ICEL PROCUREMENT CONFERENCE

Kevin Kelly McCann FitzGerald

Blackhall Place, Dublin 7 7 February 2013

Introduction

•Recurring issue in current climate

•Bidders may tender a lower than expected price to win the contract

•Risk of non-performance

•Prospect of claims being made to make up the difference

Procurement Regulations

•Regulation 69 of SI 329 /2006

•If a tender appears abnormally low, Contracting Authority shall, by notice in writing and before rejecting the tender, request the Tenderer to provide written details of the constituent elements of the tender which it considers relevant

Procurement Regulations

•Details of constituent elements of tender may relate to (but are not limited to) any of the following:-

- economics of the construction method, manufacturing process or means to be used in supplying the service

- technical solutions chosen or any exceptionally favourable conditions available to the bidder

- the originality of the work to be carried out, product or service to be supplied

- are provisions for employment protection and working conditions being complied with?

- is there a possibility that the Tenderer may receive State aid?

Procurement Regulations•Contracting Authority shall as far as practicable

verify the constituent elements

- by consulting the Tenderer;

- by taking account of the evidence that the Tenderer provides about those elements

•Regulation 69(3): a Contracting Authority can reject a tender on being satisfied that the only reason for the tender being abnormally low is that the Tenderer has received State aid but only after

- the Contracting Authority has consulted the Tenderer about the matter and

- the Tenderer has failed by a specified deadline to satisfy it that the aid was granted lawfully

Procurement Regulations

• Where the Contracting Authority rejects the tender where it is satisfied that the only reason for the tender being abnormally low is State aid, then it must inform the European Commission in writing of the rejection and the reason for it

What is an Abnormally Low Tender?•Not defined in the Directive, Regulations or cases

•Some member states prescribe mathematical formulae for determining whether a bid is abnormally low e.g a percentage deviation from the average price tendered

Are automatic formulae permissible?•Impresa Lombardini Spa, T – 285/99

•National legislation prescribing a mathematical formula for identifying an abnormally low tender was permissible

•But legislation could not provide for automatic exclusion without first allowing the bidder to justify its price

Are automatic formulae permissible?•Secap Spa, T – 147/06

•If a contract has cross border interest, national legislation can only allow for automatic exclusion on the basis of mathematical formulae provided the bidder is allowed to justify its price.

• Automatic exclusion could be permissible if “justified by the unduly large number of tenders, a fact which might oblige the contracting authority concerned to examine on an inter partes basis such a high number of bids that it would exceed the administrative capacity of those authorities or might, due to the delay which such an examination would entail, jeopardise the implementation of the project”

What is an Abnormally Low Tender?•Proposal for a Directive of the European

Parliament and Council on Public Procurement (20 December 2011)

Recital 42

Tenders that appear abnormally low … might be based on technically, economically or legally unsound assumptions or practices.

In order to prevent possible disadvantages during contract performance, Contracting Authorities should be obliged to ask for an explanation of the price charged where a tender significantly undercuts the prices demanded by other tenderers

What is an Abnormally Low Tender?Recital 42 (cont’d)

Where the tenderer cannot provide a sufficient explanation, the Contracting Authority should be entitled to reject the tender

Rejection should be mandatory in cases where the Contracting Authority has established that the abnormally low price charged results from non-compliance with mandatory Union legislation in the fields of social, labour or environmental law or international labour law provisions

What is an Abnormally Low Tender?•Proposal for a New Directive Article 69 (cont’d)

•Contracting Authorities must reject the tender where the reason the bid is abnormally low is because of non compliance with EU legislation in the areas of social, labour, environmental law.

•Where the Contracting Authority establishes that a tender is abnormally low because the tenderer has obtained State aid, the tender may be rejected on that ground alone, only after consultation with the bidders

Duty of Contracting Authorities?

•Renco SpA v Council Case T-4/01

•Article 30(4) of Directive 93/37 required the Council

• to identify suspect tenders

• to allow the undertakings concerned to demonstrate their genuineness by asking them to provide the details which it considers appropriate

• to assess the merits of the explanations provided

• to make a decision as to whether to admit or reject those tenders

UK cases – Duty to investigate?

•Morrison Facilities Services v Norwich City Council (2010)

•Injunction granted

•“[I]t does seem to me to be seriously arguable that a contracting authority does come under a duty, when it suspects that there has been an abnormally low tender, to investigate that tender. Moreover, it seems to me to be well arguable that that is the duty that is owed not merely to the low tenderer but to the competing tenderers having regard to the general objectives of the Directive….”

•Only an interlocutory application and not a definitive decision (case settled out of Court)

UK cases – Duty to investigate?

Varney –v- Hertfordshire County Council (2010)

•“[T]he Council was not under a duty generally to investigate so-called “suspect” tenders in circumstances where the Council had no intention of rejecting those tenders”

•Facts did not support the proposition that the Contracting Authority had made a manifest error in

• not deciding that the tender was abnormally low;

• and not investigating

Recent EU decision – duty to investigate?

•SAG ELV Slovensko 29 March 2012 Case C – 599/10

•Article 55 of Directive 2004/18 must be interpretated as requiring the inclusion in national legislation of a provision that if a Tenderer offers an abnormally low price, the Contracting Authority must ask it in writing to clarify its price proposal

•Article 55 of Directive 2004 /18 precludes a contracting authority from taking the view that it is not required to ask a Tenderer to clarify an abnormally low price

GCCC Capital Works Management Framework

Section 8.3

“If, in the Employers opinion, the tendered Contract Sum is abnormally low… the Employer may require the Candidate to provide details of the constituent elements of the tendered Contract Sum or the tendered amounts … if, having considered the information provided, the Employer is of the view that either the Contract Sum is abnormally low or any tendered amounts are abnormally low … the Employer may reject the Tender (emphasis added)”

“Note – Employers should exercise with caution the rights reserved by this Section 8. In most cases, it is expected that Candidates will be best judge of their own costs. (Delete this note before issue of these Instructions)”

Conclusion

•No legal certainty about what is an abnormally low tender

•If it does not strike the Contracting Authority as abnormally low and the contract is awarded, is the decision that it is not abnormally low open to challenge (manifest error)?

•Trend of case law is that there is an obligation to investigate even if not going to reject (contrast Varney and SAG Slovensko)

•No certainty about whether there is an obligation to reject

•There will be an obligation to reject in certain cases if new legislation passed as currently drafted

ICEL PROCUREMENT CONFERENCE

Kevin Kelly McCann FitzGerald

Blackhall Place, Dublin 7 7 February 2013