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Lisa Boyd, Director and Head of Procurement at Cleaver Fulton Rankin, examines the Public Contracts Regulations 2015, as amended, in relation to abnormally low tenders.
Contracting authorities all strive to achieve value for money by obtaining goods, services or works from a suitably qualified contractor at the best price. This encourages bidders to sharpen their pencils as best they can, however, 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. So when can an authority reject an abnormally low tender and what rights do competitors have?
Where can the relevant provisions be found?
The provisions in respect of Abnormally Low Tenders can be found at Regulation 69 of the Public Contracts Regulations 2015 (PCR 2015).
What is an abnormally low tender?
PCR 2015 does not define an abnormally low tender and the courts have not yet provided a specific definition.
It should be noted that not all abnormally low tenders are unstainable. 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 above water or to gain experience to help them win future tenders with higher returns. Equally, an abnormally low tender can be as a result of a simple mistake by the tenderer or evidence of strategic bidding.
Must an authority investigate an abnormally low tender?
PCR 2015 states:
Contracting authorities shall require tenderers to explain the price or costs proposed in the tender where tenders appear to be abnormally low.
There may also be rules within the tender documentation in respect of abnormally low tenders.
Must an authority reject an abnormally low tender?
PCR 2015 requires the contracting authority to “assess the information provided by consulting the tenderer”. PCR 2015 also sets out the types of explanations that may be given. It then grants a power, not a duty, for the authority to reject an abnormally low tender “where the evidence supplied does not satisfactorily account for the low level of price or costs proposed”. Therefore, the right, not duty, to reject an abnormally low tender will arise if the response provided does not provide a satisfactory explanation for the low price.
The provisions in respect of abnormally low tenders balance the need for competition and the ability, not obligation, to reject abnormally low tenders. At the same time a procedure is set out, so as to protect tenderers from arbitrary decisions. Tenderers who have been excluded from a tender as a result of the contracting authority deciding that their tender is abnormally low should review the decision as soon as possible and if not in agreement seek to challenge. Equally, competitors may be able to challenge a decision of a contracting authority in exercising the power but not in respect of whether the power should have been exercised. Anyone wishing to challenge should be aware that the limitation period is 30 days and action should be taken sooner if prevention of the award of the contract is required.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact Lisa Boyd, Head of Procurement at Cleaver Fulton Rankin for further advice or information.