When is an offer too good to be true?

Limbo iStock 000009688304XSmall 146x219David Hansom reminds contracting authorities of the issues when a bid needs to be investigated as an abnormally low tender.

In these times of having to find new ways of delivering services, authorities are naturally keen to secure as good a deal as possible through procurement activity. At the same time, authorities which buy unsustainably low services or products may be taking a risk on poor quality of supply, insolvent contractors, or both.

Under the EU directive on public procurement, a contracting authority has an obligation to reject a bid where it is aware that the bid is "abnormally low". The directive makes it very clear that this is an absolute obligation, stating as it does that an authority “shall” so reject a bid which it knows to be abnormally low. However, the UK Public Contracts Regulations ("Regulations"), which implement the Directive, appear to have a lesser obligation by using the term “may” rather than “shall" reject.

The Regulations give the impression that the rejection of an abnormally low tender can somehow be at the contracting authority’s discretion, rather than a mandatory requirement. This had led to a piecemeal approach as to how different authorities treat abnormally low tenders and some confusion as to the correct approach. The Courts have considered this question in 2010, as many readers will be aware, in the case of Morrison Facilities Services Limited v Norwich City Council 2010 EWHC 487 (Ch).

The Court was clear that contracting authorities need to follow the wording of the Directive and not the Regulations. This means that if it suspects that a tender is abnormally low, an authority must reject it. The contracting authority does not have to check each price quoted by every bidder - this is impractical and over burdensome - but it must closely examine the reliability and accuracy of all tenders which it suspects may be abnormally low.

The Regulations set out the mechanism to assess an abnormally low tender in Regulation 30, which provides that authorities must seek an explanation in writing from the bidder as to the offer (or any parts of it) which it considers contributes to the risk of the tender being abnormally low, to take proper account of the evidence provided in response to the written request; and to verify the offer or parts of the offer as being abnormally low with the bidder. If, following this confirmation, the bidder is unable to confirm that the tender is not abnormally low, the tender must be rejected.

Practically, what is important here is that there is appropriate audit trail of decision making within the authority when looking at low priced tenders. Warning signs include bids which are significantly cheaper than the current cost of the contract and/or the prices quoted by other bidders. If there is no investigation of a suspected abnormally low bid, and losing bidders become aware of this (either through the standstill period or a Freedom of Information Act request) authorities can well expect formal proceedings to stop the award of the contract.

That said, there is a balance to strike between being sensibly nervous about genuinely unsustainable bids versus allowing the supplier market to make commercially lower priced bids to help to secure or develop an area of business. If in doubt, authorities should seek advice early.

David Hansom is a partner specialising in public procurement at Veale Wasbrough Vizards. He can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it. or 020 7665 0808.