Tales from the National Appeal Chamber: The contracting authority must not abuse a summons seeking clarification of an abnormally low price | In Principle

Can a summons for clarification of an abnormally low price be used with the aim of obtaining information from the contractor to verify whether the tender complies with the terms of reference for the procurement? What duties must the contracting authority observe, and when can it summon a contractor to provide an explanation? These issues were addressed in a ruling by Poland’s National Appeal Chamber of 16 June 2020 (case nos. KIO 709/20 and 715/20). The chamber considered the specific purpose of the summons for clarification.

State of facts

During the course of a contract award procedure, the contracting authority summoned a contractor to provide clarification of the apparently abnormally low price it offered, by filling in a detailed Excel spreadsheet. Completion of the spreadsheet required the value of the tender to be broken down into factors contributing to the price for specific elements of the procurement.

The contractor appealed to the National Appeal Chamber (KIO), alleging that the contracting authority could not demand that the contractor submit a clarification in this form, as the terms of reference for the procurement did not require any specific method for calculating the price. The contractor relied on its own methods for calculating the value of the offer, which was also tied to its valuation of performance by subcontractors. The contractor also argued that this method of providing information to the contracting authority did not constitute clarification of an abnormally low price, and the contracting authority did not adequately justify its demand.

Summons to explain an abnormally low price

One of the most important institutions in the procedure for awarding public contracts, enabling verification of the accurate and reliable valuation of contractors’ bids, is the possibility for the contracting authority to summon a contractor to provide an explanation of an abnormally low price. Under Art. 90(1) of the Polish Public Procurement Law, the contracting authority shall request clarification, including evidence concerning the calculation of price or costs, if the offered price or cost, or significant components of the price or cost, appear abnormally low compared to the subject matter of the contract and raise doubts on the part of the contracting authority as to the ability to execute the procurement according to the requirements set forth by the contracting authority or arising under other regulations.

Additionally, under Art. 90(1a) of the law, if the total bid is at least 30% lower than the value of the contract (plus VAT), the contracting authority shall request an explanation.

When summoning a contractor to provide an explanation of an abnormally low price, the contracting authority must duly justify its doubts and indicate precisely in what respect the bid appears to contain an abnormally low price. If the contractor fails to provide an explanation, or an analysis of the explanation and the evidence submitted confirms that the offer contains a price or cost that is abnormally low compared to the subject matter of the contract, the contracting authority shall reject the contractor’s bid. This consequence is further confirmed in Art. 89(1)(4), which provides that the contracting authority shall reject an offer if it contains a price or cost that is abnormally low in relation to the subject matter of the contract. Thus the contractor must clarify the value of its bid or forfeit the possibility of winning the contract.

The bounds of explanation of an abnormally low price

Failure to demonstrate that the price is not abnormally low carries the harsh sanction of rejection of the contractor’s bid. For this reason, the contracting authority cannot arbitrarily brandish this instrument. A summons to provide an explanation must be duly justified, and the contracting authority must adequately indicate its doubts as to the value of the offer.

In the case that was the subject of this ruling, the National Appeal Chamber found that in summoning the contractor to explain its abnormally low price, the contracting authority’s aim was not to clarify the value of the offer, or in any event it failed to demonstrate this adequately. As the chamber found, “The contracting authority’s action leads to a situation in which the contractor, even if it appropriately calculated specific elements in its price, but in a manner different from that indicated by the contracting authority, is forced when providing a clarification to perform the calculations once again, this time using the methodology imposed by the contracting authority.” By summoning the contractor to complete a detailed Excel spreadsheet instead of relying on the substance of its own offer, the contracting authority does not facilitate the contractor’s presentation of an explanation reflecting the true calculation of the price offered, but indeed hinders or even partially prevents the contractor from presenting a true explanation.

In the spreadsheet sent to the contractor, the contracting authority required completion of numerous items that were not required by the terms of reference for the procurement. In the chamber’s view, at the stage of awarding the public contract, the contracting authority can evaluate offers solely with respect to materials and the scope of work demanded in the terms of reference. The contracting authority cannot examine an abnormally low price in terms beyond the scope of the procurement documentation. In this case, when submitting such clarification, the contractor was not adequately prepared to complete all of the items required in the spreadsheet because it did not possess certain information required for the Excel file but not provided for in the terms of reference for the procurement.

The chamber found that in the guise of seeking clarification of an abnormally low price, the contracting authority was in reality trying to supplement its requirements and the scope of information provided by bidders. In the chamber’s view, “The aim of a summons for clarification of an abnormally low price cannot be to obtain information from the contractor serving to verify the compliance of the contractor’s bid with the terms of reference. To this end, in the terms of reference the contracting authority may require contractors to submit certain relevant documents, even including samples, but if it failed to set such requirements it cannot ‘supplement’ its requirements at the stage of evaluation of offers under the guise of a summons to clarify the price in a tender.”

Contracting authority must properly justify the basis for summoning contractors to provide an explanation

The key element ensuring the propriety of the summons to provide a clarification of an abnormally low price is the justification provided for the contracting authority’s doubts about the value of the bid. It follows from Art. 90(1) of the Public Procurement Law that the price offered must seem abnormally low to the contracting authority and raise doubts on the part of the contracting authority as to the contractor’s ability to perform the contract in compliance with the terms of reference and regulations of law at that price. In KIO’s opinion, the mere statement that the contracting authority has doubts about the value of the offer does not adequately justify the contracting authority’s demand for clarification. As KIO explained: “For these doubts to arise, certain circumstances must exist to evoke such doubts. This does not mean a situation in which the contracting authority, within its own discretion, claims that it ‘has doubts,’ but rather a situation in which the contracting authority bases its doubts on objective circumstances.”

The lack of an adequate justification for the summons to clarify the bid and the failure to specify the aspect of the bid as to which the contracting authority has doubts constitutes a material infringement of the contractor’s interests. Examination of the existence of an abnormally low price has particularly dire consequences for the contractor and should therefore be duly justified. In this case the National Appeal Chamber found that there was no specific showing of what raised the contracting authority’s doubts, and this at the very least made it difficult for the contractor to provide a relevant and thorough clarification. Moreover, the lack of a specific indication of the contracting authority’s doubts, in a situation not meeting the conditions set forth in Art. 90(1a)(1) of the Public Procurement Law, also threw into question where there was any rationale for the summons at all.

Summary

The particularly harsh consequences of a finding that an offer includes an abnormally low price requires the contracting authority to properly exercise the ability to summon a contractor to provide a clarification. This possibility must not be abused or treated instrumentally, as that would give the contractor an undue impression that it had improperly determined the value of its bid. Any summons to clarify an abnormally low price must be duly justified and indicate exactly in what respect and for what reason the contracting authority has doubts about the bid.

Cyprian Herl, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners