Regulation 69 – Abnormally low tenders

Commentary

Regulation 69 PCR 2015 transposes the rules of Article 69 of Directive 2014/24/EU regarding the treatment of abnormally low tenders. The treatment of abnormally low tenders is configured as a mechanism that allows contracting authorities to depart from the automatic or ‘acritical’ application of award criteria in cases where tenders appear to be abnormally low in relation to the goods, works or services concerned (Regulation 69(1) PCR2015).

In those cases, contracting authorities are entitled to reject tenders that, in relation to any of the relevant parameters and award criteria (ie, not only price, at least where the award criterion is that of the most economically advantageous offer; see Case T-495/04 Belfass [2008] ECR II-781 100), appear to be abnormally low. Although the legal command appears to be mandatory (“Contracting authorities shall require tenderers to explain the price or costs proposed …”), there is no indication of the need to establish previously a “trigger point” that would force contracting authorities to act. In consequence, there is only an obligation to investigate if, in a preliminary moment, the contracting authority already thinks that something is not right with the price. This is a circular logic and defies the purpose of the legal command. It would have been preferable to force contracting authorities to define in advance of a contract what will be considered to be an abnormally low tender, even though as with the price such value would not have to be disclosed to tenderers. Sadly, that is not the case.

Before rejecting an apparently abnormally low tender, contracting authorities must request in writing details of the constituent elements of the tender which are considered relevant for the appraisal or verification of its apparent anomaly, such as: the economics of the manufacturing process, of the services provided or of the construction method; technical solutions chosen or exceptionally favourable conditions available to the tenderer for the supply of the products or services or for the execution of the work; originality of the work, supplies or services proposed by the tenderer; compliance with the environmental, labour and social obligations referred to in Regulation 56(2); compliance with the subcontracting obligations established in Regulation 71 (CROSSREF) and the possibility of the tenderer obtaining State aid (Regulation 69(2) PCR2015). For discussion of the issue of abnormally low tenders tainted with State aid, please see A Sanchez-Graells, Enforcement of State Aid Rules for Services of General Economic Interest before Public Procurement Review Bodies and Courts‘ (2014) 10(1) Competition Law Review 3-34.

The list in Regulation 69(2) PCR2015 ‘is not exhaustive, [but] it is also not purely indicative, and therefore does not leave contracting authorities free to determine which are the relevant factors to be taken into consideration before rejecting a tender which appears to be abnormally low’ see Case C-292/07 Commission v Belgium [2009] I-59 159; and Case C-599/10 Slovensko [2011] ECR I-10873 30]. 

In view of the evidence supplied by the tenderer upon consultation, the contracting authority shall verify those constituent elements and reach a final decision on whether to reject the apparently abnormally low tender or not (Regulation 69(3) PCR2015; for a discussion of the standard applicable to the justification of this decision, particularly in the context of a challenge to that decision, see Case T-638/11 European Dynamics Belgium and Others v EMA [2013] pub. electr. EU:T:2013:530.). Even if the contracting authority finds the tender to be abnormally low, there is no obligation to exclude it in most cases. According to paragraph 4 and 6, the contracting authority may exclude the tender if it is abnormally low. It makes no sense to have a mandatory investigation of abnormally low tenders and then discretion to exclude tenders or not if they are so found to be abnormally low. The incentives at this stage are to look aside to those problems, leading and will lead to two conclusions. One, during the abnormally low tender assessment, the contracting authority is nudged to accept the explanations given by the tenderer. Two, even if the tender is indeed abnormally low, as there is no obligation of exclusion, the temptation of saving money at face value is just too high.

In that regard, it is worth stressing that the new rules under Directive 2014/24/EU establish limited discretion for the contracting authority. As a matter of guidance, Recital (103) indicates that ‘[w]here the tenderer cannot provide a sufficient explanation, the contracting authority should be entitled to reject the tender’. Generally, a contracting authority may only reject the tender where the evidence supplied does not satisfactorily account for the low level of price or costs proposed (Regulation 69(4) PCR2015). However, the contracting authority shall reject the tender where it has established that the tender is abnormally low because it does not comply with applicable obligations referred to in Regulation 56(2) (Regulation 69(5) PCR2015), in yet another instance of the use of procurement as a lever to enforce compliance with those rules. In the case of rejection of the abnormally low tender, the contracting authority is under a special duty to provide reasons for that decision as per Article 84(1)(c) of Directive 2014/24/EU. 

It has been stressed by EU case law that this is ‘a fundamental requirement in the field of public procurement, which obliges a contracting authority to verify, after due hearing of the parties and having regard to its constituent elements, every tender appearing to be abnormally low before rejecting it’ – Case T-495/04 Belfass [2008] ECR II-781 98. Similarly, Joined Cases C-285/99 and C-286/99 Lombardini and Mantovani [2001] ECR I-9233 51] imply the same obligation. Indeed, as the CJEU has clearly emphasised, this is a positive and unavoidable requirement, and ‘Article 55 of Directive 2004/18 now Article 69 of Directive 2014/24/EU  does preclude … a contracting authority from claiming … that it is not obliged to request a tenderer to clarify an abnormally low price’ (Case C-599/10 Slovensko [2011] ECR I-10873 34). 

To be sure, and as mentioned above other than in the case of violations of the obligations established in Regulation 56(2) PCR2015, contracting authorities are not expressly obliged to reject abnormally low tenders—their duty is just to identify suspect tenders and scrutinise them following the inter partes procedure established in the directives, whereby ‘the contracting authority must set out clearly the request sent to the tenderers concerned so that they are in a position fully and effectively to show that their tenders are genuine’ (Case C-599/10 Slovensko [2011] ECR I-10873 31). In this regard, the CJEU has been clear in stressing that the contracting authority is:

under a duty, first, to identify suspect tenders, secondly to allow the undertakings concerned to demonstrate their genuineness by asking them to provide the details which it considers appropriate, thirdly to assess the merits of the explanations provided by the persons concerned, and, fourthly, to take a decision as to whether to admit or reject those tenders [Joined Cases C-285/99 and C-286/99 Lombardini and Mantovani [2001] ECR I-9233 55]. 

Hence, the rules of the Directive exclusively impose procedural guarantees to be complied with by contracting authorities prior to rejecting apparently abnormally low tenders, and, consequently, seem to be mainly oriented towards providing affected tenderers with the opportunity to demonstrate that their tenders are genuine—ie, are primarily a mechanism to prevent discretionary (or arbitrary) decisions by contracting authorities. In this regard, contracting authorities are obliged to take into account the explanations and proof provided by the affected tenderers and, consequently, cannot apply automatic or simple mathematic rules to reject apparently abnormal tenders—although the use of such rules to identify suspicious tenders should not be ruled out. 

As stressed by the case law, the directives do not provide a definition of ‘abnormally low tenders’, or a method to calculate an ‘anomaly threshold’—which are issues consequently left to Member States’ domestic regulation, and should be determined for each contract according to the specific purpose it is intended to fulfill (ie, it must be tender-specific). Therefore, the rules of the directives seem to be adequately conceived as a check or balance to the general power of contracting authorities to reject abnormally low tenders—which is an instance of exercise of their broad discretion with regard to the factors to be taken into account for the purpose of deciding to award a contract, or not to award it to a given tenderer. 

The justification for this empowerment of contracting authorities to reject abnormally low tenders seems to be that they should not be forced to award the contract under circumstances where there is a reasonable risk of non-performance of the contract or of financial instability or disequilibrium, or a risk of breach of applicable legislation by the contractor during the execution of the contract under the tendered conditions (particularly as regards labour and risk prevention legislation, which have now been transformed into mandatory rejection grounds for abnormally low tenders); since such an award would hardly satisfy the needs of the contracting authorities and/or would force them to assume certain risks that they might not be willing to accept. The appraisal of such risks must be undertaken by contracting authorities from a neutral or objective perspective and be sufficiently motivated by analogy with Regulation 69(4) PCR2015). 

To be sure, contracting authorities cannot exercise unlimited discretion in the assessment and eventual rejection of abnormally low tenders and their decisions should be guided by and be compliant with the general principles of the procurement directives and the TFEU—notably, non-discrimination and competition. In this regard, it should be remembered that the treatment of abnormally low tenders by contracting authorities might generate competition distortions and/or have a negative impact on innovation and, consequently, its analysis also merits further consideration.

Last modified: December 5, 2016 by Pedro Telles

69.—(1) Contracting authorities shall require tenderers to explain the price or costs proposed in the tender where tenders appear to be abnormally low in relation to the works, supplies or services.

(2) The explanations given in accordance with paragraph (1) may in particular relate to—

(a)the economics of the manufacturing process, of the services provided or of the construction method;

(b)the technical solutions chosen or any exceptionally favourable conditions available to the tenderer for the supply of the products or services or for the execution of the work;

(c)the originality of the work, supplies or services proposed by the tenderer;

(d)compliance with applicable obligations referred to in regulation 56(2);

(e)compliance with obligations referred to in regulation 71;

(f)the possibility of the tenderer obtaining State aid.

(3) The contracting authority shall assess the information provided by consulting the tenderer.

(4) The contracting authority may only reject the tender where the evidence supplied does not satisfactorily account for the low level of price or costs proposed, taking into account the elements referred to in paragraph (2).

(5) The contracting authority shall reject the tender where it has established that the tender is abnormally low because it does not comply with applicable obligations referred to in regulation 56(2).

(6) 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—

(a)after consultation with the tenderer, and

(b)where the tenderer is unable to prove, within a sufficient time limit fixed by the contracting authority, that the aid in question was compatible with the internal market within the meaning of Article 107 of TFEU.

(7) Where the contracting authority rejects a tender in the circumstances referred to in paragraph (6), it shall inform the Commission.