How low can you go!

May 20, 2015

Most authorities want to achieve value for money by obtaining goods, services or works from a suitably qualified contractor at the best price. An abnormally low tender presents a potential risk to the authority in that the contractor may not deliver the contract properly or may seek additional payment and thus not fulfil the contract for the price quoted.

Where can the relevantprovisions be found?
Subsections 6-9 of Reg 30 of the Public Contracts Regulations 2006 (PCR 2006) deal with abnormally low tenders; however the PublicContracts Regulations 2015 (PCR 2015) acknowledge the importance of abnormally low tenders and as such have dealt with them solely in Reg 69.

What is an abnormally low tender?
The PCR 2006 do not define an abnormally low tender and thecourts have not yet provided a specific interpretation. Unfortunatelythe drafters of the PCR 2015 have nottaken the opportunity to provide a definition, and so, in the absence of a prescribed definition, it would appear that the most logical interpretation is that an abnormally low tender is a tender which is so low that it raises suspicion as to whether or not the tenderer can fulfil the contract for the price quoted. The authority therefore needs to be aware of the likely price for thegoods, services or works beingprocured or alternatively carry out a comparison against other prices tendered.

Abnormally low tenders can be a symptom of the economic climate, where tenderers are prepared to bid extremely low in order to win the work either to keep their heads just above water or to gain experience to help them win future tenders with higher returns. Equally, an abnormally low tendercan be as a result of a simple mistake by the tenderer or even a calculated decision to bid low and then later seek to raise the contract price by way of contract variations. Must an authority investigate an abnormally low tender?

The PCR 2006 do not require an abnormally low tender to be investigated but give the authority the power to do so. However the PCR 2015 state in Reg 69 (emphasis added):

Contracting authorities shall require tenderers to explain the price or costs proposed in the tender where tenders appear to be abnormally low.  There is therefore a shift from the power to investigate under the old Regulations to a duty to investigate under the new Regulations. Under the old Regulations, if an investigation was undertaken, an authority would request in writing an explanation, evidence and verification of the abnormally low parts of the tender. As is seen above, under the new Regulations, tenderers are required to provide an explanation; however while there is no express requirement for the explanation to be in writing, the correspondence provisions of the new Regulations would appear to imply the same into Reg 69. The elements which can be investigated under both the new and the old Regulations are fairly similar and include, but are not limited to, economics, technical solutions, originality and state aid.

The main difference in respect of the powers of investigation is that, under the old Regulations, an authority had the power to investigate tenders which had been identified as abnormally low, whereas under the new Regulations the authority is required to seek an explanation before it considers whether a tender is abnormally low. This shift from a power to a duty has the potential to open contracting authorities up to challenge where the duty is not exercised.

Must an authority reject an abnormally low tender? Under the old Regulations there was no duty for an authority to reject an abnormally low tender. The new Regulations also do not impose a requirement for an abnormally low tender to be rejected but grants a power for the authority to do so. Therefore under both the new and the old regime, the right to reject an abnormally low tender will arise if the information provided does not provide a satisfactory explanation for the low price. As rejection remains discretionary, contracting authorities who do not exercise the power appropriately will be subject to challenge.

Under both the new and the old Regulations an authority must reject a tender which has the benefit of state aid only after consultation with the tenderer and if the tenderer is ‘unable to provide, within a sufficient time limit fixed by the contracting authority, that the aid in question was compatible’. Where an abnormally low tender is rejected on the grounds of state aid, the authority must inform the Commission. Under the new Reg 69(5) an authority must reject an abnormally low tender if it does not comply with Reg 56(2), which states: Contracting authorities may decide not to award a contract to the tenderer submitting the most economically advantageous tender where they have established that the tender does not comply with applicable obligations in the fields of environmental, social and labour law…

Conclusion

The provisions in respect of abnormally low tenders are a tacit acknowledgement that, while balancing the need for competition, in some cases a tender should be rejected because it is not economic to accept it. At the same time a procedure is to be followed so as to protect tenderers from arbitrary decisions. No doubt further case law will ensue in due course as tenderers test the new wording of the PCR 2015, however the new provisions do seem to provide some clarity and codification which the PCR 2006 previously lacked.