a mechanical price adjustment used at the evaluation step, not a filter that excludes foreign bidders. A foreign supplier's bid and a domestic supplier's bid are both received and evaluated for compliance. When the two are compared, the domestic supplier's evaluated price is reduced by the stated margin, often 7.5 to 15 percent depending on the MDB and the borrower country, before the lowest evaluated bid is determined. If the adjusted domestic price is now lower than the foreign bid, the domestic firm wins even though its actual invoice price is higher.

The Margin of Preference differs from domestic-preference, which is the broader policy framework, while the Margin is the specific numerical adjustment used to implement that policy in an evaluation. World Bank Standard Bidding Documents include a preference clause when the borrower country qualifies and has requested it. Not all MDB projects apply a preference margin; it must be stated explicitly in the bidding documents. Suppliers from the borrower country typically must demonstrate that a qualifying percentage of the bid price relates to local production or labour to claim the preference.

Why the Margin of Preference matters for bidders

Foreign suppliers competing on a tender that includes a Margin of Preference need to price in the disadvantage from the outset. If domestic competitors receive a 10 percent evaluated price reduction, a foreign firm must offer a price sufficiently below the domestic competitor's actual price to still come out ahead after the adjustment. Ignoring the preference clause and pricing as if it is a straightforward lowest-price competition is a common and costly error.

FAQ

Is the Margin of Preference applied to every ICB tender?

No. The preference only applies when it is explicitly stated in the bidding documents. Many ICB tenders have no preference margin, making it a genuinely open price competition.

Does the Margin of Preference change the contract price paid to the winner?

No. The preference is applied only during evaluation to determine the winner. The contract is then signed and paid at the actual bid price, with no preference adjustment to the payment amount.

Can a joint venture claim a domestic preference margin?

A JV can claim the preference if it qualifies as a domestic entity under the applicable rules, which typically requires that a majority of the JV's equity, management, and proposed work content is domestic. The bidding documents specify the qualifying conditions.