Posted on 18-10-2011 at 01:00
The Pitfalls of Pitching too Low – Transparency in Tender Pricing
There are mixed messages galore in public procurement at the moment. Extreme economic difficulties and public sector budget cuts are putting significant pressure on public purchasers to achieve that balance between reduced cost and maintaining quality and standards.
It’s not surprising then that suppliers are pitching their tenders at a lower level than ever before under the misapprehension that low price = better chance of winning. This is leading to a stream of suppliers submitting tenders with what are considered as ‘abnormally low’ prices – a trend which is leaving an increasing number of them frustrated when they are rejected on the basis of price. Surprisingly perhaps, this situation is covered in the Public Contracts Regulations 2006 and allows the contracting authority to reject a bid that is abnormally low under certain conditions – all of which are very easily met, although they must submit justification to Office of Government Commerce.
Unfortunately, the regulations do not state what can be considered as ‘abnormally low’ nor does it give any guidelines as how to measure or compare. This ultimately means that the decision is arbitrary and may vary from purchaser to purchaser. This puts suppliers in the difficult position – under these conditions a tender which they consider to be adequate may be considered too low. Thankfully, the EU later released a report to clarify the matter and stated two main criteria for establishing an abnormally low bid:
1. That the bid does not provide for the normal expected level of profit margin or worse, allows for no profit margin at all.
2. That the immense savings leading to a lower tender than others cannot be explained by normal factors such as economies of scale, economies of technology or techniques etc.
In essence, tenders will be considered as abnormally low where prices are well below the norm and there appears to be no rational or calculable justification for this. In other words, something shady is going on to win the contract.
So an abnormally low tender in its own right will not be rejected. If you can offer a product or service at a very low price due to innovative delivery methods or other impressive and justifiable means, your tender will still be hugely attractive to your purchaser. What’s more, by managing to submit a tender price that gains attention as potentially ‘abnormally low’ and being able to demonstrate viability, you gain further opportunity to ‘sell’ your product or service and increase your chances of winning.
