Practical Law

PLC Public Sector reports:

According to recent press reports, a bidder has obtained an injunction in respect of a building maintenance contract tendered by Norwich City Council. The injunction prevents the Council awarding the contract to its chosen bidder. The injunction was granted on the basis that there was an arguable case that:

• The successful bidder had submitted an abnormally low tender.
• The Council had failed to fully investigate whether the bidder would actually be able to deliver the contract requirements at its tendered price.
• There had also been flaws in the way that the Council had disclosed it evaluation criteria.

While we must await the outcome of the full hearing (due to take place in June) before commenting fully on the implications of this decision, the court’s acceptance of an allegation of failing to investigate an abnormally low tender, and the fact that an interim injunction has been granted, are both significant developments that public sector purchasers should be aware of.

In the current economic climate, the need for suppliers to get business will mean that they are increasingly likely to submit speculatively low prices in response to public sector invitations to tender.   This may be with the intention of delivering at this low price or simply getting a foot in the door and then increasing contract revenues once they have been appointed.  Public sector purchasers operating in the same economic climate and facing significant pressure to make savings are more likely to be swayed by a low headline figure and therefore not fully consider whether the price is actually deliverable.

Anyone involved in public procurement will be aware that litigation is becoming increasingly common. A combination of the economic climate and a destigmatisation of taking proceedings against potential clients means that aggrieved bidders are more likely to resort to the courts.   The majority of these claims have been based on flawed evaluation procedures,  in particular the public sector purchaser:

• Failing to fully disclose the evaluation criteria it is using.
• Using inappropriate criteria. 

This case sees these issues being raised again.  However, it is the inclusion of a claim that the Council failed to fully investigate an abnormally low tender which is new and of particular interest.

What is an abnormally low tender?

No specific definition is provided by the Public Contracts Regulations 2006 (Regulations).  The ECJ has also shied away from providing a specific definition when the issue has come before it (albeit in a different context to the Norwich case).  This leaves two ways for public authorities to identify when a tender may be classified as abnormally low.   They can:

• Look for a significant difference from the other bids received.  In the Norwich case, the successful bidder had quoted £17million, which was apparently at least 25% lower than any other bid received.
• Know what they are purchasing should cost.  This is something that public sector purchasers should be aware of anyway to ensure that they know that they are getting for value for money.  It should be possible to do so by having accurate management information about what a service is currently costing (or what similar works have previously cost), having a detailed specification that proposed charges can be assessed against and/or liaising with the market prior to going out to tender.

Is there a specific duty to investigate an abnormally low tender price?

No.  Regulation 30(6) of the Regulations gives contracting authorities the right to reject an abnormally low tender, subject to giving bidder a right to justify its tendered price, but does not require rejection.

Why should a purchaser investigate then?

The reasons are twofold.  First, if something looks too good to be true, it is normally because it is.  Appointing a bidder simply on the basis of a very low price runs the risk of ultimately having to pay significantly more to get the required works or services, or worse, not getting them at all.

The second reason is highlighted by the Norwich case.  General EU Treaty principles require all bidders to be treated equally, that is, there should be a level playing field.  If all the other bidders play by the rules and cost a bid properly, it is likely that by failing to ensure that the successful bidder can deliver at its stated price, the public sector purchaser will be breaching these principles and at risk of having an injunction granted against it (or, under the new remedies regime, having the award procedure automatically suspended or any contract entered into declared ineffective).

What should be done when one is identified? 

The bid must not be automatically rejected. Instead the relevant bidder should be given the opportunity to justify and explain why they can deliver at the price they have tendered. 

Where the evaluation model is based on finding the most economically advantageous tender (MEAT),  it may be that any abnormally low price is actually cancelled out by lower marks for quality and deliverability anyway.  In these circumstances further investigation may not be necessary.

Other lessons to learn

Aside from the need to make sure that suspiciously low tender prices are properly investigated, there are also various other points to note from this case:

• Public authorities must ensure they use appropriate award criteria (and, in particular, do not get them confused with selection criteria).
• These criteria must be disclosed to bidders.
• Public authorities should be aware that following the implementation of the new remedies directive, the court may be increasingly willing to grant injunctions for procurements subject to the old regime.  Therefore, any rush to have published OJEU notices prior to 20 December 2009 may have been in vain.

Finally, with this increased risk of injunction and associated disruption, it will be interesting to see if more public authorities elect to follow the approach of Bristol City Council and look to settle public procurement disputes out of court before they reach the issue of proceedings.