A recent case before the High Court of England and Wales shows the importance of a contracting authority carefully considering a suspect tender that appears abnormally low. The case of Morrison Facilities Services Limited v Norwich City Council, [2010 EWHC 487 (Ch)], in which judgment was given on 22 February 2010, involved an injunction by the claimant "Morrison" pending trial of Morrison's complaints regarding a tender process. Morrison was the unsuccessful tenderer in a procurement for contracts for the maintenance and repair of social housing owned and managed by the defendant, "the Council".

Morrison's case for an injunction was based on two complaints:

  1. that the successful tenderer had submitted an abnormally low tender and that the Council should have rejected the tender under Regulation 30(6) of the UK procurement regulations, the Public Contracts Regulations 2006; and
  2. that the Council had applied undisclosed additional criteria when assessing the quality element of the tenders.

On the facts, the prices submitted by the various tenderers lay mainly within a range of £23 to £26 million-odd. There were two higher tenders, one of around £31 million and one of around £47 million. The successful tenderer's price was £17.5 million, which was around £5.5 million lower than the lowest of the principal group of tenderers. That was a difference that is over 30% of the successful tenderer's bid price.

Morrison argued that £17.5 million was an unsustainable price for the contract in question and provided evidence in support of this, including a financial analysis of the contract and each work element.

The question arose as to how, as a matter of law, Regulation 30(6) of the Public Contracts Regulations 2006 (which is the analogous provision of Regulation 69(1) of the European Communities (Award of Public Authorities' Contracts) Regulations 2006) was to be applied, whether it imposed a duty upon the Council as a contracting authority to investigate abnormally low tenders, and if so to whom the duty was owed.

Morrison submitted that it was seriously arguable that the preferred tender was an abnormally low tender and, that being so, the Council had come under a duty to investigate it to see whether it was a properly sustainable bid but that it had failed to carry out the requisite investigations. Morrison relied upon the decision of the Court of First Instance (as it then was) in Case T-4/01 Renco SpA v Council of the European Union ([2003] ECR II – 171) which found that:

"It is apparent from the wording of Article 30(4) of Directive 93/37 [which is the predecessor to Directive 2007/18/EC] that the Council [in that case] 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 parties concerned, and fourthly, to take a decision as to whether to admit or reject those tenders..."

The Council argued that the duty under Article 55(1) of Directive 2004/18/EC (which is implemented in Ireland by Regulation 69(1)) only arose at all in circumstances where it appeared to the contracting authority that the tender was abnormally low. Furthermore, the Council argued that the duty in those circumstances was a duty not to reject the low tender without making appropriate enquiries. In other words, it was a duty owed in essence to the low bidder, not a duty owed to the competitive tenderers. On the facts it argued that it had never considered the preferred tender to be abnormally low and that, in any event, it had carried out some due diligence on the prices. (The Council had during the tender process raised queries with the preferred tenderer with regard to its price and asked for confirmation.)

The High Court found, in light of the judgment in Renco, that it was seriously arguable that:

  1. a contracting authority does come under a duty, when it suspects that there has been an abnormally low tender, to investigate that tender; and
  2. this was a duty owed not merely to the low tenderer but to competing tenderers having regard to the general objectives of the Directive and the implementing regulations.

The High Court referred to the "sheer disparity" in the bid prices and the objective evidence put forward by Morrison as to the costing of the contract in coming to this decision. It also observed that the Council must have had some suspicions as to the preferred tenderer's price otherwise the "due diligence" process it carried out would not have been necessary.

Having satisfied the other tests for injunction under American Cyanamid Co. v Ethicon Ltd [1975] AC 397. which the High Court held applied to an application for interim relief under regulation 47(8)(a) of the Public Contracts Regulations 2006, the High Court granted the injunction in favour of Morrison preventing the Council from proceeding to award the contract.

At the time of writing the full hearing of these proceedings has not yet come to trial. The outcome of this case will be of interest to both contracting authorities and service providers.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.