‘Abnormally low’ bids

Wednesday December 14th, 2011

By Ruth McNaught, Solicitor at Harper Macleod LLP

Competitive tendering is an obvious way to achieve fiscal savings for contracting authorities. But what if a tenderer submits a bid that appears to be abnormally low? Does the contracting authority have to accept it?

A low bid might make a contracting authority question whether the contract would necessarily offer best value. For example, what if the bid is so low that it impacts upon service delivery? Could an aggrieved unsuccessful tenderer challenge the contract award?

Regulation 30(6) of both the Public Contracts Regulations 2006 and the Public Contracts (Scotland) Regulations 2006 provide that a contracting authority ‘may’ reject an abnormally low bid, but only if it has:

(a)        requested in writing an explanation of the offer being abnormally low;

(b)        taken account of the evidence provided; and

(c)        verified the offer or parts of the offer being abnormally low with the bidder.

The Regulations do not define what constitutes an ‘abnormally low’ bid, nor is there extensive case law on the point. Commentary suggests that contracting authorities should look out for significant variations from the other bids, a deviation from the mean average of all tenders received, and bids which are well below what the contracting authority had budgeted for (based on its market knowledge). A good rule of thumb is where a bid is priced at such a level that the authority considers itself, in all the circumstances, unable to rely upon the contract being properly performed.

There has in recent months been some debate over whether contracting authorities have to reject abnormally low bids. This has emanated from the 2006 Regulations’ departure from the wording of the Directive: Article 55 of Directive 2004/18 provides that contracting authority ‘shall’ do certain things (for example, request details from the tenderer) before rejecting an offer that appears to be abnormally low, whereas Regulation 30(6) states that the contracting authority ‘may’ reject an offer that is abnormally low but only if it has done certain things.

In Morrison Facilities Services Limited v Norwich City Council [2010] EWHC 487 (Ch), the Court relied upon the word ‘shall’ in Article 55 to conclude held that it was ‘seriously arguable’ that when a contracting authority suspects there has been an abnormally low tender, it comes under a duty to the competing tenderers to investigate that tender. Morrison provided an analysis of the winning bidder’s tender and showed it to be so low (£5.5million less than the next lowest bid) that it would seriously risk non-performance of the contract and would be insufficient to cover unavoidable costs as well as the necessary capital programme in executing the contract over the period.

The case subsequently settled out of court and was shortly followed by Varney v Hertfordshire County Council [2010] EWHC 1404 (QB), in which the Court found there to be no substantive difference between the provisions of the Directive and the Regulations: both provide that a contracting authority cannot reject an offer that is abnormally low unless it has investigated certain elements of the bid. Neither provision creates a duty in favour of other tenderers nor a duty to investigate suspect tenders where there is no intention to reject tenders on that basis. The Regulations only require a contracting authority to investigate a bid which it knows or suspects to be abnormally low and which it proposes to reject for that reason.

Given that the decision in the Morrison case was only issued followed an interim application for interim relief purposes, it would seem that the decision in Varney is the one to be followed.

Ruth is a solicitor at Harper Macleod LLP and can be contacted at ruth.mcnaught@harpermacleod.co.uk

www.harpermacleod.co.uk

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