A High Court injunction has been granted against Norwich City Council, preventing it from entering into a contract for the maintenance of its public housing. Reports state that Norwich C.C. is now having to find £1 million a month to obtain an interim solution pending the full trial of the issues, expected to be held this summer. This is bad news for Norwich City Council which according to press reports was already having to save £8 million in the budget for this year.

According to the press, the existing contract was worth around £34 million a year. When it came up for renewal, the challenger, Morrison Facilities Services Limited (MFS) submitted a bid of around £23 million. However, it was beaten by the £17 million bid of Connaught PLC. The MFS bid and the other bids received were all around 25 per cent to 33 per cent higher than the Connaught bid.

At the hearing, a witness for MFS deconstructed Connaught's prices to show that, in MFS' view, it was simply physically impossible for Connaught to actually deliver the requirement at that low price. There was also evidence that the Council itself had queried Connaught's price and had twice sought confirmation.

MFS' argument on the abnormally low tender point had two elements to it, as follows:

  1. Obligation to reject an abnormally low bid? Regulation 30(6) of The Public Contracts Regulations 2006 gives contracting authorities a right (not an obligation) to reject an abnormally low bid, provided proper investigation has taken place. The wording of Regulation 30(6) is as follows:

If an offer for a public contract is abnormally low the contracting authority may reject that offer but only if it has:

  • requested in writing an explanation of the offer or of those parts which it considers contribute to the offer being abnormally low;
  • taken account of the evidence provided in response to a request in writing; and
  • subsequently verified the offer or parts of the offer being abnormally low with the economic operator.

However, MFS claimed that the wording of the EU Directive itself, from which the Regulations are derived, actually imposes a requirement on contracting authorities to reject bids that are abnormally low once they have been investigated. The wording of Article 55(1) in the parent Directive is as follows:

If, for a given contract, tenders appear to be abnormally low in relation to the goods, works or services, the contracting authority shall, before it may reject those tenders, request in writing details of the constituent elements of the tender which it considers relevant. MFS argued that the use of the word "shall" was enough to imply that Norwich had a duty to investigate Connaught's bid and a further duty to reject it if it was abnormally low. The judge commented that "at a minimum, it seems to me that it is arguable that the true ambit of the obligation is as stated in the Directive and not as stated in the 2006 Regulations".

  1. Norwich had a duty to investigate. MFS' second argument was based on case law. It argued that case law imposes a duty on a contracting authority to investigate all bids that appear to be low. In the case of Renco SpA v Council of the European Union, the judge said that "although [the procurement Directive] does not require the Council to check each price in each tender, it must examine the reliability and seriousness of the tenders which it considers to be generally suspect, which necessarily means that it must ask, if appropriate, for details of the individual prices which seem suspect to it". Norwich tried to argue that this duty only applies if the Council had suspected that the tender was abnormally low in the first place, which it did not. It further argued that in any case the duty is there for the protection of the low bidder, to ensure that its bid is not rejected summarily without proper investigation. However the judge did not think these arguments sufficiently strong to change his view that MFS had an arguable case that the Council had thought the bid was abnormally low and had failed to investigate it in detail. The judge considered it well arguable in the spirit of the procurement legislation generally that the duty to investigate was one owed to all the competing bidders. He also considered that MFS had an argument that the Council had indeed suspected that the tender was abnormally low, given the evidence of the Council's seeking to confirm prices with Connaught on two occasions.

In addition to the claims about the allegedly abnormally low tender, MFS' claim also had a further element to it, around non-disclosure of evaluation criteria, on which it was also successful in persuading the judge that it at least had an arguable case.

The full trial of the issues is expected to be held in June of this year; the above judgment in no way predicts the likely outcome as this was only an interim application for an injunction to preserve the status quo

pending resolution of the claim. In order to succeed at the interim hearing, MFS only needed to demonstrate that it had a case that was at least arguable, and it did so. But the full evidence and arguments have not yet been presented, and ultimately the case could still go either way at full trial.

Given the tough economic times, contracting authorities are likely to be receiving a greater number of low-priced bids from bidders desperate to get a foot in the door. This case shows that contracting authorities will do well to be on their guard; if a contracting authority intends to award a contract to a very low bidder, it should make sure that proper investigation does take place and that there are objectively reasonable reasons for the low-price of the bid.