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In the current economic climate, there is fierce competition for public sector work, with some suppliers willing to submit a very competitive tender in order to obtain an often relatively long-term contract, safeguard their workforce and engage with a public sector client who will almost certainly be able to pay the bills.
Low prices from tenderers can be very appealing to the public sector but can also represent a risk if the price is so low that it could jeopardise the sustainability of the supplier and ultimately the project. There is also a risk that a supplier who submits a very low tender may seek to make substantial amendments to the contract after award – this also could be problematic from a procurement compliance perspective.
What are a public body’s obligations in relation to low tenders?
The 2015 Regulations clarify the rules around “abnormally low tenders”, although there is no definition of this term and no especially relevant case-law. What is unequivocal now is that a public body must require a tenderer to explain the price or costs proposed in the tender when the tender appears to be abnormally low.
Beyond that, the public body has considerable discretion, unless state aid is involved or the tenderer is in breach of certain fundamental social, environmental and labour law obligations. The Regulations set out a list of non-exhaustive reasons which may be used to explain the low bid and also obliges the public body to “consult” with the tenderer but does not prescribe what form this should take.
Rejecting a low tender
A public body may only reject the tender where the explanations given and any evidence supplied do not satisfactorily account for the low level of price or costs proposed.
The public body will, of course, require to act proportionately and transparently but there is still a difficult pricing decision to be made by bidders who want to win the work but don’t want their bids rejected for being too low.