Last year Connaught Partnerships Ltd, a company with many, often large, repair and maintenance contracts with social housing providers went into administration.
What does this have to do with low tender bids?
Before Connaught went into administration, Morrison Facilities Services Ltd sought a court injunction against Norwich City Council to prevent a contract award to Connaught, arguing that Connaught’s bid should have been rejected as “abnormally low”.
The court granted the injunction given the strong arguments that the bid was abnormally low and that, as a low bid, the Council did not undertake sufficient investigation to satisfy itself that the bid should not be rejected. The Council reached a settlement with Morrison so significant details, such as what enquiries the Council carried out before awarding the contract to Connaught, are unknown.
Thereafter, the administrators failed to find a buyer for the Council’s contract with Connaught, taking the Council back to square one in its search for a contractor.
In hindsight, if the Council had taken the view Morrison presented in court, that Connaught’s bid was unsustainably low, they might have been saved considerable inconvenience (and associated costs).
When can a bid be rejected as “abnormally low”?
Regulation 30 of the Public Contracts (Scotland) Regulations 2006 sets criteria for awarding a contract. Initially, with tender invites, “lowest price” or “most economically advantageous” criteria are chosen. In either case, Regulation 30(6) provides that if a bid is “abnormally low” (that term is not defined) it may be rejected only if the contracting authority has:
(a) requested written explanation of the bid (or parts) that it considers are abnormally low. Information sought may include: the economics of services provided; technical solutions proposed by the bidder; favourable conditions available to the bidder; compliance with employment protection matters; whether State aid is available to the bidder;
(b) taken account of evidence provided in response to (a); and
(c) subsequently verified with the bidder that the bid (or parts) is abnormally low.
A bid may still be accepted if a Regulation 30(6) investigation verifies that the bid is abnormally low, though Connaught provides an example of risks that might arise with that approach.
Rejecting a bid as abnormally low is a difficult decision. The bidder may want to challenge that decision, particularly if the tender was on a “lowest price” basis. The unusual nature of rejection on this basis is underlined by the Regulation 30(9) requirement to report and justify any rejection to Scottish Ministers, who forward that report to the European Commission.
Conclusion
If a bid looks too good to be true ... it probably is! If you have suspicions that a bid is not sustainable, because it appears low, consider whether it is abnormally low and, therefore, if investigation under Regulation 30(6) is appropriate.
Contact:
Patrice Fabien
Marion Davis