You are on page 1of 13

How can you quickly establish whether an

abnormally low tender presents you with an


unacceptable risk of non-performance?

Anna-Marie Curran, Partner


A&L Goodbody
Awarding Public Contracts Lawfully and Skilfully within
the Procurement Rules - White Paper Conference
The Gibson Hotel, Dublin, 8th April 2011

Introductory comments

Topical issue in current economic climate, particularly with regard to works


contracts

Contractor may low-ball price to win the contract and seek to recover losses
through contract claims

Post-contract variations may result in a new contract Pressetext

Application of competition law i.e. abuse of dominance through predatory


pricing, excessively low pricing, etc.

Common questions: What is an abnormally low tender?


Is there a duty to query an apparently abnormally low tender?
Is there a duty to exclude an abnormally low tender?
Can principles of equal treatment and transparency in consideration of
lowest priced/MEAT give rise to a duty to exclude?
2

Legislative Provisions

Regulation 69 of SI 329/2006:

If a tender appears abnormally low, contracting authority shall, by notice


in writing and before rejecting the tender, request the tenderer to
provide written details of constituent elements of the tender

Constituent elements may include: Economics of the construction method, manufacturing process or means to

be used
Technical solutions or any exceptional favourable conditions
Originality of the work, products or services
Extent to which employment protection/working conditions provisions are
being complied with
Whether there is a possibility that tender may receive State aid

Can exclude tender if only reason for abnormally low bid is State aid but
only after bidder has been consulted and bidder has failed to satisfy
contracting authority that State aid was granted lawfully
3

What is an abnormally low tender?

Not defined in Directive, Regulations or case law

Several Member States have national legislation that prescribe


mathematical formula for determining whether a bid is abnormally low
e.g. a % deviation from average price tendered

European Commission Guide to the Community Rules on Public


Procurement of Services a level below which an offer cannot be
considered as being serious having regard to the services provided.

What is an abnormally low tender?

DG III Working group on Abnormally Low Tenders Prevention,


Detection & Elimination of ALTs in the European Construction Industry
(19 May 1999):A tender is assumed to be abnormally low if: In the light of clients preliminary estimate & of all the tenders submitted,
it seems to be abnormally low by not providing a margin for a normal
level of profit and
In relation to which the tenderer cannot explain his price on the basis of
the economy of the construction method, or the technical solution
chosen, or the exceptionally favourable conditions available to the
tenderer, or the originality of the work proposed

Arrowsmith, The Law of Public and Utilities Procurement (2nd ed) para.
7.138
concept is not defined, but it refers to an offer that, because of its

favourable terms, raises a suspicion that the provider will not be able to
perform according to the terms offered
5

Case Law on automatic formula

Impresa Lombardini Spa, C-285/99 [2001] ECR I-9233 while national


legislation prescribing a mathematical formula for identifying ALTs was
permissible, legislation could not provide for automatic exclusion without
first allowing the bidder to justify its price

Secap Spa C-147/06 if contract has a cross-border interest, national


legislation cannot prescribe automatic exclusion for ALTs identified on
the basis of a mathematical formula without first allowing the bidder to
justify its price although it could be permissible to provide for this where
there were a high number of bids and admin capacity may be
jeopardised

Is there a duty to query an ALT?

Renco v. Council, Case T-4/01 [2003] ECR II-171


apparent from Article 30(4) of Directive 93/37 that the Council is
under a duty first to identify suspect tenders; secondly, to allow the
undertakings concerned to demonstrate their genuineness by asking
them to provide the details which it considers appropriate; thirdly, to
assess the merits of the explanations provided and fourthly to make
a decision as to whether to admit or reject those tenders

Morrison v. Norwich [2010] EWHC 487 (22/02/10)


Injunction granted on the basis that it was seriously arguable that
there was a duty to investigate and that CA had not carried out
appropriate investigations
Successful bid = 17.5m; other bids = 23m-26m
Caution interlocutory application and merely an arguable case
Substantive case settled out of court
7

Is there a duty to query an ALT?

PC-Ware Information Technologies v. Commission Case T-121/08


(11/05/10)
main purpose of the article is to enable the tenderer not to be
excluded without having had the opportunity to explain the terms of
its tender which appears abnormally low

Varney v. Hertfordshire CC [2010] EWHC 1404 (16/06/10)


No duty to investigate tenders suspected of being abnormally low
unless CA is intending to reject that tender;
Argument that CA had made a manifest error in not deciding tender
was abnormally low and not investigating was not supported by the
facts
Note manifest error was a valid ground for challenge

Is there a duty to reject an ALT?




Once queries have been raised, new obligations

Manifest error in not rejecting a bid that still appears to be abnormally


low?

Reasonableness in not rejecting a bid that still appears to be abnormally


low?

Morrison Facilities CA had carried out a due diligence process on


successful bid and yet Court was not convinced that investigations were
sufficient

Breach of equal treatment and transparency principles if CA accepts an


ALT that may not be the most economically advantageous tender or
lowest priced?

Tender documentation

Duty/discretion to investigate or exclude may arise from tender documentation

Template public works ITT:

S.5.6: Candidates must not use abnormally high or low rates or prices.. Each
amount must cover the full inclusive value (excl. VAT) of the relevant work, and
where applicable, a fair allocation of the tendered Contract Sum may result in
non-compliant tender or application of S.8.3

S.8.3 If, in the Employers opinion, the tendered Contract Sum is abnormally low or
any tendered amounts are abnormally low or abnormally high, the Employer may
require the Candidate to provide details of the constituent elements of the tendered
Contract Sum or the tendered amounts If having considered the information
provided, the Employer is of the view that either the Contract Sum is abnormally low
or any tendered amounts are abnormally low or abnormally high, the Employer may
reject the Tender

Capital Works Management Framework Guidance Note, GN 2.3 S.4.3

where an exceptionally low tender price is received, it should be fully investigated


and only if it is found to be bona fide and acceptable should it be allowed into the
price evaluation part of the procedure. In the case of tenders covered by EU
directives, exceptionally low tenders should be investigated following the procedures
set out in those directives.
10

Prevention of ALTs (recommendations from


DGIII Working Group)


Apply proper qualitative selection criteria in open procedures

Proper specifications and use of MEAT criterion over lowest price

Early appointment of technical contractors

Precise & unambiguous tender documentation

Allow adequate time for preparation of tenders

Require surety bonds covering bid, performance and payment

Prohibit post-tender negotiations

Limit changes to contract (i.e. to unforeseen technical constraints)


11

Conclusions

No method for quickly establishing whether an ALT presents you with an


unacceptable risk of non-performance

No legal clarity on what is an ALT

Permissible to request additional information but this could open a can


of worms

Likely to be further case law with regard to ALTs

Extent of equal treatment/transparency principles yet to be tested with


regard to treatment of ALTs

12

How can you quickly establish whether an


abnormally low tender presents you with an
unacceptable risk of non-performance?

Anna-Marie Curran, Partner


A&L Goodbody
Awarding Public Contracts Lawfully and Skilfully within
the Procurement Rules - White Paper Conference
The Gibson Hotel, Dublin, 8th April 2011

You might also like