The danger of accepting 'too good to be true' bids...

Norwich City Council has been in the news lately; reports are that a High Court injunction has been granted against it preventing it from entering into a contract for the maintenance of its public housing. Reports state that Norwich C.C. is now having to find £1 million a month to obtain an interim solution pending the full trial of the issues expected to be held this summer. This is bad news for Norwich C.C. which was already having to save £8 million in the budget for this year.

According to the press the existing contract was worth around £34 million a year. When it came up for renewal the challenger Morrison Facilities Services Limited (MFS) submitted a bid of around £23 million. However it was pipped to the post by the £17 million bid of Connaught PLC. The MFS bid and the other bids received were all around 25% to 33% higher than the Connaught bid.

There is no formal definition of an abnormally low bid; contracting authorities will have to assess each bid on a case by case basis. Further there is no express duty to reject an abnormally low bid although Regulation 30(6) gives contracting authorities a right to do so following proper investigation. Although no transcript of the interim hearing is available it seems that MFS' case was based on the argument that the failure to properly investigate a suspiciously low bid amounted to a breach of the fundamental EC Treaty provisions around equality of treatment transparency and non-discrimination also enshrined in Regulation 4.

Given the tough economic times contracting authorities are likely to be receiving a greater number of low bids from bidders desperate to get a foot in the door. This case shows that contracting authorities will do well to be on their guard; if a contracting authority intends to award a contract to a very low bidder it should make sure that proper investigation does take place and that there are objectively reasonable reasons for the low value of the bid.