Strangely Strange but Oddly Normal

Strangely Strange but Oddly Normal

Posted by Ian Burdon in P2P Europe, Procurement Best Practices, Public Sector Procurement 31 Oct 2013

I have been reading the draft of the new Procurement Directive. I had previously dipped into it but have now read all 360-odd pages in sequence.

There is a lot in the draft Directive of value, particularly about sustainability, but I found myself musing on the concept of “Abnormally Low Tenders”. The explanatory notes in the draft are quite clear what the concern is:

(44a) Tenders that appear abnormally low in relation to the works, supplies or services might be based on technically, economically or legally unsound assumptions or practices. 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 or costs proposed results from non-compliance with mandatory Union legislation or national law compatible with it in the fields of social, labour or environmental law or international labour law provisions”.

Purchasing Insight logoThe main provision is to be found at Article 69.

Obviously I don’t have a problem with a sensible purchaser ensuring that a bid is not “abnormally” low because of error or impropriety, although given that other provisions in the draft give purchasers considerable scope to examine social and environmental aspects of “life cycle costing” in a, potentially, global value chain, that may involve extensive analysis.

Also, there is a concern about bidders deliberately low-balling bids and being “anti-competitive”. Larger companies with better financial resources might be able to sustain a bid price below cost in competition with SMEs, and the draft Directive is in terms concerned with SMEs.

Still, it is hardly a novelty for a company to bid low to win if the business is strategically important as a showcase or reference site.

Several interesting scenarios occurred to me.

Firstly, assume there are five bidders for a contract. Four enter bids with nearly identical prices, say around €2.5m but one bids €1.5m and this looks “abnormally low”. But it could be that the high bidders are acting together to maintain an artificial market price, in which case it is these bids that are “abnormal”. There is a risk (I put it no higher) that the low bid is rejected even though it is the “proper” one.

Secondly, what of “abnormally high” bids, say where four bidders put in a price around €1.5m but the fifth bids €2.5m. The high bid in this case is obviously at  risk of rejection but it could be that all four low bids are problematic, for example because the bidders hope to make money on change controls. The “high” bid may well be the better one.

Thirdly, to quote REM “What if We Give It Away”? If there is no financial consideration then the Directive isn’t likely to apply which would be an oddity to crop up in the course of a competition.

Finally, what if the bidder offers to deliver a service in return for a right to exploit the service elsewhere and revenue share with the Authority?

Strangely strange or oddly normal?

Ian Burdon can be found on twitter @IanBurdon

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