Procurement in a Nutshell – Abnormally low bids

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The first such element of procurement law, and that which shall be examined in this Nutshell, is the situation which arises in cases where it is alleged or suspected that an abnormally low bid has been made by a tenderer.

The case

The dispute related to a tender process for a clinical waste disposal contract.  The result of the process was that the incumbent service provider (the “Claimant”) was unsuccessful.

The tender process took the form of a “reverse auction” whereby the bidders each reduced their initial bid in turn – with the lowest bid winning both the auction and the contract.

As part of this process, when bidding for the contract each bidder would bid a single lump sum and, if successful, they would then submit to the Contracting Authority a document within which they would detail how this bid was calculated.

The final bids were as follows:

Winning bid:                           £310,000

Runner-up bid:                        £313,000

The Claimant’s bid:                 £479,999

Consequently, the Claimant made a number of challenges to the decision to award the contract to the winning bidder including that the winning bid and the runner-up bid were abnormally low and, as such, the Contracting Authority was under a duty to investigate these.

The relevant legislation

Regulation 69 of the Public Contracts Regulations 2015 covers abnormally low tenders and states that:

“Contracting Authorities shall require tenderers to explain the price or costs proposed in the tender where tenders appear to be abnormally low in relation to the works, supplies or services.”

It is interesting to note that the wording under the 2015 Regulations differs from their previous 2006 counterpart which stated that:

“If an offer for a public contract is abnormally low, the Contracting Authority may reject that offer, but only if it has requested in writing an explanation of the offer or of those parts which it considers to contribute to the offer being abnormally low.”

As such, a crucial consideration for the Court in arriving at its decision was whether the change in wording between the Public Contracts Regulations 2006 and the Public Contracts Regulations 2015 means that a Contracting Authority is now under a duty to investigate tenders that appear abnormally low, or does this only arise (as with the previous Regulations) where the Contracting Authority wishes to reject the tender.

The judgment

With regard to the allegation that it had acted in contravention of the 2015 Regulations by awarding the contract to the ‘apparent’ abnormally low tender, without having first investigated the nature of the bid itself, the Contracting Authority submitted that the duty to investigate under Article 69 arises only where two conditions are fulfilled:

• When it appears to the Contracting Authority that a tender is abnormally low; and
• When it is considering rejecting the tender for that reason.

Despite agreeing that the winning bid and the runner-up bid did not appear to be abnormally low, the Court investigated whether there was an obligation on Contracting Authorities to investigate all apparent abnormally low bids.

The duty to investigate

In arriving at its conclusion, the Court recognised the view of the noted academic Professor Arrowsmith who had previously stated:

“Although the language of the duty to investigate is no longer expressly limited to the case in which the authority wishes to reject a tender, such a limit is to be implied in light of the purpose for which the provision was originally introduced.”

Additionally, and affirming Professor Arrowsmith’s view, the Judge went on to hold:

“there is no basis for imposing a general duty to investigate such tenders in all cases.  If, in any particular competition, the Contracting Authority considers that a particular tender has the appearance of being abnormally low, and the Contracting Authority considers that the tender should be rejected for that reason, there is a duty upon the Contracting Authority to require the tenderer to explain its prices.”

On this basis, the Court found in favour of the Contracting Authority holding that it was not under a general duty to investigate the winning and runner-up bids purely because they may have appeared abnormally low.

Criticism of the Claimant

Moreover, and irrespective of this finding, it is important to note that the Court directed specific criticism at the Claimant for its actions in bringing the claim.  In particular, it stated:

“the whole attack by [the Claimant], and the complaints that the winning bid were abnormally low, have been contrived…

[the Claimant] took a conscious decision not to bid on a commercial basis, but fix its margins at an artificially high figure of 25%, and try to engineer a situation where the other bids were far lower than its own, in order to justify an attack on the auction using the ‘abnormally low tender’ approach.”

Why is this important?

The Court’s judgment has served to clarify the lack of clarity introduced by the Public Contracts Regulation 2015 in relation to the duty of a Contracting Authority to investigate abnormally low tenders.

Furthermore, in criticising the Claimant’s apparent efforts to “try to engineer a situation where the other bids were far lower than its own” in order to support its abnormally low tender argument the Court has reminded other tenderers that such behaviour is ill-advised and will be criticised by the Court.

How can I find out more?

If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.