This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its May 2002 decision in SIAC Construction Ltd. v. Mayo County Council, the Supreme Court of Ireland dismissed a legal challenge after finding no manifest error in the County Council’s decision to reject an abnormally low bid. The case dealt with a major sewerage works at Ballinrobe, Ireland. The Court ruled that it was within the authority of the County Council to reject the low bid due to concerns that the pricing was unbalanced. The Court also held that it would have been improper to seek a clarification in the situation since that would have amounted to unfairly allowing the complainant to rebid in contravention of applicable Irish and European procurement rules.
The Court summarized the long procedural history of the dispute, which involved lower court decisions within Ireland, as well as a European Court ruling:
The price submitted by SIAC was the lowest after mathematical adjustment. However, the consulting engineer engaged by the County Council reported that the competing tender of Pat Mulcair might prove “at the end of the day to be the lowest.” SIAC claimed in its High Court proceedings that the County Council, by relying on this conclusion, breached the EU public procurement rules. In particular, it submitted that it was not permissible to take into account the likely ultimate out-turn of the cost of the contract: SIAC’s tender, being the mathematically adjusted lowest, had to be accepted. This argument failed in the High Court. On appeal to this Court, the question whether the ultimate cost to the County Council was an admissible criterion for awarding the contract was referred to the European Court, which ruled in substance that, provided it formed part of the tender criteria, it was.
As the Court summarized, the European Court ruled that it was acceptable to take ultimate final costs into account in evaluating price providing that this criterion was disclosed as part of the tender call criteria. The European Court then redirected the case back to the Irish courts:
In these circumstances, the European Court has left it to this Court to assess, in accordance with national law, the scope of the award criteria, specifically whether they should be interpreted as notifying tenderers that the County Council would decide on the basis of the ultimate out-turn cost. In doing so, I will consider in detail those parts of those documents which bear on that issue. The objection taken by the County Council requires also consideration of the nature of the case made in the pleadings, heretofore, by SIAC.
In defence of its decision to reject the bid over concerns that it was “unbalanced”, the County asserted that the contractor’s bid contained artificially low costs for certain portions of the work but inflated costs for other parts of the work, which could allow the contractor to secure higher performance payments in post-award scope changes involving the higher-priced categories:
The County Council included in their written submissions the following helpful explanation by a well-known writer (Max Abrahamson, Engineering Law and the I.C.E. Contracts, p 14):
Unbalanced bids: the comparison by the engineer of the detailed pricing of tenders is a safeguard against unbalanced bids where the contractor prices some items high and other work low in the belief that the variations or increases in quantities will mean more of the high priced quantities and less of the low-priced work which has been estimated in the bill. Obviously such a bid should not be accepted…..Under the I.C.E. (London) 5th Edition this comparison is the only way of evaluating tenders since there is no initial Contract Price and it is quite misleading to an Employer to compare tenders under a remeasurement contract by reference (only) to the tender total.
The Court addressed the standard of review for determining legal challenges against government evaluation decisions. As the Court noted, the “main purpose of regulating the award of public contracts in general is to ensure that public funds are spent honestly and efficiently, on the basis of a serious assessment and without any kind of favouritism or quid pro quo whether financial or political.” While the Court confirmed that government evaluations should be afforded a wide margin of discretion and should be overturned only if they are based on a “manifest error” by government decision-makers, the Court cautioned that this deferential review standard did not give government evaluators an unlimited and unfettered discretion:
There are obvious common threads which run through any system of review of administrative decisions, where especially the primary decision-making function is administrative or governmental. The function of the courts is to guarantee legality, though that notion itself has a number of elements, some procedural and some substantive. The passages which I have cited speak of “manifest” error as the test for judicial review adopted by the Community courts. This is the standard which applies to the appreciation of facts by the decision-maker. They do not say that this test must be adopted by the national courts. I would observe, however, that the word, manifest, should not be equated with any exaggerated description of obviousness. A study of the case-law will show that the Community Courts are prepared to annul decisions, at least in certain contexts, when they think an error has clearly been made.
The decisive additional consideration in the area of the public procurement is the explicit concession of a wide margin of discretion to awarding authorities.
I do not think, however, that the test of manifest error is to be equated with the test adopted by the learned trial judge, namely that, in order to qualify for quashing, a decision must “plainly and unambiguously fly in the face of fundamental reason and common sense.” It cannot be ignored that the Advocate General thought the test should be “rather less extreme.” Such a formulation of the test would run the risk of not offering what the Remedies Directive clearly mandates, namely a judicial remedy which will be effective in the protection of the interests of disappointed tenderers. It is significant, I think, that Member States are required to make available, where appropriate and necessary, measures of interim relief ( i.e., potentially halting the public procurement procedure) and damages.
The courts must be ready, in general, to render effective the general principles of the public procurement, already discussed. Where a failure to respect the principles of equality, transparency or objectivity is clearly made out, there is, of course, no question of permitting a margin of discretion. Equally, where the tender is on the basis of the lowest price (first indent of Article 29(1)), the courts must be ready to restrain any breach. Even in cases of the most economically advantageous contract, it is clear that unlimited discretion can not be permitted. The margin of discretion enjoyed by the awarding authority does not absolve it from explaining a choice, such as was made in the present case, of a tender other than the lowest. Indeed, Laffoy J did not hesitate to express her view that the County Council had been incorrect in its treatment of the 100% reduction applied by SIAC to the £90,000 provisional sum for dayworks materials.
Therefore, I am satisfied that the courts, while recognising that awarding authorities have a wide margin of discretion, must recognise that this cannot be unlimited. The courts must exercise their function of judicial review so as to make the principles of the public procurement directives effective. In the case of clearly established error, they must exercise their powers. The application of these principles may not, in practice, lead to any real difference in result between the judicial review of purely national decisions and of those which require the application of Community law principles.
Turning to the specific issues in the case, the Court concluded that the County had acted within its margin of discretion when it decided to reject the low bid, finding that the decision to reject was not made in an unfettered manner, but was based on a proper consideration of transparent and objective criteria:
It is now necessary to return to the instant case. The essential judgment to be made is whether the County Council has adequately explained its decision to award the contract to Pat Mulcair, when the corrected SIAC tender was lower by the sum of approximately £131,000, or of the order of two to three per cent of the value of the contract. The determining elements are that the County Council will ultimately have to bear the cost, that this can not be predicted with accuracy at the time of the award, that the expert independent advice of the consulting Engineer was to the effect that the SIAC approach to pricing would render management and control of the contract and particularly its price significantly more difficult. In these circumstances, it was not necessary that the County Council or its engineer produce calculations or estimates of the manner in which the out-turn of quantities would impact on cost. It is the fact that the out-turn is uncertain that is decisive. I think that the County Council acted within its margin of discretion. I do not think it exercised that discretion in an unfettered way. It followed objective and objectively verified criteria.
The Court also rejected the complainant’s argument that the County should have provided an opportunity to clarify its pricing before rejecting the bid, ruling that such a clarification would have amounted to giving the complainant an opportunity to rebid in contravention of applicable procurement rules:
I would reject, in particular, the contention that the County Council should have used the pre-adjudication phase to seek clarification from the tenderers, particularly SIAC, of the pricing method used and the quantities upon which they had based their prices. The Engineer was correctly cautious about this approach. The pre-adjudication discussions and clarifications must not offer the opportunity to one tenderer to adopt a method of pricing which has not been available to competitors. The case of Walloon Buses shows that this procedure cannot be used to permit one tenderer to propose a method of performing the contract which was not among the award criteria. I also reject the criticism that the County Council rejected other tenderers on the basis of price alone and did not act consistently. SIAC cannot complain that other tenderers were eliminated on a basis different from itself. Its complaint must be restricted to the comparison with the treatment of Pat Mulcair.
For all these reasons, I would dismiss the appeal and affirm the order of the High Court.
As this case illustrates, low bid bypass decisions tend to be controversial and subject to potentially complex legal challenges. Purchasing institutions should therefore ensure that their rejection of a low bid is based on transparent criteria and procedures and supported by sound and well-documented evaluation and award decisions.
