Down down deeper and down: Julie-Ann McCaffrey reports on a recent ruling dealing with abnormally low bids

March 7, 2017

Abnormally low bids have been a subject of conversation for authorities and aggrieved bidders in recent times. While the authority wants to achieve value for money by receiving goods, services or works from a suitably qualified contractor at the best price, it also wants to ensure that the contractor can deliver the contract properly and fulfil the contract at the price quoted.

Introduction

A decision of the Chancery Division of the High Court of Justice in Northern Ireland last year found that a local authority breached the Public Contracts Regulations 2006 (the Regulations). In the case of FP McCann Ltd v The Department for Regional Development [2016], Colton J held that the Department for Regional Development was guilty of a breach of duty to FP McCann Ltd in relation to the award of a contract to design and construct a dual carriageway between Belfast and Larne in a contract worth an estimated £80m-£100m.

The facts of the case are that a civil engineering contractor (FP McCann Ltd) formed a joint venture consortium, referred to as BBMC, with Balfour Beatty Civil Engineering Ltd for a contract to design and construct the A8 dual carriageway. The contract was to be awarded on the basis of the most economically advantageous tender. Although BBMC submitted the lowest tender price, the department deemed the bid abnormally low and rejected its tender.

The court noted that the issue in the case was the legality of the decision to exclude BBMC and the obligation on the department to ensure equality of treatment, objectivity, transparency and proportionality. One of the issues raised by FP McCann was that it had not been afforded sufficient opportunity to deal with the matters that led to the rejection of its bid from the tender process.

Decision

Colton J said that based on the evidence there were a number of specific concerns:

• Matters which were expressly excluded as contributing to the evaluation panel’s recommendation to reject FP McCann’s bid in fact did contribute to this decision. The evidence provided to the court was that the prices for several aspects of the bid were excluded as reasons for the bid being abnormally low. However, the judge held that the documents provided to the department supported the contention that these prices contributed to the panel’s recommendation that the bid was abnormally low, notwithstanding the evidence that these matters were discounted.

• BBMC was not given the opportunity to explain matters which ultimately contributed to the decision to reject the tender. The judge noted that under Reg 30(6)(a), before the department could decide that a tender is abnormally low, it must request an explanation in writing of the offer or of those parts considered abnormally low. The judge noted that:

No clarification was sought in respect of the fee and core management team prices which… in my view… could have and probably did contribute to the decision to reject the tender. This constitutes a clear breach of the requirements of the regulations.

• The department failed to comply with its obligation to verify the offer or parts of the offer which were allegedly abnormally low. It was held that this obligation is an express requirement of Reg 30(6)(c) which had been breached in this case. The judge noted:

In terms of what is required under the Regulations for verification at the very least this requires the economic operator to be told of the authorities’ concerns… verification also requires an element of engagement between the authority and the operator whereby the authority explains to the economic operator the basis and reasons for its decision… As was evident from this trial there was much more to be said about the outstanding issues between the parties at that time. In any event proper compliance would have given BBMC the opportunity to submit further information or evidence if it wished…

It was also noted by Colton J that he was being asked to ‘assess matters of commercial judgement which I am not well placed to decide’. However, having heard the evidence, he was left with the opinion that there was ‘very real and legitimate concerns about whether these rates were in fact reliable’; therefore, the department was not held to be guilty of manifest error.

The department was held to be in breach of Reg 30 and in breach of duty to FP McCann. The judge noted that:

..there was a significant chance that the defendants may have taken a different decision were it not for those breaches…

and FP McCann was entitled to damages:

…marked by a meaningful award to reflect the loss of opportunity to the plaintiff to be awarded a significant and potentially lucrative contract.

Conclusion

This case serves as a warning to authorities to understand their obligations under the Regulations, particularly when excluding bidders from a tender process due to what is deemed an ‘abnormally low bid’. Although this case was decided on the 2006 Regulations (Reg 69 of the Public Contracts Regulations 2015 sets out the requirements of the authority to seek an explanation before it considers whether a tender is abnormally low), the judgment is extremely relevant as it emphasises the importance of the verification process that should be completed by authorities. It remains clear that authorities should be careful to comply with their duties under procurement law.

Credit: Procurement and Outsourcing Journal.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.