Abnormally low tenders in public procurement
The Administrative Court of Appeal in Gothenburg determined that the supplier's explanation of the bid price was satisfactory in that the supplier demonstrated that the bid was serious and that the supplier has the capacity to deliver according to the framework agreement being procured.
According to the Public Procurement Act (2016:1145), a contracting authority must request an explanation from a supplier if a bid appears to be abnormally low. If the supplier cannot provide a satisfactory explanation, the bid must be rejected. The purpose of this provision is to ensure that procurements are conducted efficiently and that delivery can occur in accordance with the contract.
The Administrative Court of Appeal in Gothenburg, in case no. 4637-24, examined whether a supplier's explanation of the low bid price was satisfactory or if it was correct to reject the bid.
Background of the Case
A contracting authority announced in the award decision that a supplier's bid was rejected on the grounds that the bid price appeared abnormally low. The contracting authority referred to the supplier submitting a bid with a contractor's fee of 0.9 percent, whereas a contractor's fee normally ranges from 7-9 percent. The explanation provided by the supplier was deemed insufficient.
The supplier applied for a review in the administrative court. The administrative court, and subsequently the administrative court of appeal, had to determine whether the supplier's bid appeared abnormally low and whether the supplier's explanation of the bid price was sufficient.
The administrative court rejected the application for review and concluded that the bid price appeared to be abnormally low and that the supplier, through its explanation, did not demonstrate that the bid was serious, as the explanation was considered too general. The supplier appealed the administrative court's decision to the administrative court of appeal.
The Administrative Court of Appeal's Decision
Regarding whether there were grounds for the contracting authority to request an explanation of the bid price, the administrative court of appeal noted that there is no exact definition of what constitutes an abnormally low bid in the procurement legislation. The court emphasized in its reasoning that it is up to the contracting authority to decide the matter based on the circumstances of the individual case. In summary, in this part, the court considered that, given the size of the contractor's fee, the contracting authority had grounds to request an explanation.
However, the administrative court of appeal found, contrary to the administrative court, that the supplier had provided a detailed explanation for its bid and that there were no grounds to question the company's capacity and willingness to deliver according to the framework agreement. It was particularly noted that the supplier had previously been a supplier to the contracting authority and that the supplier presented a calculation in its explanation. Although the court indeed highlights that there are certain ambiguities in the calculation, it is the court's overall assessment that the calculation shows that the supplier made a serious estimate containing both estimated costs and revenues.
In summary, the Administrative Court of Appeal considered that the company's explanation was satisfactory and that the contracting authority did not have grounds to reject the supplier's bid on the basis that it would be abnormally low.
Summary Conclusions from the Decision
The decision of the Administrative Court of Appeal highlights the importance of contracting authorities carefully considering and justifying their decisions when assessing bids as abnormally low. It is not sufficient to merely refer to market prices; the authority must also consider the bidder's specific explanation. In the current decision, the supplier demonstrated through its explanation that the company had both the capacity and willingness to fulfill the contract.
The decision also underscores the importance of a clear and complete explanation. If a supplier receives a request for an explanation of the bid price from the contracting authority, the supplier must provide a clear explanation to demonstrate that there is both the capacity and willingness to comply with the contract. The explanation should preferably include a calculation showing that the supplier submitted the bid price after careful consideration.
