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Comment and Analysis Masthead

Dealing with abnormally low tenders

Procurement iStock 000002542569XSmall 146x219How should contracting authorities approach a situation where they believe a tender could be abnormally low? Richard Wilson, George Lubega and Graeme Young offer some pointers.

The public sector has become adept at encouraging its private sector partners to keep costs down. Margins in construction contracts can be particularly tight and to succeed in a public sector tender process the bidder may have to have the lowest price or at least the “Most Economically Advantageous Tender”.

Against this backdrop we have seen recent press interest as to why some businesses continue to bid for relatively low margin public contracts which seemingly were not bringing sufficient cash into their business. However, with the boot on the other foot, what should a public sector client (a “contracting authority” in procurement speak) have done if it thinks a tender price is too good to be true, in other words, if a contracting authority considers a tender to be “abnormally low”. After all, the contracting authority may have concerns that a bidder is putting in an unrealistic bid to ensure it wins the contract only to seek to negotiate prices upwards at a later stage or to stand the losses for commercial reasons.

The rules around tendering for public contracts have been updated recently and are set out in the Public Contracts Regulations 2015 (“PCR 2015”). Regulation 69(1) of the PCR 2015 directs that a contracting authority shall require a tenderer to explain the price or costs proposed in the tender where a tender appears to be abnormally low. However, while this mandatory requirement on contracting authorities may appear clear, there are surprisingly few examples of this Regulation (or its nonmandatory predecessor Regulation 30(6) of the Public Contracts Regulations 2006 (“PCR 2006”)) coming under judicial scrutiny in the United Kingdom. Elsewhere in the EU, award decisions are more often challenged on the ground of abnormally low or high prices and can be a fertile ground for court appointed experts.

The main area of confusion arises in relation to what is meant by “abnormally low”. In other words there is no explanation of the “trigger point” included in the PCR 2015 at which the contracting authority should require the tenderer to explain its tender. This gives rise to a slightly odd position that it is required only to ask questions of the tenderer if the tender appears to be abnormally low but unless it asks the questions the authority may not know if the tender is abnormally low in the first place.

The use of the word “appears” does, however, leave room for manoeuvre and allows the contracting authority to seek an explanation without having to reject the bid first and ask questions later. This suggests that "the contracting authority need, in the first stage, only carry out a prima facie assessment of the abnormally low character of a tender." (Case T392/15, European Dynamics Luxembourg and Others)

But how does it decide what the trigger point is? Conceivably a contracting authority may consider the suspect tender against the other bids received (to ascertain if it is an “anomaly” or an "outlier") or may have its own idea of an objective standard (e.g. market value). On this later point though, “market value” may be difficult to ascertain in the case of complex contracts and a contracting authority may need external evidence to decide the value. It may also be difficult to justify in the absence of an objectively assessable reason within the submitted, compliant tender documents. In some cases, contracting authorities may consider setting out up front their idea of a “yardstick” for abnormally low which could relate to the budget set out in specifications. However, there is always danger in making such an estimate early in the process. In doing so it may simply give disgruntled tenderers an opportunity to seek judicial review on a point on which the contracting authority has attempted to set out clearly for the benefit of tenderers, when it has no need to do so.

In one example, from the General Court of the Court of Justice of the European Union, the abnormally low nature of a tender was identified by comparing the amount of that tender to the total maximum budget, set out in the specifications, in the sum of EUR2.5 million. While the winning tender was slightly lower than that budget, the suspect bid was lower by nearly EUR1 million.

The General Court noted that nothing prevents the contracting authority from comparing tenders with the estimated budget in the tender specifications and from identifying one of them as being abnormally low where the amount of that tender is considerably lower than the estimated budget. (Case T698/14, Evropaïki Dynamiki – Proigmena Systimata Tilepikoinonion Pliroforikis kai Tilematikis AE)

However a contracting authority decides its trigger point, once it considers a tender to be abnormally low, it must request in writing details of the parts of the tender which it thinks are relevant to it being abnormally low such as:

(a) the economics of the manufacturing process, of the services provided or of the construction method;

(b) the technical solutions chosen or any exceptionally favourable conditions available to the tenderer for the supply of the products or services or for the execution of the work;

(c) the originality of the work, supplies or services proposed by the tenderer;

(d) compliance with the environmental, labour and social obligations referred to in Regulation 56(2);

(e) compliance with the subcontracting obligations referred to in Regulation 71;

(f) any hint of State Aid.

How should it consider the answers? Well, the first point to note is that the bidder should be asked to address all of the contracting party’s concerns. Second, only consideration of the answers should give rise to the decision as to whether or not to reject the bid because it is abnormally low because the answers do not "satisfactorily account" for the low level of price or costs proposed.

As a reminder, the contracting authority must apply principles of fairness, equality of treatment, objectivity, transparency and proportionality. For example, it would not be right to reject for a reason which was not put to the bidder as part of the investigation. This highlights the level of detail and consistency of approach required as part of the process of verification, clarification and consultation with the bidder to allow the contracting authority to assess whether the bid is one that is likely to provide it with the services which it seeks.

A question arises though of how you address this situation with the other bidders who, one can assume, will watch developments with interest to pounce on any potential for a challenge of their own when it becomes apparent they are some way off the pace in terms of price, especially if a contracting authority has to halt the procurement timetable.

In addition to the EU case law examples referenced above, the relevant tests for assessment of abnormally low tenders have been considered in England and Wales (Varney v Hertfordshire CC [2010] EWHC 1404 and Morrison Facilities Services Limited v Norwich CC [2010] EWHC 487 (Ch)), in Scotland (Amey v Scottish Ministers [2012] CSOH 181), and in Northern Ireland ((F P McCann Limited v The Department for Regional Development [2016] NICh 12). We covered the latter F P McCann case in a previous LawNow (see here).

These cases were all decided under the previous PCR 2006 (and equivalent Scottish regulations) but principles applicable to the investigation still hold good even if the legislative framework has been updated with a stricter duty on authorities to investigate abnormally low tenders.

Some practical pointers for authorities which arise from this are:

  • Reference somewhere in the tender documentation that the authority may investigate and ultimately reject any tender it considered to be abnormally low;
  • Have a clear and objective basis for any internal decision to treat a tender as abnormally low (i.e. the trigger point for an “ALT” investigation);
  • Clearly communicate to the tenderer all parts of its tender that the authority considers to be abnormally low, and why;
  • Have reference to all concerns arising from evaluation and the investigation process;
  • Retain a clear audit trail of all evaluation and investigation considerations and clarifications;
  • Give the tenderer sufficient opportunity to explain its pricing;
  • If practical, build sufficient time into the timetable from the outset; and
  • Consider the use of outside expert assistance but keep in mind competing issues of transparency and legal privilege.

George Lubega and Graeme Young are partners at CMS Cameron McKenna Nabarro Olswang and Richard Wilson is a Senior Associate. George can be contacted on 0114 279 4002 or This email address is being protected from spambots. You need JavaScript enabled to view it., while Graeme can be reached on 020 7367 2906 or This email address is being protected from spambots. You need JavaScript enabled to view it.. Richard can be contacted on 0114 279 4112 or by email. This article first appeared here.

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