Court of Appeal Guidance on Abnormally Low Tenders

What should a contracting authority do when a bid looks too good to be true? Our Public Procurement team unpacks a significant Court of Appeal decision that clarifies the steps authorities must take when faced with an abnormally low tender. The judgment provides clear guidance on how tenders should be assessed, the explanation required from bidders and the implications of procedural mistakes. This article is essential reading for anyone involved in public procurement decision-making or bidding for public contracts.

The Court of Appeal has largely upheld a decision of the High Court in a public procurement dispute between Killaree Lighting Services Limited and Mayo County Council. As discussed in our previous article, the High Court held that a contracting authority must investigate any tender it suspects of being abnormally low, regardless of whether it wishes to reject that tender.

The Court of Appeal further clarified that, in deciding whether a tender appears abnormally low, contracting authorities are permitted to examine constituent cost elements of a tender as well as the overall price. The Court of Appeal also made some interesting findings on remedies.

Obligation to investigate abnormally low tenders

In its appeal, Killaree argued that the Council had confused pricing concepts. Additionally, Killaree contended that the Council failed to accept its explanation for the low prices, citing satisfactory performance of other contracts based on a similar pricing approach. They also stated that the Council had wrongly looked beyond the tender total and failed to compare its tender with others. The Court of Appeal agreed with the High Court judge’s findings on all of these points. The key findings of the Court of Appeal were:

• Correct assessment: In determining whether a contract is abnormally low, a contracting authority must assess whether a tender is genuine, reliable and will not impair proper performance of the contract.
• Reference to other contracts: The onus is on tenderers to identify any material that they wish to rely on. Killaree failed to explain how the contract could be performed at the low rates. Reference to other contracts was not an adequate explanation for the low level of costs for this contract.
• Price or cost: When determining whether a contract is abnormally low, contracting authorities are permitted to look at the overall price, i.e. the tender total; and/or the costs, i.e. constituent parts of the tender.
• Comparison with other tenders: The Council was not obliged to compare Killaree’s tender with other tenders or to wait until all tenders have been submitted before excluding the tender on the grounds that it is abnormally low. Any clarifications by a contracting authority must be read in light of the Request for Tender (RFT), which is the primary document, and must be interpreted in line with EU case law.
• Reasons: The Council had given Killaree a summary of its reasons, which was considered acceptable in this case. This is because the reasons could be understood from various documents, such as the RFT and earlier correspondence, or from the context of the decision itself. In this case, the RFT had clearly stated that each item had to be priced both individually and on a fully inclusive basis. Killaree should therefore have realised that saying some costs were already included in other items, or that certain items weren’t needed, was not a valid justification.

Failure to send a standstill letter

The High Court had determined that the Council had breached the Remedies Regulations by failing to send a standstill letter to Killaree. The Court of Appeal concluded that the failure to unequivocally inform Killaree that the award process was being finalised deprived Killaree of the chance to effectively challenge the decision before the contract was signed with the winning tenderer.

Declaration of ineffectiveness

The Court of Appeal upheld the High Court’s decision not to declare the contract ineffective. It noted that, for a mandatory declaration of ineffectiveness under Regulation 11(2) of the Remedies Regulations, all conditions must be met. This includes a serious breach of procurement rules that harmed the tenderer’s chances of winning the contract. This was not established in Killaree’s case.

The Court of Appeal also upheld the refusal to grant a discretionary declaration of ineffectiveness under Regulation 11(7). In doing so, it considered factors like:

• The significance of the public contract both regionally and nationally
• Public safety
• Potential impact on other contracts with different local authorities, and
• The desirability of legal certainty.

The High Court had previously refused to grant an alternative penalty due to a procedural error when the pleadings were drafted. The Court of Appeal overturned this finding and clarified that, where a court declines to declare a contract ineffective, it has a mandatory obligation to impose an alternative penalty. This penalty can be a civil financial penalty, or the termination or shortening of a contract. The Court of Appeal stated that the penalty should be paid into the Central Fund and not to Killaree.

Comment

The case reaffirms established principles on abnormally low tenders, confirming that contracting authorities have a duty to investigate any bid that appears suspiciously low. Importantly, it clarifies that this assessment isn’t limited to the overall tender price — authorities are entitled to examine individual cost components to determine whether a bid is abnormally low. The case also provides important clarifications on the declaration of ineffectiveness and alternative penalties. However, it fails to declare the contract ineffective, a remedy which has not to date been imposed by an Irish court.

For more information and expert advice, please get in touch with a member of our Public Procurement team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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