In the same way that a sole bid response must be closely evaluated for price reasonableness, so must an abnormally low bid.
This seems to be the case around the world.
Abnormally low offers - too good to be true? (UK)
According to the press, the existing contract was worth around £34 million a year. When it came up for renewal, the challenger, Morrison Facilities Services Limited (MFS) submitted a bid of around £23 million. However, it was beaten by the £17 million bid of Connaught PLC. The MFS bid and the other bids received were all around 25 per cent to 33 per cent higher than the Connaught bid.
At the hearing, a witness for MFS deconstructed Connaught's prices to show that, in MFS' view, it was simply physically impossible for Connaught to actually deliver the requirement at that low price. There was also evidence that the Council itself had queried Connaught's price and had twice sought confirmation.
Regulation 30(6) of The Public Contracts Regulations 2006 gives contracting authorities a right (not an obligation) to reject an abnormally low bid, provided proper investigation has taken place.
Given the tough economic times, contracting authorities are likely to be receiving a greater number of low-priced bids from bidders desperate to get a foot in the door. This case shows that contracting authorities will do well to be on their guard; if a contracting authority intends to award a contract to a very low bidder, it should make sure that proper investigation does take place and that there are objectively reasonable reasons for the low-price of the bid.
Contractor's Opportunistic Bidding Behavior and Equilibrium Price Level in the Construction Market (Taiwan)
The competitive bidding system has been to blame for abnormally low bids, which are considered as one of the main causes of poor project quality. Previous studies have regarded the pricing of bidders as an optimum decision based on contractor's cost and market competition level. However, the sell to produce characteristic of construction projects may induce contractors to offer a low bid and then make up the amount initially sacrificed from beyond-contractual reward (BCR) gained through cutting corners and claims.
The price level for projects with a strict owner is remarkably higher than for those with relatively less strict owners. Improvement in the construction management system of projects is crucial to lower the possibility that contractors gain BCR and do opportunistic bidding, and to further enhance project quality.
Public Procurement - India (India)
32 What constitutes an 'abnormally low' bid?
'Abnormally low' bids are those that vary from the estimated rates by more than 25 per cent, even after updating the scheduled rates to match the prevailing cost index.
33 What is the required process for dealing with abnormally low tenders?
Abnormally low price may lead to a conclusion of an anti-competition move and this is a ground to order re-tendering. Factors have been prescribed to judge the reasonableness of price (though these are usually resorted to if price is found to be too high (and not abnormally low).
Procurement Procedures Amended to Stop Malicious Low Bids (Taiwan)
The Public Construction Commission (PCC) has revised the “Procedures for Handling Bids With a Total Bid Price Less Than 80% of the Government Estimate in Accordance With Article 58 of the Government Procurement Act” to require agencies handling lowest-tender procurement projects to demand explanations from companies that win bids with abnormally low tenders. The agencies can also refuse to allow such bidders to win bids by providing security. This new provision can stop companies from maliciously using low bids to win contracts, and upgrade the quality of contract performance.
To help agencies evaluate whether an explanation given by a bidder is reasonable or not, another new provision stipulates directions for such explanations—why the bid price is so low, and how the low bid will not impair the quality of execution. If the explanation provided by the bidder is unrelated to completion of the subject of the procurement, it will not be accepted.
Damage to Treasury: Abnormally Low Tenders in Public Construction Works (Turkey)
A detailed analysis of the submitted questionnaires revealed a number of reasons for Abnormally Low Tenders (ALTs) and their adverse effect on the construction industry. Staying in the business, miscalculation of bid price, work experience document, and inaccuracy of the conceptual cost were found to be the main reasons behind ALTs. A better database system for contractors on market unit prices, a better quality control assessment in construction and postconstruction phases, full complete design documents in tender packages, and a better evaluation system on the assessment of ALTs are recommended by the study.
Beware if the contractor bid is too low (California)
Do not automatically accept the lowest bid. In fact, you should beware of any bid that is substantially lower than the others. It probably indicates that the contractor made a mistake or is not including all the work quoted by his or her competitors. You may be headed for a dispute with your contractor if you accept an abnormally low bid. It is also possible that this contractor will cut corners or do substandard work in order to make a profit on the job.
Surete du Quebec dumps security firm contract (Canada)
On Monday, the Surete du Quebec announced it was cancelling its contract with Secur-Action to provide security at its headquarters on Parthenais St.
The same day, Quebec's public security ministry announced on its website that it would not finalize a deal with Secur-Action to provide security at Montreal's courthouse or the courthouse on Gouin Blvd., built to hold trials of organized crime figures and street gang members.
Questions surrounding the company's bids came to light this month when Montreal Mayor Gerald Tremblay asked for an investigation after learning that Secur-Action had submitted an "abnormally low bid" to provide security at Montreal police headquarters on St. Urbain St. The one-year contract was for $874,802, according to La Presse.
The bid was much lower than a similar bid submitted several years ago by the firm Cartier, which had stopped applying for the contract because it was not profitable enough.
Read more: http://www.montrealgazette.com/news/Surete+Quebec+dumps+security+firm+contract/3595011/story.html#ixzz15yRnvtwo
The Procurement Rules and Regulations of the Royal Government of Bhutan:
5.4.5 Abnormally Low Bid
5.4.5.1 Where the prices in a particular bid appear abnormally low or the bid appears seriously unbalanced, the Procuring Agency may reject it only after seeking written explanations from the bidder submitting the low or seriously unbalanced bid. In the case of a bid which appears seriously unbalanced, the procuring agency shall request from the bidder an analysis of rates of the relevant items.
5.4.5.2 The Procuring Agency may take into consideration explanations which are justified on objective grounds including:
a. The economy of the construction method or the method by which the goods or services are to be provided; or
b. The technical solutions chosen; or
c. The exceptionally favourable conditions available to the bidder for the execution of the contract; or
d. The originality of the work, product or service proposed by the bidder.
e. The internal consistency of those prices with the construction methods and schedule proposed.
5.4.5.3 If the Procuring Agency decides to accept the abnormally low bid or the bid with the seriously unbalanced rates after considering the above factors, the bidder shall be required to provide additional differential security equivalent to the difference between the estimated amount and the quoted price in addition to the performance security.
The situation in Sweden:
31 What constitutes an ‘abnormally low’ bid?
There is no general definition of an abnormally low bid in the PPA or UPA. The contracting authority or entity has to determine if a bid is abnormally low based on the circumstances of the procurement. There is no precedent in case law regarding what constitutes an abnormally low bid.
32 What is the required process for dealing with abnormally low tenders?
A contracting authority or entity may refuse tenders that it considers abnormally low. Such refusal must, however, be preceded by a written request for an explanation of the low tender value which has not been satisfactorily answered by the tenderer. A request for an explanation may relate to details such as the economics of the construction method, the manufacturing process or the services provided, technical solutions or any exceptionally favourable conditions available to the tenderer for the execution of the work, supplies or services, the originality of the tenderer’s proposal, compliance with the provisions relating to employment protection and the possibility of the tenderer obtaining state aid. The contracting authority or entity shall verify those constituent elements by consulting the tenderer, taking into account the evidence supplied.
UPDATE JUNE 2, 2016 For a recent (as of the date of this Update) view on this subject from the perspective of the UK, see Abnormally Low Tenders posted on the CMS Law Now website.
The rules around tendering for public contracts have been updated recently and are set out in the Public Contracts Regulations 2015 (“PCR 2015”). Regulation 69(1) of the PCR 2015 directs that a contracting authority shall require a tenderer to explain the price or costs proposed in the tender where a tender appears to be abnormally low. However, while this mandatory requirement on contracting authorities may appear clear, there are surprisingly few examples of this Regulation (or its non-mandatory predecessor - Regulation 30(6) of the Public Contracts Regulations 2006 (“PCR 2006”)) coming under judicial scrutiny in the United Kingdom. Elsewhere in the EU, award decisions are more often challenged on the ground of abnormally low or high prices and can be a fertile ground for court appointed experts.
The main area of confusion arises in relation to what is meant by “abnormally low”. In other words there is no explanation of the “trigger point” included in the PCR 2015 at which the contracting authority should require the tenderer to explain its tender. This gives rise to a slightly odd position that it is required only to ask questions of the tenderer if the tender appears to be abnormally low but unless it asks the questions the authority may not know if the tender is abnormally low in the first place.
Read More at the article's link above.
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