I only pass comment if I'm asked and then it's important to be positive. I would say something along the lines of 'if I were you, I would work on so and so'. People who ask are often just starting to play or sing in public and they are very sensitive to criticism. It's easy to put them off and you never see them again. That's a pity if they may have developed into a good live performer.
People who are consistently bad should get the vibe from the room but most can improve. Maybe encourage them to try a different song or easier tune.