A contractor is obliged to calculate the bid price fairly and factor in everything that follows from the terms of reference, including typical risks associated with contract performance, so that the bid is realistic and allows for proper performance of the contract. If the bid price appears abnormally low or is otherwise questionable, the contractor must explain it in detail.
When must the price be explained?
As follows from Art. 224 of the Polish Public Procurement Law, the contracting authority may, and in certain cases must, demand explanations from the contractor, including submission of evidence regarding price or cost calculations, or significant components of those items. A request for a price clarification is mandatory if the total bid price is at least 30% lower than:
- The contract value determined by the contracting authority prior to commencement of the procedure
- The arithmetic mean of the prices of all submitted bids not subject to rejection pursuant to Art. 226(1)(1) and (10) of the Public Procurement Law.
Additionally, the contracting authority should call for a price explanation if the bid price or cost, or significant components, appear abnormally low in relation to the subject matter of the contract or raise doubts as to the possibility of performing the contract in accordance with the requirements specified in the procurement documents or separate regulations.
Such explanations will not be requested if the discrepancy results from obvious circumstances not requiring an explanation, or if, due to a significant change in market prices after initiation of the proceedings, the contracting authority has updated the contract value, as a result of which the bid deviates by less than 30% from the updated value.
Contracting authority asks for clarification
In the proceedings in case KIO 3750/21 (ruling of 18 January 2022), the contracting authority called for clarification of essential components of the price. It stated that in other public procurement proceedings for the same services, the prices were higher. In the summons, the contracting authority cited Art. 244(3) of the law and indicated that the contractor’s explanations may concern in particular:
- Management of the production process, services provided, or construction method
- Selected technical solutions, or exceptionally favourable conditions for supplies or services or related to performance of construction works
- Originality of supplies, services or construction works offered by the contractor
- Compliance with provisions on labour costs, the value of which adopted for price determination should not be lower than the minimum wages or rates under the Minimum Wage Act of 10 October 2002 or separate provisions applicable to the subject matter of the contract
- Compliance with state aid provisions
- Compliance with applicable labour and social security laws
- Compliance with environmental regulations
- Fulfilment of subcontracting obligations.
The contracting authority required the contractor to provide exhaustive and detailed information, taking into account all elements affecting the listed unit prices, indicating that it aimed to determine whether the contract could be properly performed at the price offered.
Contractor offers no details
Although the summons concerned items bid on a cost basis, in its explanations, the contractor did not provide a calculation of the unit price of the requested items, but only the general price components of each group of services included in the study. The explanations did not provide details that would allow the contracting authority to verify the method of calculating the unit price.
At the same time, the contractor stipulated that if in the contracting authority’s opinion the explanation were too vague, it was prepared to provide additional information upon request, but it was up to the contracting authority to determine if further clarification was required.
Contracting authority rejects the bid
The burden of demonstrating that a bid does not contain an abnormally low price or cost rests with the contractor. If the contracting authority requests an explanation, this creates a presumption of an abnormally low price or cost, which the contractor may rebut by submitting convincing explanations and evidence that it can reliably perform the contract for the price or cost proposed. Therefore, as the contracting authority did not find the explanations satisfactory in this case, it did not ask for additional explanations but rejected the bid, deeming it to contain an abnormally low price.
The contractor challenged this decision on appeal, questioning both the materiality of the prices included in the study and the basis for the study, asserting that they were market-based. Finally, the contractor alleged that its explanations were sufficient, and even if they were not, it had in any event offered to provide the contracting authority with additional data if summoned.
National Appeal Chamber agrees with the contracting authority
In the case of a fee based on a cost estimate, where the final amount depends on the needs of the contracting authority, it was reasonable to examine individual cost estimate items, as they determine the final fee to be paid. Therefore, the chamber found that it was procedurally correct to examine the individual component prices included in the summons.
The chamber also pointed out that evaluation of the explanations must be carried out in the context of the contracting authority’s request, i.e. in terms of the level of detail and specific doubts raised. Since, despite the request, the contractor failed to provide a detailed and exhaustive calculation of the bid prices and assumptions used to calculate them, the explanations did not allow the contracting authority to conclude that the price was calculated fairly and in a way not raising any doubt.
The lesson to be learned
In response to the summons, a contractor must provide explanations in such a way that based on the explanations, the contracting authority can unambiguously determine that the bid price (or cost or significant component) is not abnormally low. The contractor must convince the contracting authority that the suspicion of price unreliability is unfounded.
As provided in Art. 224(6) of the law, not only failure to provide explanations, but also submitting explanations that do not justify the price indicated in the bid, will lead to rejection of the bid. In this context, it would be too late to present detailed calculations of the price components only at the stage of the hearing before the National Appeal Chamber.
The contractor’s expectation that it would be called upon to supplement the explanations was also ill-founded. As the chamber pointed out, only the initial submission of specific, reliable explanations responding to the contracting authority’s request, additionally supported by evidence, allows the contracting authority to ask the contractor to submit additional explanations. If, in some aspect, a fair explanation requires additional information, then the contracting authority may request such clarification. However, when submitting explanations, a contractor cannot assume that it will receive another summons, but should offer a thorough enough explanation that another summons is not necessary.
Anna Prigan, attorney-at-law, Infrastructure, Transport, Public Procurement & PPP Practice, Wardyński & Partners