Protection of the Contracting Authority

What is an abnormally low tender price?

The main purpose of this instrument is to protect contracting authorities from tenders with an unrealistic tender price, for which the contractor would not be able to properly execute the contract, which could lead to non-completion of the contract, a reduction in quality, or subsequent price increases.

In which types of procurement procedures can the instrument of an abnormally low tender price be applied?

The instrument of an abnormally low tender price is primarily regulated in Section 113 of the Public Procurement Act (PPA), and it is mainly applied in the above-threshold public procurement regime. However, the Act does not preclude its application in other types of procurement procedures. For example, in a simplified below-threshold procedure, the provisions of Section 113 of the PPA are not typically applied, but the contracting authority may reserve their application in the tender conditions.

Furthermore, under Section 48(4) of the PPA, the contracting authority retains the option to assess a tender price as abnormally low and, if the price is not justified by the participant, the contracting authority may exclude the participant from the procurement procedure. The legal regulation in Section 113 of the PPA, which is located in the part of the Act governing the award of public contracts in the above-threshold regime, is a special provision and, by its nature, contains stricter rules than the general legal regulation in Section 48(4) of the PPA.

Thus, we have a general legal regulation for abnormally low tender prices set out in Section 48(4) of the PPA and a special legal regulation for public contracts awarded in the above-threshold regime, as well as for cases where the contracting authority reserves the application of this special legal regulation, pursuant to Section 113 of the PPA.

When and how the contracting authority assesses an abnormally low tender price under Section 113 of the PPA

As mentioned, an abnormally low tender price relates to the subject matter of the public contract. The tender prices of other bidders may suggest to the contracting authority that a price is abnormally low, but they cannot be taken as an infallible indicator, as they may be overestimated, whether intentionally or unintentionally, and the evaluated price may thus correspond to the real value, even if it does not match the contracting authority's expectations.

When assessing the tender price, the contracting authority is obliged to also assess the individual costs, or rather the essential items that make up the tender price.

However, a mere comparison of the pricing of certain budget items with the pricing of other bidders or a comparison of tender prices with the prices of other participants, instead of a comprehensive assessment of the tender price in relation to the subject matter of the public contract, cannot be considered an assessment of an abnormally low tender price.

The Act clearly states that the contracting authority must assess tender prices for an abnormally low tender price before sending the notice of contractor selection. The decision as to whether the price submitted by one of the participants in the procurement procedure falls into the category of abnormally low tender prices and thus presents the real risks described lies fully within the competence of the contracting authority, or the relevant evaluation committee.

The contracting authority may, in the tender documentation or the call for tenders, specify a price or costs that it will consider to be an abnormally low tender price, or it may specify the method by which the abnormally low tender price will be determined. However, the contracting authority should only use this right if it has concluded, based on objective data, that contractors will not be able to properly execute the public contract if the given price or specific costs do not reach the specified level. This option does not relieve the contracting authority of its obligation to request an explanation from the procurement participant for prices or costs that are lower than those specified in the tender documentation.

However, the contracting authority may assess the tender price or costs as an abnormally low tender price even if it does not specify such an abnormally low tender price or at least the method of its determination in the tender documentation or the call for tenders.

Therefore, if the contracting authority finds that the tender price or costs constitute an abnormally low tender price, it must request a written justification from the procurement participant regarding the method of determining such an abnormally low tender price. This request must then clearly state what information from the submitted tender price the contracting authority perceives as an abnormally low tender price and (if possible) the contracting authority must also state what documents the bidder should use to substantiate the amount of the tender price or costs.

Furthermore, the contracting authority must require the procurement participant to confirm, pursuant to Section 113(4) of the PPA, that:

• during the performance of the public contract, they will ensure compliance with obligations arising from legal regulations relating to the subject matter of the public contract, as well as labour law regulations and collective agreements applicable to the employees who will participate in the performance of the public contract, and

• that they have not received unlawful public aid.

If the procurement participant does not confirm these facts in their justification of the abnormally low tender price, this is grounds for their exclusion from the procurement procedure.

Justification of the abnormally low tender price by the participant

The procurement participant may justify the abnormally low tender price mainly using these arguments listed in Section 113(5) of the PPA:

• the economic aspects of the manufacturing process, services provided, or construction methods,

• the technical solutions used or the exceptionally favourable conditions available to the procurement participant for the performance of the public contract, or

• the originality of the works, supplies, or services.

However, this is not a complete and exhaustive list, and nothing prevents the procurement participant from using other arguments to justify the abnormally low tender price. At the same time, as mentioned above, the procurement participant must also include in their justification the confirmation of the obligations set out in Section 113(4) of the PPA.

Review of the justification by the contracting authority

The Act does not set any deadlines by which the procurement participant must submit the justification to the contracting authority, but the contracting authority is obliged to set a deadline, as this is a clarification of information under Section 46 of the PPA, in accordance with the principle of proportionality under Section 6 of the PPA.

If the justification is not complete according to the contracting authority, or the committee, they may ask the procurement participant about the abnormally low tender price more than once. After receiving the justification, it is up to the contracting authority, or the committee, to assess whether it is sufficient and credible. They must consider whether the participant can realistically complete the contract for the offered price and at the required quality. The Act provides several examples of legitimate reasons that the participant may use to justify the abnormally low tender price, which are set out in Section 113(5) of the PPA and have already been discussed above.

However, it is necessary to remember that merely stating these general phrases is not enough, and the bidder must also support their claims with specific data. The contracting authority, or the committee, will then either accept the justification received from the procurement participant or the contracting authority will exclude the participant. In both cases, however, the contracting authority must duly justify such a decision!

When must the contracting authority exclude a participant?

The Act establishes in Section 113(6) of the PPA an obligation to exclude a participant in the following cases:

• if their justification shows that the abnormally low tender price is a result of a breach of legal regulations relating to the subject matter of the public contract, labour law regulations, or collective agreements;

• if the price is abnormally low due to unlawful public aid and the contractor cannot prove that it was granted in accordance with EU regulations – in such a case, the contracting authority is also obliged to inform the European Commission of this fact;

• if the justification does not contain the mandatory confirmation of compliance with laws and the absence of prohibited aid under Section 113(4) of the PPA.

Apart from these reasons where the contracting authority must exclude the participant from the procurement procedure, the contracting authority may optionally exclude the participant based on Section 48(4) of the PPA, which will be discussed in more detail below.

Exclusion of a procurement participant due to an abnormally low tender price under Section 48(4) of the PPA

A procurement participant may be excluded under Section 48(4) of the PPA when the special legal regulation in Section 113 of the PPA does not apply. Thus, if we have, for example, a simplified below-threshold procedure and the contracting authority has not reserved the application of the special provision (Section 113 of the PPA) in the tender documentation, it proceeds in relation to the abnormally low tender price according to Section 48(4) of the PPA.

This provision, unlike Section 113 of the PPA, does not impose an obligation on the contracting authority to investigate the abnormally low tender price. However, if the contracting authority suspects that it is an abnormally low tender price, it may request in writing that the procurement participant justify this abnormally low tender price, even repeatedly. Here too, the contracting authority must specify in the request what exactly it considers to be an abnormally low tender price and how it requires its clarification, i.e., with the help of which documents.

The contracting authority, similarly to the case of the legal regulation of abnormally low tender prices under Section 113 of the PPA for above-threshold public contracts, then either accepts such a justification or not. The subsequent exclusion of the participant under Section 48(4) of the PPA, in the event that the contracting authority does not accept their justification, is an option for the contracting authority, not an obligation, unlike the reasons listed in Section 113(6) of the PPA. Here too, however, if the contracting authority proceeds to exclude the participant, it is necessary to duly justify this exclusion.

Conclusion

An abnormally low tender price may seem advantageous at first glance, but it often carries significant risks. The contracting authority not only has the right, but in some cases also the obligation, to assess such tenders to prevent problems with contract performance, non-compliance with quality, or price increases. A correctly set-up procedure and consistent evaluation of tenders are key to a transparent and secure procurement procedure.

If you are unsure how to evaluate an abnormally low price, contact us. Our Prague-based legal team will help you set clear rules, prepare the necessary documentation, and support you in communicating with procurement participants. You will gain the certainty that your decision will stand up both legally and practically. Contact us and protect your public contract from the very first step.