For tenderers, it may sometimes be worth proposing a rate of "EUR 0.00" in a bid in order to gain a foothold in a new market, to gain new experience or to obtain references (which would be useful in bidding for future work).  At the same time, contracting authorities are likely to immediately regard such tenders as "abnormally low" (by any reasonable definition of that term). 

Public bodies often ask, how are they supposed to react in such situations?  Must the tender automatically be rejected?  A recent decision of the European Court of Justice ("ECJ") has somewhat clarified the position.[1]

The Legislative Position

Firstly, it is important to remember that public procurement law applies to "public contracts", defined in Article 2(1)(5) of Directive 2014/24/EU on public procurement (the "2014 Directive") as "contracts for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities…" (emphasis added).  In Ireland, an identical definition is contained in Regulation 2(1) of the European Union (Award of Public Authority Contracts) Regulations 2016 (the "2016 Regulations") (save that the Irish definition uses the singular "a contract" rather than the plural "contracts"). Article 69(1) of the 2014 Directive obliges a contracting authority to "require economic operators to explain the price or costs proposed in the tender where tenders appear to be abnormally low in relation to the works, supplies or services".  Such explanations may relate to the matters set out in Article 69(2), which includes economic and technical considerations; the originality of the works, supplies or services; and the possibility of the tenderer obtaining State aid.  In Ireland, this obligation is mirrored in Regulation 69(1) and (2) of the 2016 Regulations.  Under Article 69(3) of the 2014 Directive (or, in Ireland, Regulation 69(4) of the 2016 Regulations), an abnormally low tender may only be rejected where the explanations do not satisfactorily account for the low level of price or costs proposed.

Tax-Fin-Lex Case

By way of background, the Slovenian Ministry of the Interior had conducted a public procurement procedure for access to a legal information system.  One tenderer, Tax-Fin-Lex d.o.o., proposed a price of EUR 0.00.  This tender was rejected, after which Tax-Fin-Lex issued proceedings in the Slovenian courts challenging the decision.  The Slovenian court then requested a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union as to whether:

  1. there can be a "contract for pecuniary interest" if, in essence, the economic operator does not receive consideration but nonetheless obtains access to a new market and references; and

  2. it is possible or necessary to reject a tender with a price of EUR 0.00 based on the definition of a public contract in Article 2(1)(5) of the 2014 Directive.

The ECJ's preliminary ruling

Firstly, the ECJ ruled that a contract where the tenderer would be paid EUR 0.00 was not a "contract for pecuniary interest".  Interestingly, the ECJ agreed that consideration need not be a monetary amount – all that is required is that the contract be "synallagmatic", i.e., each party must undertake to provide one form of consideration in exchange for another.  Citing the 2018 decision in IBA Molecular Italy,[2] the court noted that a contract for pecuniary interest can cover, for example, a contract where the parties agree to exchange services (even where remuneration is limited to the partial reimbursement of costs incurred in order to supply the services).   However, the ECJ ruled that in this case the contracting authority would not be obliged to give anything of value, so the contract would not be for pecuniary interest.  Furthermore, any "benefit" the economic operator obtains by access to new markets and getting references was too uncertain and therefore insufficient for the contract to qualify as being for pecuniary interest. Having said that, the ECJ still ruled that Article 2(1)(5) of the 2014 Directive could not be relied upon to reject a tender proposing a price of EUR 0.00.  In the court's view, a tender priced at EUR 0.00 "could be classified as an abnormally low tender within the meaning of Article 69 of the [2014 Directive]".  Therefore, the tenderer must be asked to explain the reasons for price or costs, including by reference to the matters set out in Article 69(2).  Following Article 69(3), only where the response does not satisfactorily account for the low price may the contracting authority reject the tender.  Any argument that the contract would provide the tenderer with access to new markets and/or references must therefore be assessed in the context of Article 69.  Such assessment must be in compliance with the principles of equal treatment and non-discrimination between tenderers, and the principles of transparency and proportionality.

Comment

This judgment is important to note for contracting authorities.  It clarifies that authorities may not automatically reject zero-priced tenderers but must instead conduct an analysis of the matters specified in Article 69/Regulation 69.  In the coming years, it will be interesting to see whether disputes arise over whether explanations given by economic operators "satisfactorily account" for their zero-priced tenders.