Rejection of Abnormally Low Tenders
The habit of submitting Abnormally Low Tender (ALT) prices under works contracts and the associated issues surrounding this problem has prompted the Multilateral Development Banks to identify a mechanism to curtail such practices.
Whereas an ALT may at first sight appear to represent good value, it can result in greater overall costs, contract delays or even the collapse of a contract. In other terms, accepting ALTs has the potential to put the contract in jeopardy.
EIC Position as response to an MDB consultation
Against this background, EIC supported the MDBs’ approach to introduce new procurement regulations allowing its borrowers to investigate abnormally low bids. With reference to Article 20 of the UNCITRAL Model Law on Procurement, EIC suggested that contracting entities should be required to initiate a thorough investigation if and when an abnormally low bid raised concerns as to the ability of the supplier or contractor that presented that submission to perform the procurement contract for the tender price offered.
Abnormally Low Tenders under World Bank rules
The World Bank followed this advice and its new Procurement Regulation provides that where the borrower identifies a potentially abnormally low bid, it shall seek written clarifications from the bidder, including detailed price analyses of its bid price in relation to the subject matter of the contract, scope, proposed methodology, schedule, allocation of risks and responsibilities, and any other requirements of the request for bids document. If, after evaluating the price analyses, the Borrower determines that the Bidder has failed to demonstrate its capability to deliver the contract for the offered price, the Borrower shall reject the bid.
In addition, the World Bank has published a guidance document titled “Abnormally Low Bids and Proposals - Guide to the identification and treatment of Abnormally Low Bids and Proposals, July 2016” in which five stages to treatment of an ALB are described:
Identify: the Borrower identifies a potential ALB based on comparison with available prices from the market, or with the cost estimate;
Clarify: the Borrower seeks clarification from the Bidder;
Justify: the Bidder prepares a justification of their price based on the request from the Borrower;
Verify: the Borrower fully analyses the Bidder’s justification to verify if it is an ALB; and
Decide: the Borrower fully documents the decision to accept or reject the Bid with the Bank’s no-objection.