On 18 April 2016 the Public Contracts (Scotland) Regulations 2015 came into force. As part of our Construction Matters series, we are looking at the implications of the new regulations for contractors/ suppliers working with the public sector. This week we are looking at the issue of abnormally low tenders.

What’s the issue?

If a contracting authority receives a tender which is abnormally low, it can, ultimately, reject that tender.

Are there any steps which the contracting authority must take before it can reject a tender?

Yes.  The contracting authority must seek an explanation from the tenderer as regards why the price proposed in the tender submission appears to be abnormally low.

What possible justifications might there be for an abnormally low tender?

The 2015 Regulations specify a number of possible explanations for an apparently abnormally low tender price as follows:

• The economics of the manufacturing process, of the services provided or of the construction method;
• The technical solutions chosen or any exceptionally favourable conditions available to the tenderer for the execution of the works or for the supply of the products or services;
• The originality of the works, supplies or services proposed by the tenderer;
• Non-compliance with obligations relating to environmental, social and labour laws established by EU law, national law, collective agreements or by international environmental, social and labour law provisions;
• Non-compliance with obligations relating to the proposed award of sub-contracts by the tenderer;
• The possibility of the tenderer obtaining state aid.

When can the contracting authority reject the tender?

The contracting authority must first assess the information provided by the tenderer. The Regulations state that the contracting authority:

• must reject the tender where the authority has established that the tender is abnormally low because the tenderer does not comply with the applicable obligations relating to environmental, social and labour law referred to above;
• may reject the tender if it determines that the tender is abnormally low because the tenderer has obtained state aid and, after consultation with the tenderer, the tenderer is unable to prove within a sufficient period of time fixed by the contracting authority, that the aid in question is compatible with the EU Treaty provisions relating to state aid; and
• may reject the tender where the explanations given and any evidence supplied do not satisfactorily account for the low level of price or cost proposed, taking into account the possible explanations referred to above.

What is meant by an abnormally low tender?

There is no definition in the Regulations of an abnormally low tender, but in practice, it will be identified where the tenderer’s price is significantly lower than other tenderers. Clearly, when preparing tender submissions, tenderers will want to ensure that they can substantiate the price tendered having regard to the possible explanations referred to above. Otherwise, tenderers which submit what may be perceived to be a “too good to be true” price may find that their tender is rejected.

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